UAE for Middle East Investment

In recent years, the UAE has made great progress in foreign investment and has become a popular destination in the eyes of global investors.

The United Arab Emirates (hereinafter referred to as "the United Arab Emirates") is a federal country composed of seven emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Qaiwan, Ras al-Khaimah and Fujairah. Abu Dhabi is the capital of the United Arab Emirates. Since the UAE is a loose federal country, in addition to the relative unity of defense and diplomacy, the emirates are self-contained in economy, trade, investment and other aspects. The laws and regulations of different special economic zones are different, which can easily cause confusion for foreign investors and increase foreign investment. Difficulty.

Advantages of investing in the UAE

FromThe basic situation of foreign investment in the UAE in recent yearsIn 2022, the scale of foreign direct investment (FDI) in the UAE will reach US $22.737 billion billion, an increase of 10% compared to 2021, and it will account for 47% of total FDI inflows in Western Asia. The main foreign investment in the UAE comes from Switzerland, the United Kingdom, India, the United States, France, Austria, Japan, Saudi Arabia, Kuwait and the Netherlands. In recent years, more and more Chinese investors have begun to invest in the UAE. The UAE's stable political environment, superior geographical location, and foreign-friendly policy documents have attracted many Chinese investors to invest in the UAE.

From the perspective of UAE's domestic policyThe UAE Federal Government is focused on attracting foreign investment. Since the end of the 20th century, the UAE has been inSpecial Free Trade Zones (FZ) and Special Economic Zones (SEZs) have been set upTo implement policies such as foreign shareholding ratio, capital repatriation and preferential tax rate, which are different from those in other parts of the UAE, to attract foreign investors to invest. In 2021, the UAE formally implemented the revised "Commercial Company Law" (Federal Decree-Law No. (32) of 2021 on Commercial Companies), which greatly relaxed the restrictions on the shareholding ratio of foreign investors in locally registered companies. For enterprises that are wholly owned by foreign investors, UAE citizens or local companies are no longer required to act as registered agents or provide guarantees. This historical reform broke through the original limit of 49% of foreign ownership, greatly improved the friendliness and freedom of foreign investment, and was one of the major measures to attract foreign investment.

From the perspective of UAE's foreign cooperationThe UAE has signed numerous trade, tax and investment-related cooperation agreements with other countries and regions. The UAE has signed free trade agreements with Singapore and the European Free Trade Association (EFTA, including Switzerland, Norway, Iceland, and Liechtenstein), India, Indonesia, and Israel. As of June 2022, the UAE has signed 138 double taxation agreements with 110 countries and regions, and 112 bilateral investment agreements with other countries and regions. The economic and trade ties between China and the UAE are also very close. The two sides have established a strategic partnership since 2012 and a comprehensive strategic partnership in 2018. The UAE responded positively to China's "One Belt One Road" initiative and formally applied to become a founding member of the Asian Infrastructure Investment Bank in March 2015. In 2019, the governments of China and the UAE jointly issued a statement to further strengthen the comprehensive strategic partnership and signed a number of cooperation documents covering security, energy, trade, investment and other fields to further deepen bilateral cooperation.

In addition, the UAE government has led a series of reform measures to improve the business environment, aiming to facilitate the registration, licensing and operation of foreign-invested enterprises.

Investment Forms for Non-Free Zone Investments in the UAE

The main investment paths for investing in the UAE include the choice of commercial agents, new entities, equity acquisitions and asset acquisitions.

1. commercial agent

According to the provisions of the New Business Agency Law, the following steps are usually required to conduct business in the UAE through business agency:

(1) Choosing the Right Agent. The agent is usually a resident of the UAE or an entity wholly or in a controlling interest. However, the New Business Agency Law further expands the scope of "business agent" to allow any international company (even if the company is not owned by a UAE resident) to become a UAE business agent for the purpose of selling its own products, with the approval of the Cabinet, as long as ① the international company does not already have a UAE business agent; ② the international company is not previously registered in the UAE.

(2)Determine the form of commercial agency. According to Article 7 of the New Business Agents Act, the principal may select a business agent in the UAE or a business agent in each of the different Emirates. However, such commercial dealership shall be exclusive.

(3) Agreement on the settlement of disputes and termination of commercial agency contracts and other important contents.. The New Commercial Agency Law gives both parties to the contract greater autonomy, including for the first time allowing both parties to agree to use arbitration as a dispute resolution method for commercial agency contracts, and makes it clear that either party can propose a termination agreement in accordance with the agreement of the commercial agency contract, which gives the principal more flexible choice.

(4) Complete the registration of commercial agency contracts with the Ministry of Economic Affairs (Ministry of Economy). According to the provisions of article 3 of the New Commercial Agency Act, only commercial agency contracts that have been registered in the Commercial Agency Registry (Commercial Agencies Register) are formally valid. Therefore, after signing the commercial agency contract, both parties should complete the registration of the commercial agency contract with the Ministry of Economic Affairs as soon as possible.

