The United Arab Emirates (UAE) has taken significant steps to enhance its business and investment climate. In September 2020, the UAE Cabinet of Ministers approved amendments to the UAE Companies Law No. 2 of 2015 through Law No. 26 of 2020. These amendments brought about a major change by lifting the long-standing restrictions on foreign ownership, which previously limited foreign nationals or companies to owning a maximum of 49 percent of onshore businesses in the UAE. The aim of these modifications was to simplify the process of operating onshore, making it more accessible and cost-effective compared to previous policies. As a result, both foreign and domestic investors have been drawn to the UAE, seeking opportunities to own 100 percent of companies and capitalize on the business potential of the region.
The United Arab Emirates’ Regulatory Framework
The UAE has established three primary financial services hubs for investment management: onshore in the UAE, the Dubai International Financial Centre (DIFC), and the Abu Dhabi Global Market (ADGM). Each of these hubs operates with its own set of rules and regulations. While the DIFC and the more recently established ADGM are economic free zones designed to attract foreign investment through attractive concessions and investment incentives, the onshore UAE refers to mainland operations outside of designated free zones.
Onshore in the UAE:
The Central Bank: In the past, the Central Bank of the UAE held authority over the licensing, regulation, and marketing of investment management activities.
Emirates Securities and Commodities Authority (SCA): From 2012 to 2014, the responsibility for licensing, regulations, and marketing of assets management was transferred from the Central Bank to the SCA. This move aligned with the implementation of the “Twin Peaks” model, which divided financial and commercial services regulation and administration between the Central Bank and the SCA. Under this model, the Central Bank focuses on general stability, prudential oversight, and financial guidance, while the SCA is responsible for conducting business matters such as consumer protection and financial market supervision.
Investment Management:
The SCA defines investment management as the management of securities portfolios for third parties or the management of mutual funds according to the investment objectives and policies outlined in the investment management agreement between the investment manager and the client.
Fund Regulations:
In July 2016, the SCA introduced new investment fund regulations known as the 2016 Fund Regulations, replacing the previous set of regulations from 2012. These regulations aimed to streamline the process of forming locally domiciled funds and introduced changes to the promotion of foreign-domiciled investment funds in the UAE.
Merits of the Fund Regulation 2016:
The 2016 Fund Regulations provided clarity on the formation process of business entities for setting up locally domiciled funds. Additionally, they introduced significant changes to the promotion of foreign funds in the UAE.
Demerits of the Fund Regulation 2016:
While the 2016 Fund Regulations had positive aspects, they also imposed considerable obstacles and costs for financial advisors seeking to promote foreign funds in the UAE. As a result, business professionals and financial advisors had limited options for marketing foreign funds onshore. They were required to register the fund with the SCA and make arrangements with a locally licensed agent. This arrangement allowed investors within the UAE to initiate transactions through private placement exemptions when offering to sovereign entities.
Fund Regulations 2017:
In January 2017, the SCA introduced new investment fund regulations known as the 2017 Fund Regulations. These regulations provided several private placement exemptions related to promotion and marketing, allowing foreign funds to rely on reverse solicitation when offering in the UAE.
New Passporting Regime:
In March 2019, a new passporting regime was approved, enabling locally domiciled funds to be marketed across the UAE, the DIFC, and the ADGM.
Merging of Regulatory Bodies:
In July 2020, the UAE government announced the merger of the Insurance Authority and the UAE Central Bank as part of a broader effort to simplify the federal government’s structure. In January 2021, the UAE Central Bank initiated operational procedures to implement the merger, with the goal of transforming the UAE Central Bank into one of the top ten central banks globally. The merged entity will be overseen by the Ministry for the Economy.
Conclusion:
Through effective and timely regulations, the UAE has created an environment conducive to onshore investment and business activities. The federal laws and regulations, along with regulatory bodies under the Ministry of Economy in each emirate, have positioned the UAE as a preferred destination for business. The UAE’s low tax environment, reputable regulations, and convenient time zone have attracted investors from around the world. Over the past two decades, the seven emirates that make up the UAE have transformed into a major international hub for business.
About this Author:
Riaz Begum was admitted as an attorney over 17 years ago after completing her Bachelor of Laws degree which resulted in a successful career as a Lawyer. She also has foreign experience in corporate and arbitration law such as in U.A.E and Qatar.
References:
Abbas, Waheed. “UAE economy to grow faster at 4.6% in 2022: World Bank”. Khaleej Times. Retrieved 3 November 2021.
Sampiero, Josh. “Fred Fugen and Vincent Reffet took BASE jumping higher than ever before in Dubai”. Red Bull. Retrieved 19 November 2020.
“World Economic Outlook Database, April 2019”. IMF.org. International Monetary Fund. Retrieved 29 September 2019.
“World Bank Country and Lending Groups”. datahelpdesk.worldbank.org. World Bank. Retrieved 29 September 2019.
“GINI index (World Bank estimate) – United Arab Emirates”. data.worldbank.org. World Bank. Retrieved 30 March 2020.
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