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Dubai has gained a global reputation as a thriving business hub, attracting entrepreneurs and investors from all corners of the world. Its strategic location, business-friendly environment, and modern infrastructure make it a popular destination for foreign companies. One of the key considerations for foreigners looking for mainland company formation in Dubai is the ownership structure, particularly for mainland companies. In this blog, we will explore the topic of foreign ownership in mainland companies, recent changes in the law, and the opportunities available to international investors.
Understanding Mainland Companies in Dubai
A mainland company in Dubai is an entity that is licensed by the Department of Economic Development (DED), allowing it to operate anywhere in Dubai and across the UAE. Unlike freezone companies, which are restricted to operating within designated areas, mainland companies can trade freely within the local market and are not limited to specific geographic locations. This flexibility makes mainland companies a popular choice for businesses that want to engage with the broader UAE market.
Benefits of Setting up a Mainland Company in Dubai:
1. Access to the UAE Market: Mainland companies can trade directly within Dubai and other Emirates, giving them a wide customer base.
2. Business Flexibility: They are not confined to specific freezones and can operate in multiple sectors.
3. Government Contracts: Mainland companies can bid for lucrative government tenders, which freezone companies are typically ineligible for.
Also Read: How to get investor visa in Dubai
Foreign Ownership Restrictions in Dubai
Historically, foreign investors faced restrictions on full ownership of mainland companies in Dubai. The long-standing "51% rule" required that a UAE national or a local entity hold at least 51% of the shares in a mainland company, leaving the foreign investor with a maximum of 49% ownership. This ownership structure was intended to protect local interests and ensure that foreign businesses were aligned with the UAE's economic goals.
The "51% Rule" and Its Implications
For decades, this rule meant that foreign investors needed to partner with a local sponsor or service agent to start a mainland business. While foreign investors maintained control over operations, the local sponsor had to hold the majority of shares.
The Evolution of Foreign Ownership Laws
Recognizing the need to boost foreign investment and promote economic diversification, Dubai has made significant changes to its business laws over the years. The most important of these changes has been the relaxation of foreign ownership restrictions in key sectors.
Key Changes in Foreign Ownership Regulations
In recent years, the UAE government introduced groundbreaking reforms allowing 100% foreign ownership in certain sectors of the economy. This move was part of a broader initiative to enhance Dubai’s competitiveness as a global business hub and attract more foreign direct investment (FDI). These regulatory changes have opened up new opportunities for international entrepreneurs and companies looking to establish or expand their presence in Dubai.
Also Read: All about accounting standards in Dubai
Sectors Allowing 100% Foreign Ownership
Today, foreign investors can fully own mainland companies in a range of sectors without the need for a local sponsor. These sectors are typically those considered strategic to the UAE’s long-term economic growth.
Sectors Where 100% Foreign Ownership is Permitted:
1. Technology and Innovation
2. Manufacturing
3. Healthcare
4. Agriculture
5. Hospitality
6. Construction
7. Renewable Energy
For example, global tech companies and manufacturers have already taken advantage of these reforms to establish fully owned subsidiaries in Dubai. The relaxation of ownership restrictions in these areas reflects the UAE’s commitment to fostering innovation and sustainable development.
Reasons for Relaxing Restrictions in These Sectors
The UAE government has targeted sectors that contribute to the country’s economic diversification and long-term sustainability. By encouraging foreign investment in areas like technology and renewable energy, Dubai aims to position itself as a leader in innovation and growth.
The Process of Establishing a 100% Foreign-Owned Mainland Company
Setting up a 100% foreign-owned mainland company in Dubai requires following a structured process to ensure compliance with local regulations.
Steps for Setting Up a Mainland Company:
1. Choose a Business Activity: Select a business activity from the approved list provided by the DED, ensuring it falls within the sectors allowing 100% ownership.
2. Reserve a Trade Name: Submit a name reservation request to the DED.
Submit Application and Documents: Prepare the necessary documents, including passport copies of shareholders, proof of residence, and other relevant paperwork.
3. Obtain Initial Approval: Receive initial approval from the relevant authorities to proceed with the business setup.
4. Draft Memorandum of Association: Draft a Memorandum of Association (MoA) that defines the company’s structure and shareholder details.
Rent Office Space: Secure a physical office or workspace as required by law.
5. Obtain Licenses and Permits: Complete the registration process and obtain the necessary licenses to operate.The Role of Local Service Providers
Though the need for a local sponsor may no longer apply in many cases, foreign investors can still benefit from working with local service providers or consultants who can help navigate the regulatory landscape and ensure a smooth setup process.
Also Read: Process of UAE company registration
Benefits and ConsiderationsAdvantages of Owning a 100% Foreign-Owned Mainland Company:
1. Full Control: Foreign investors retain full control over their business operations, decisions, and profits.
2. Access to Local and Global Markets: Unlike freezone companies, mainland businesses can engage with the UAE market and international clients.
3. No Need for a Local Partner: In specific sectors, foreign investors no longer need to share ownership with a UAE national.
Potential Challenges
4. Sector-Specific Restrictions: Not all sectors allow 100% foreign ownership, so it’s important to verify eligibility before proceeding.
5. Compliance Requirements: Mainland companies are subject to UAE labor laws, Emiratisation policies, and other local regulations, which must be strictly followed.
Conclusion
Dubai’s evolving regulations on foreign ownership have opened up exciting new possibilities for international investors. Foreigners can now fully own mainland companies in a variety of sectors, allowing for greater control and business flexibility. While these changes present numerous opportunities, it’s important to understand the rules, procedures, and potential challenges involved.
Whether you are an entrepreneur looking to start a new venture or a business seeking expansion, Dubai’s business environment offers vast potential.