International companies would be allowed to hold 100 per cent ownership of businesses they establish in the UAE under proposed changes to legislation aimed at boosting foreign investment. Currently, foreigners must have a UAE national as a sponsor and are limited to a maximum 49 per cent ownership of businesses in the Emirates, except in free zones scattered about the country.
The new industry law would open the door for hi-tech firms offering large capital investments to set up operations here as the Government seeks to expand its industrial base and create new jobs. "A lot of industries worldwide are very interested to move here to the UAE, providing there are certain terms and conditions they would like to see in the industrial law," Sultan al Mansouri, the Minister of Economy, said yesterday.
The legislation will be submitted to Cabinet within two months. The proposed change is part of a government effort to reduce its reliance on oil and gas revenues, which have fallen during the global financial crisis, by diversifying into other sectors. The oil and natural gas industry accounted for 38 per cent of the country's Dh929 billion (US$253bn) GDP last year. The UAE intends to cut its dependency on hydrocarbons to 20 per cent in the next 10 to 15 years, Mr al Mansouri said last week.
The new law would also allow certain tax exemptions that are currently not available to foreign firms operating in the country's free zones. As products created within the free zones are not classified as originating from the UAE, they have to pay a tax for export within the GCC, Mr al Mansouri said. Companies operating under the conditions of the new industry law could be free from that tax. "We are looking at industries with large investments. The aim is to attract hi-tech with high value and at the same time with good capital investment," he said.
"Industry is one of the sectors we are trying to attract to the UAE and have it as a major contributor to our GDP. To do that we need to create the right environment for these industries worldwide." The announcement came as Abu Dhabi is set to launch an $8 billion (Dh29bn) venture with General Electric and follows the announcement of a planned $5.6bn investment in a Singapore company that could lead to computer chips being made in the UAE.
A separate proposed law to provide legal protection for overseas investors would be complete by the end of this year, Mr al Mansouri said last week. That law could also address the issue of overseas firms being allowed to hold more than 49 per cent ownership, Mr al Mansouri revealed yesterday. "Everything is open," he said. Changes to the rules on foreign ownership could have an impact on entrepreneurs such as Hink Huisman, who owns a media company based in the Ras al Khaimah free zone.
He pays about Dh60,000 to run his small office and renew his licence every year. "Free zones have not dropped rents to reflect actual commercial property rents outside, so logically speaking, a lot of people will opt for cheaper available options," he said. "Taking on a UAE partner had been a concern for me, but if I can set up business without that, I will do it outside a free zone." Abid Ali, a Pakistani businessman who builds exhibition stands and has operated under local sponsorship for the past eight years, said many businesses would prefer to operate independently without having to use a local partner.
"Partnership with the local sponsors is not something which entrepreneurs are doing by choice outside the free zones," he said.
"If given an option, the preference will be to own one's business rather then having a minority stake in it."
tarnold@thenational.ae
* With additional reporting by Sarmad Khan