2.New entity in UAE non-free zone

The establishment of a business in the UAE can be handled offline or submitted online. For residents in the UAE, applications for business registration can be filed through the unified digital platform BASHER; for non-UAE residents, applications for business registration must be submitted online through the respective dedicated websites of the emirates.

According to the instructions of the UAE Ministry of Economy, investors who plan to establish entities outside the UAE Free Zone should comply with the respective requirements of each Emirate and should complete the business registration with the business authorities (Chamber of Commerce and Industry) of each Emirate after obtaining a business license issued by the economic department of each Emirate. In general, the establishment of a new entity in a non-free zone area within the UAE requires the following steps:

(1) Determining the nature of the business of the new entity. The UAE lists more than 2,000 economic activities and classifies them into six categories, each with a corresponding economic license (economic licenses). The six types of economic licenses are vocational and technical (occupational), professional (professional), tourism (tourism), industry (industrial), commerce (commercial) and agriculture (agricultural).

(2)Determining the legal form of the new entity. The UAE provides various forms of legal entities, such as limited liability companies, public limited companies, private limited companies, etc., and the organizational form is mainly based on the business needs of the new entity.

(3)Determine the name of the new entity. The name of the enterprise shall be unique, shall not be similar to any registered enterprise name, and shall not contain inappropriate words or offend the public. The UAE requires companies to indicate the form of organization (e. g. limited liability company) in their registered name.

(4) Application for Preliminary Approval (Initial approval). In the event that an investor proposes to set up a business in a particular Emirate, the UAE competent authority will issue a preliminary approval stating that there is no objection (no objection) to the investor setting up a business entity in a particular Emirate, if there is no objection after the preliminary examination. However, these preliminary approvals do not mean that the investor is granted actual permission to engage in any business and only represent other next steps required to allow the investor to proceed with the establishment of the business.

(5) Determine the office address of the new entity. All businesses established in the UAE must have a physical operating address and should comply with the specific requirements of the emirate in which they are located, as well as the zoning policies and regulations of the local municipal government or other competent authority.

(6) Request for additional approval. As mentioned earlier, foreign investors need to obtain prior approval from the competent authorities when investing in industries with strategic impact. In addition, for some specific industries, the approval of the corresponding government authorities is also required before the new entity is established. For example, if the new entity plans to engage in construction and engineering business, it needs to obtain the prior approval of the local municipal department (Local Municipal department); if the new entity plans to engage in tourism business, it should obtain the approval of the Executive Council (Executive Council).

(7) Submit the documents required for registration to the Ministry of Economy of the emirate where you are located, and the business license will be issued after the Ministry of Economy has approved it.. These documents include: (1) copies of preliminary approvals and other documents submitted to the relevant authorities of the UAE government; (2) copies of lease contracts for the premises used by the new entity; (3) other additional approvals obtained in accordance with the scope of business of the new entity; (4) Articles of association of the new company (if in the form of a company) and other materials.

3.Acquisition of rights in non-free zones of the UAE

The acquisition of shares of enterprises in the non-free zones of the UAE by foreign investors shall comply with the general provisions of UAE law for foreign investors to invest in the non-free zones of the UAE, including the requirements for access to industries and the proportion of foreign ownership, and the acquisition of shares shall not take effect until it is registered by the Ministry of Economy of each Emirate.

Specifically: in the case of equity transfer, the equity transfer agreement and the amended articles of association must be written in Arabic and signed in front of a notary public; after the agreement has been signed in front of the notary public and the relevant documents have been submitted, the Ministry of Economy of the Emirate to which the existing entity belongs will issue a new business license for the existing entity and confirm the new owner's interest. The transfer of shares is usually considered complete only after a new business license has been renewed by the Emirate's Ministry of Economy. It is important to note that the Emirate's Ministry of Economy, before issuing a new business license, will verify that the acquisition has obtained other required approvals from government authorities, such as competition authorities (if involved) or other government agencies that regulate the business of existing entities in accordance with the laws of the UAE.

In the case of equity acquisitions, participation in competitive bidding to complete equity acquisitions is one of the more common ways for Chinese investors to acquire existing entities in the UAE. The seller may invite multiple potential buyers to bid on the subject matter, and the bidding process usually includes the following four stages:

4.Acquisition of assets of existing entities in the UAE in the UAE non-free zone

Compared to the acquisition of equity in UAE companies, the acquisition of assets in the UAE by foreign investors is less common and may face different regulatory requirements due to different types of assets. For non-free zone asset acquisitions, buyers and sellers usually complete the asset acquisition by signing an asset purchase agreement (APA), which is not mandatory to be submitted to the UAE government. However, if it involves assets that need to be registered, such as real estate, motor vehicles, etc., the change filing should be properly completed with the relevant registration authority.

In short, in this era full of opportunities and vitality, we believe that every entrepreneur who has the courage to start a business and is eager to develop and expand his business territory to the global market will be deeply attracted by the endless attractive light emitted by the UAE!