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Key developments affecting Onshore Companies in the UAE

02 September 2021

There have been a number of legislative changes in the UAE which affect how onshore companies operate. The landscape for investing and operating in the UAE has changed dramatically as a result.  Read our overview of the key changes.

There have been a number of legislative changes in the United Arab Emirates (the "UAE"), which affect how onshore companies (i.e., companies not incorporated in the free zone) operate.  The landscape for investing and operating in the UAE has changed dramatically as a result of the following legislative changes:

(i) Economic Substance Regulations in April 2019 ("ESR"); 

(ii) amendments to the UAE Commercial Companies Law of 2015 ("CCL");

(iii) mandatory disclosure of the ultimate beneficial owner of all UAE entities (except companies established in the Dubai International Financial Center ("DIFC") and Abu Dhabi Global Market ("ADGM"), which operate their own regimes in relation to the beneficial owner disclosure); and

(iv) Article (76) of the Chairman of SCA Board Decision No. (03 R.M.) of 2020 where joint stock companies listed on the Abu Dhabi Securities Exchange ("ADX") or the Dubai Financial Market ("DFM"), must publish a sustainability report. 

Foreign Ownership

Several significant developments have taken place recently in relation to foreign direct investment as a result of the amendments introduced last year to the CCL (for details on other CCL amendments please see our previous alert). One of the key amendments is to Article 10 of the CCL pursuant to which there is no longer a requirement to have minimum 51% local ownership interests in most onshore companies.  However, companies conducting activities, which are deemed to be of strategic importance, would still require some local ownership. The relevant licensing authorities of each Emirate would determine the specific percentage of share capital that a foreign investor will be able to hold in the companies deemed to be of strategic importance.

With the removal of the requirement for minimum 51% local ownership interest in onshore companies having come into effect on 1 June 2021, the Abu Dhabi Department of Economic Development ("AD DED") and the Dubai Department of Economic Development ("DDED") have recently published lists of activities that may be conducted by the companies with 100% foreign shareholding. The AD DED list sets out over 1,100 commercial and industrial activities including, amongst other activities, retail and wholesale trading and manufacturing (across certain industries). 

The DDED list also includes a broad selection of activities such as metal and construction, jewellery and building materials that no longer require any local ownership interests. Moreover, both the AD DED and the DDED have stated that no additional fees, guarantees or capital is required for full foreign ownership. In order to benefit from the amendment of article 10 of the CCL, if a foreign owner wishes to amend its shareholding in an onshore company it must simply apply to either the AD DED or the DDED.

(Please refer to our client alert which sets out further details on the lists published by the emirate of Dubai and Abu Dhabi setting out business activities where 100% foreign ownership has been permitted). 

A number of foreign shareholders in existing onshore companies have already started negotiating with their local partners in order to restructure their ownership interests in their companies.  However, we are aware that both the AD DED and the DDED are currently only permitting local partners to transfer all their shares in onshore companies to the foreign shareholder if all of a company's licensed activities are listed on the relevant lists that have been published. 

Listed Companies – Corporate Governance

It is now mandatory for UAE Public Joint Stock Companies ("PJSC") listed either on the ADX or the DFM are required to have at least one female board member. The UAE Securities and Commodities Authority, it promoting diversity has stipulated that a minimum of 20% female representation on the board of directors of a PJSC. The PJSC is also required to disclose the percentage of female board representation in its annual governance report, together with a requirement for the PJSC’s board to establish policies concerning gender diversity.

Moreover, as per the amended CCL, a PJSC's board of directors does not need to be made up of a majority of UAE nationals of be chaired by an Emirati.

Ultimate Beneficial Ownership

Under the Cabinet Resolution of August 2020, it is now mandatory in the UAE for all companies (except those established in the DIFC and ADGM) to create and maintain a register of their shareholders and their ultimate beneficial owners ("UBO").  Moreover, each company must provide this information to its relevant licensing authority.

We have seen that companies who have not registered their UBOs with the relevant licensing authorities are facing a few operational difficulties. For example, the DDED has refused to renew trade licenses of companies unless the UBO registers have been filed and accepted by the DDED.  For companies who have not yet filed their UBO register with the relevant licensing authority, it is essential that a filing is made immediately.

Maintaining the UBO and shareholders registers is a continuing obligation on companies.  It is incumbent upon companies to amend the information in their registers within 15 days of becoming aware of any changes to such information. Furthermore, the changes must also be relayed to the relevant licensing authority so that the authority can update its records. At present, it is not clear whether the licensing authorities are levying any fines on late notification of changes to any information provided to them.

Economic Substance Regulations

By way of background, the introduction of the ESR came as a response to the UAE being placed on the EU's list of non-cooperative tax nations. The aim of ESR is to ensure that entities that undertake certain 'relevant activities' are not used to artificially “attract or shift profits” and that their profits are proportionate to the activity undertaken.  The enactment is intended to align the UAE with the global standards developed by the OECD and the EU to curb harmful tax practices. (Please see our previous client alert for more details).

The UAE Ministry of Finance's ("MoF") has an online portal where companies (that fall under the ESR) can submit their ESR notification and detailed report. Entities need to consider the nature of the commercial activities being undertaken by them and whether such activities meet the definitions as provided under the ESR. In practice, we have carried out ESR notifications for a number of entities who are exempt from having to submit a detailed report in line with the MoF template. An exempted entity includes, but is not limited to, an investment fund or a branch of a foreign company whose relevant income is taxed outside the UAE. Irrespective of whether a company is exempted or not from filing a detailed ESR report, entities must ensure the timely completion and submission of the relevant ESR documentation to avoid the significant penalties for non-compliance. Such penalties include an administrative penalty of AED 20,000 for companies that fail to submit an ESR notification, and AED 50,000 for those entities that fail to submit the Economic Substance Report. 

Environment, Social and Governance ("ESG")

Until fairly recently, ESG issues were only considered by a small group of ethically and socially responsible investors. However, the advent of COVID-19 has served as a catalyst to strengthen the belief that sustainable finance investments are the solution to ensuring positive long-term performance by companies and organizations. With the U.S. and EU leading the way on sustainable investments, UAE Stock Exchanges such as the DFM and the ADX have published guidance for ESG disclosures by listed companies. 

Public joint stock companies listed on ADX or the DFM are now required to publish a sustainability report in accordance with the guidance provided by their relevant stock exchange. Such disclosures should observe the Global Reporting Initiative standards as well as the sustainability standards and requirements issued by the DFM and ADX along with following guidelines as published by the DIFC and ADGM.


The above-mentioned developments will bring about a considerable difference in how entities in the UAE will be operating going forward – whether the difference is complying with the ESR requirements and filing of shareholder/UBO registers or how a company may amend its shareholding in light of the change in ownership restrictions for onshore companies. DWF remains available to all its clients in helping them navigate all the recent changes and ensuring that they are in compliance with all requirements.   

In particular, DWF will be launching its own ESG report as a guidance manual for its existing and prospective clients as a part of the Bonds, Loan and Sukuk Conference being held in Dubai on the 14th and 15th of September 2021.

For further details, please contact any of our lawyers below.
This Client Update is a follow up on our previous client alerts. It does not constitute legal advice and should not be used as a substitute for competent legal advice from counsel.

Further Reading