When considering setting up a business in the UAE, one of the most critical aspects to consider is the ownership structure, especially in specific sectors where 100% foreign ownership is not permitted. While the UAE has become increasingly open to foreign investment, some business activities still require the involvement of an Emirati partner. As per UAE regulations, any company established must have one or more UAE partners holding at least 51 percent of the share capital. This requirement stems from strategic considerations, regulatory frameworks, and the desire to protect national interests. In this article, we will explore why an Emirati partner is necessary for certain businesses and outline the types of businesses that require local partnerships.
Why Would You Need an Emirati Partner?
Strategic and National Security Considerations
The UAE government maintains control over certain sectors crucial to national security and strategic interests. By requiring an Emirati partner, the authorities ensure that these sectors are closely monitored and aligned with the country’s long-term objectives. This measure is particularly relevant in industries that may impact public safety, security, and the economy.
This blog is a part of our UAE Business Setup Guide: Mainland and Freezones – ATB Legal Pillar Article.
Regulatory Compliance
In some industries, local laws and regulations mandate the involvement of Emirati nationals or entities. This requirement helps align business activities with the UAE’s regulatory framework, ensuring compliance with local laws and standards. It also facilitates better oversight and governance, fostering a stable and transparent business environment.
Facilitation and Local Insight
An Emirati partner can provide valuable local insight, facilitate business operations, and navigate the local regulatory landscape. They can also assist in building networks and relationships with local authorities, suppliers, and customers. This local knowledge can be instrumental in overcoming potential challenges and achieving business success in the UAE.
What Types of Businesses Require an Emirati Partner?
Several business activities in the UAE necessitate the involvement of an Emirati partner. These include, but are not limited to, the following sectors:
Security and Defence Activities
Businesses involved in security services, defense equipment, and activities of a military nature are required to have an Emirati partner. This includes companies dealing with weapons, ammunition, and other security-related products and services. The sensitive nature of these activities necessitates strict oversight and control by local authorities.
Telecommunications
The telecommunications sector is another area where foreign ownership restrictions apply. Companies providing telecom services, infrastructure, and related technologies must partner with Emirati nationals or entities. This requirement ensures that the critical infrastructure supporting communication networks is managed by trusted local stakeholders.
Financial Services
Banks, financial institutions, insurance companies, and businesses involved in currency exchange, financing, and banknote or coin production are subject to ownership restrictions. The involvement of an Emirati partner in these sectors is crucial for maintaining the integrity and stability of the financial system. It also aligns with the UAE’s regulatory framework for financial services.
Other Regulated Sectors
Besides the above-mentioned industries, there may be additional regulated sectors where foreign ownership restrictions apply. These can include healthcare, education, media, and energy, among others. The specific requirements may vary depending on the nature of the business and its potential impact on the economy and society.
Mainland Companies and Foreign Ownership
Companies established on the UAE mainland, outside a free zone, enjoy the flexibility to operate across a wide range of sectors. They have the freedom to trade with companies and individuals within the UAE, and internationally. The best part is that most types of mainland companies can retain 100% foreign ownership, provided they are engaged in activities that do not fall under the restricted categories requiring an Emirati partner. However, for those companies operating in sectors with ownership restrictions, partnering with an Emirati national remains essential to meet legal and regulatory requirements.
While the UAE offers a favourable environment for foreign investors, certain business activities require the involvement of an Emirati partner. This requirement ensures the protection of national interests, compliance with local laws, and the facilitation of business operations. If you are considering setting up a business in one of the restricted sectors, it is essential to engage with a local partner to navigate the regulatory landscape and ensure a smooth business setup process.
