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  • The wider view of 100% Foreign Ownership in the United Arab Emirates

The wider view of 100% Foreign Ownership in the United Arab Emirates

01 September 2021

Abdulla bin Touq Al Marri, the Minister of Economy, said: "The amended Commercial Companies Law aims at boosting the country's competitive edge and is a part of UAE government's efforts to facilitate doing business”. One of the highlights introduced in the amended law is full ownership for foreign investors in commercial companies from 1 June 2021. The UAE leads the World Bank ranking for ease of doing business in the Middle East region, and these latest changes easing foreign ownership can only make the UAE more competitive. We take a wider view of what this could mean for businesses by looking at these changes with other factors that impact the Middle East region.

100% foreign ownership and the new global minimum tax rate for companies

In June 2021 in London, finance ministers of the G7 announced their support for a new global minimum tax rate of at least 15% for companies. The Venice G20 meeting of finance ministers in July supported this agreement, and the OECD reported that 130 countries back this proposal.  This agreement could reshape commerce and solidify public finances across the world. This may well have implications for the Gulf economies in the medium term. Saudi Arabia has a Corporate Income Tax rate of 20%, for Kuwait and Oman, it is 15%, and for Qatar, it is 10%. Broadly speaking, these tax rates are for foreign-owned businesses in these jurisdictions. Within Bahrain and the UAE, the Corporate Tax rate is zero, however, both countries have now introduced VAT, and the direction of this new global minimum corporate tax could signal Corporate Taxes within Bahrain and the UAE in the not-too-distant future. It may also lead to new Corporate Tax rates in Qatar to bring it in line with the proposed minimum global corporation tax rate.

Considering the positioning of the Gulf economies in attracting foreign investment, it is likely that taxes on companies will remain relatively low. It is also likely that Bahrain and the UAE will introduce a tax on companies sharing some of the key attributes of tax already applied in the rest of the Gulf countries, namely a straightforward approach and one that is focussed on foreign-owned companies. Over time this will undoubtedly evolve as more mature tax jurisdictions have.

100% foreign ownership and Free-Trade Zones

Within the context of full foreign ownership being introduced in the UAE mainland, the value of Free-Trade Zones in the UAE remains clear, when we consider a new global minimum tax rate for companies. Free-Trade Zones carry a few exemptions, one of which is an exemption from Corporate Taxes for up to 50 years. Free-Trade Zones, which offered full foreign ownership for many years, was one of the options for investors as, prior to the Commercial Companies Law amendment, companies in the UAE mainland were required to have at least 51% ownership by UAE Nationals. Free-Trade Zones remain an important option for businesses maximising the logistical advantage of using the UAE as a trading hub for the wider region of the Middle East as well as Africa, Asia, and Europe.  

100% foreign ownership and In-Country Value

For countries rich in natural resources to remain economically sustainable long term, it is key that they engage with local stakeholders to hire, buy, and invest locally. To achieve this, countries have either approached this by specific contractual terms or by an In-Country Value (ICV) program. In the Middle East, an ICV program has been introduced within Oman, Qatar, Saudi Arabia, and the United Arab Emirates. In an ICV program, a criterion is set to calculate an ICV score for a supplier, and that score is used in making procurement decisions.

As the Gulf region diversifies and develops long-term sustainable market economies, investors and entrepreneurs will be more competitive by aligning their long-term strategies to ensure genuine value remains in these Gulf countries. The structure of a group that has the Gulf as its key market may indeed benefit from the 100% foreign ownership rules in the UAE mainland recently introduced. In developing a group structure or revising a group structure as part of a wider strategy, it may be critical to consider how to remain competitive in a region looking to align both its long-term interests by creating value in country and the interests of investors. 

100% foreign ownership and the Positive List

Abdulla bin Touq Al Marri said that the new Commercial Companies Law amendments further strengthen the country’s position as an international economic centre and encourage the flow of investments to the country’s vital economic sectors. This is achieved through the Positive List of business activities which can have 100% foreign ownership. These business activities are geared towards enhancing key sectors of the UAE economy.

At BDO, we can help with structuring advice with our regional and international reach. For more information, please follow the link here for our Doing Business Guide in the UAE.

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