Q&A on UAE Foreign Investment Legal System

The United Arab Emirates (UAE) has garnered significant attention as an investment destination, offering vast opportunities and potential for global investors, including those from China. As one of the most dynamic and innovative economies in the Middle East, the UAE has been dedicated to attracting foreign investors and providing a stable, transparent, and profitable investment environment. Against this backdrop, understanding the UAE’s foreign investment legal system becomes crucial for investors seeking to grasp opportunities in the UAE market and engage in stable and long-term business cooperation.

Q: Why does the UAE provide many investment opportunities for Chinese investors?

ACIEP: The UAE is a well-developed country with a strong economy and abundant natural resources. Its strategic geographic location and robust infrastructure contribute to its attractiveness for investors. Moreover, with China’s Belt and Road Initiative being implemented in the Middle East, the UAE has become an important region of interest for Chinese investors, offering even more business opportunities.

Q: How does the UAE view foreign investors?

ACIEP: The UAE maintains an open attitude towards foreign investors and aims to attract foreign capital and technology. Especially after the reform of the UAE’s Commercial Companies Law, foreign investors can now fully own companies established in the UAE without the need to partner with local UAE investors. This policy change has significantly facilitated commercial activities for Chinese investors in the UAE.

Q: What are the provisions of the UAE’s Company Law?

ACIEP: The UAE has a new Commercial Companies Law that came into effect in January 2022. As a federal country with seven emirates, the Commercial Companies Law applies to all emirates. However, free trade zones have their own independent regulations.

Q: What types of companies exist in the UAE?

ACIEP: The UAE’s Commercial Companies Law prescribes five types of companies: general partnership companies, limited partnership companies, limited liability companies, public joint-stock companies, and private joint-stock companies. Most foreign investment enterprises opt for the form of limited liability companies.

Q: How do foreign investors operate in the UAE?

ACIEP: Currently, the UAE does not have a specific foreign investment mechanism, and operations are governed by the Commercial Companies Law. Foreign investors can fully own companies established in the UAE without the need to partner with local UAE investors. Previously, in certain sectors, foreign investors were limited to holding 49% of the shares in UAE companies, with the remaining 51% required to be held by UAE citizens or companies. However, some strategically significant sectors have restrictions on foreign investment and require government review and approval.

Q: Can foreign companies operate directly in the UAE?

ACIEP: Apart from establishing a company in the UAE, foreign investors can also engage in business activities through other means but need permission from the UAE government. On the one hand, foreign companies can operate directly within specific free trade zones. On the other hand, they can apply to establish branches or representative offices and engage in business activities within the scope of a license. The UAE provides a flexible business environment for foreign investors to attract and promote their economic activities in the country.

Q: What are the requirements for the registered capital when establishing a company in the UAE?

ACIEP: When setting up a limited liability company in the UAE, there is no minimum registered capital requirement; the company only needs to have sufficient funds. This is done to lower the registration threshold and allow more people to participate in commercial activities.

Q: How are the company’s name, address, and articles of association determined when establishing a company in the UAE?

ACIEP: The company’s name must comply with UAE legal provisions and must not be identical or similar to existing company names. The company’s type should be indicated in the name. Additionally, the company needs to have an address registered domestically to receive letters and notices. The articles of association must be written in Arabic and must be authenticated to be valid.

Q: Does the company have legal personality in the UAE?

ACIEP: Once a company completes its registration, it obtains legal personality. If the company is dissolved, it continues to exist for a certain period to complete the liquidation process.

Q: What are the requirements for statutory reserves in the UAE?

ACIEP: Limited liability companies are required to allocate at least 5% of their annual profits to statutory reserves. Once the statutory reserves reach half of the registered capital, the general assembly of shareholders can decide to stop allocating reserves.

Q: How is a company in the UAE dissolved?

ACIEP: Limited liability companies may be dissolved for various reasons, such as the expiration of the company’s term, failure to achieve objectives, non-profitability, compulsory merger as per the law, dissolution decided by shareholders, or dissolution ordered by the court. If the company’s losses amount to half of the registered capital, the manager should propose dissolution to the general assembly. If the losses reach three-quarters of the registered capital, shareholders holding one-fourth of the shares can request the dissolution of the company.

Q: What is the governance structure of limited liability companies in the UAE?

ACIEP: Limited liability companies have a manager, a supervisory board, auditors, and a general assembly of shareholders.

Q: How is the management team of the company formed?

ACIEP: Limited liability companies must have a manager, who can be one or multiple individuals. If there are multiple managers, the general assembly of shareholders can appoint a management committee to exercise their authority. Managers can be shareholders or external candidates, and they can be designated in the company’s articles of association or contract.

Q: Is there a supervisory board in the company?

ACIEP: If there are more than 15 shareholders, the general assembly of shareholders must elect at least three supervisors to form the supervisory board. Shareholders who are serving as managers cannot vote in elections or dismissals related to the supervisory board. The supervisory board has the right to inspect the company’s books and documents and may request management reports from the management team at any time.

Q: How is the company audited?

ACIEP: Limited liability companies are required to hire one or more auditors, who are elected by the general assembly of shareholders every year.

Q: How does the general assembly of shareholders operate?

ACIEP: The general assembly of shareholders is composed of all shareholders, and shareholders holding more than 10% of shares or the manager can convene the general assembly. The general assembly of shareholders must meet at least once a year. The annual general assembly has the authority to review and decide on multiple matters, including the business and financial reports for the previous fiscal year, approval of the balance sheet and profit and loss statement, determination of profit distribution, appointment of managers and management committees (if any), appointment of the supervisory board (if any), appointment of auditors, and other matters as stipulated in the Commercial Companies Law and the company’s articles of association.

Q: How are resolutions passed in the general assembly of shareholders?

ACIEP: Resolutions of the general assembly of shareholders require the attendance of over 50% of the shareholders to be effective, and the company’s articles of association may stipulate a higher attendance percentage. Shareholders exercise their voting rights based on their shareholding proportion, generally following the principle of simple majority. However, resolutions to amend the articles of association and increase or decrease the registered capital require the approval of shareholders holding over three-quarters of the shares present.

Conclusion:

The UAE’s foreign investment legal system provides vast opportunities and potential for Chinese investors. By gaining in-depth understanding of the UAE’s foreign investment legal system, Chinese investors can fully grasp the opportunities in the UAE market and achieve success and growth.

The UAE’s foreign investment legal system has significant advantages in attracting foreign investors. The UAE government offers a stable and transparent legal environment to protect foreign investors’ business activities within the country.

Investment cooperation between the UAE and China also presents immense potential. The UAE and China have maintained positive relations and economic cooperation. The investment opportunities and areas of collaboration between the two countries continue to expand, encompassing energy, infrastructure, technology, finance, and various other fields. Through understanding the UAE’s foreign investment legal system, Chinese investors can better seize the cooperative opportunities and advance economic collaboration between the two nations to new heights.