The United Arab Emirates (UAE) has recently implemented significant changes to its company laws, aiming to enhance the business environment and attract foreign investment. Key updates include:
- Relaxation of Foreign Ownership Restrictions
Previously, foreign investors were required to have a local partner holding at least 51% ownership in onshore companies. The new legislation removes this requirement for most business activities, allowing 100% foreign ownership, except for certain “Activities of Strategic Effect.” This change makes the UAE more attractive to international investors.
- Introduction of Special Acquisition Companies (SPACs) and Special Purpose Vehicles (SPVs)
The new law introduces SPACs and SPVs into the UAE’s legal framework:
- SPACs: Public joint stock companies approved by the Securities and Commodities Authority (SCA) for the sole purpose of acquiring or merging companies.
- SPVs: Entities established to isolate financial and legal risk, commonly used in financing operations, borrowing, securitization, and other credit-related activities.
- Enhanced Corporate Governance
The legislation emphasizes improved corporate governance by:
- Board Composition: Mandating a higher proportion of independent directors.
- Transparency: Requiring more comprehensive disclosure of financial statements and related party transactions.
- Accountability: Implementing stricter penalties for non-compliance with governance standards.
These measures aim to align UAE companies with international best practices, enhancing investor confidence.
- Implementation of Corporate Tax
The UAE has introduced a federal corporate tax regime:
- Standard Rate: 9% on taxable income exceeding AED 375,000.
- Applicability: Effective for financial years starting on or after June 1, 2023.
- Exemptions: Certain sectors and free zone entities may qualify for exemptions or different rates.
This move aligns the UAE with global tax standards and aims to diversify government revenue sources.
- Alignment with International Tax Standards
In line with the OECD’s global minimum corporate tax agreement, the UAE will implement a 15% minimum tax on large multinational enterprises with consolidated global revenues of €750 million or more, effective January 2025.
Implications for Businesses
These reforms present several implications:
- Foreign Investors: The removal of ownership restrictions and introduction of SPACs/SPVs provide new opportunities for investment and corporate structuring.
- Local Businesses: Enhanced governance requirements necessitate a review of current practices to ensure compliance.
- Multinational Corporations: The new tax regime requires careful tax planning and assessment of potential liabilities.
Businesses operating or planning to establish operations in the UAE should consult with legal and financial advisors to navigate these changes effectively.
