Political risk consultancy, Menas Associates, has unmasked Israel and the United Arab Emirates (UAE) on its intelligence profiling. Beginning with Israel, the report says since coming to office in June 2021, the new Israeli coalition government has been working with little fanfare or public controversy. So far, issues that have been addressed by the new coalition include the COVID-19 pandemic.
After Israel fully reopened, fresh cases have been slowly rising across the country. The new government is working to address this new surge while also trying to avoid broad moves including national lockdowns or reintroducing state-wide restrictions.
The Corona Cabinet is attempting to enact measures — including restricting closed-venue events to vaccinated individuals only, and mask requirements for large open-air gatherings — in order to avoid a general lockdown that might occur during the Jewish High Holiday period.
Current restrictions include full quarantine periods for those returning from certain countries — while also trying to keep the country open for the time being — and enhancing enforcement for violations. Israel has also ramped up its testing capacities and is preparing for the new school year in September.
State Budget
The major issue facing the new government was passing a budget, a move that would cement it and prevent its collapse. Following three years when the county did not have a budget, an approved budget would not only reaffirm the government’s stability but also indicate its strategic directions and future priorities. It unanimously approved the 2021-2022 budget, which will now be moved to a vote in the Knesset.
The new budget allocates billions of shekels to the health sector while also executing a broad 1.5% cut across all governmental offices. Additional elements were a budget increase to the security and defence budget, agricultural reform, raising the retirement age for women, and reducing limitations on imports.
The specific details of the new budget are not overly dramatic — the increased health budget being the most significant change — but its introduction and approval which marks an important milestone and bodes well for the government’s chances of survival. The battle in the Knesset over its approval is likely to be difficult, but it appears that the budget will pass.
Security
On the security and defence front, the new government’s main challenge continues to be Iran. Incidents in the Persian Gulf contribute to sustained tension between Israel and Iran, and there are voices in the government calling on it to be more aggressive and retaliate. However, Prime Minister Naftali Bennet, wants to exhaust all diplomatic channels and not resort to force. Israel’s current efforts are focused on amassing evidence and data against Iranian aggression in the Gulf to motivate international action. This suggests that it will adopt a more moderate line of working in tandem with the international community rather than adopting unilateral action.
At the same time, the Iran is not the only issue. Israel’s High Court is gearing up to discuss the appeals of the Palestinian families in East Jerusalem’s Sheikh Jarah district in, against their eviction from their homes.
Tensions and protests have escalated including in the Temple Mount. In the West Bank, four Palestinians were killed in separate incidents last week and, without containment of these various arenas, a nationwide escalation could be seen once more, with Hamas always likely to contribute by firing rockets from Gaza.
So far, the new government is holding true to a line of moderation and avoiding escalation, but the situation remains fragile. Another violent escalation would be a serious test for this new government, whose ideologically disparate members may find it very difficult to maintain their unity when faced with such challenges.
On UAE, the report says following the significant changes announced last year to the Emirate’s Commercial Companies Law regarding foreign direct investment, ncluding the amendment to Article 10, effective as of June 1, 2021. This amendment affects direct foreign ownership of onshore UAE companies by removing the fundamental default requirement of 51% UAE national ownership of an onshore company.
Following its implementation, UAE issued a Cabinet Decision, which — along with the announcements made by several Emirates listing the approved licenced activities open to 100% foreign ownership — has already begun to change the landscape of private investment in the UAE. In the latest update, by Stephenson Harwood LLP examines these changes, and their implications for existing shareholders and new investors.
Several significant developments have taken place recently concerning foreign direct investment as a result of the amendments introduced last year to the UAE Commercial Companies Law, Federal Law No. 2/2015. The most recent is the long-awaited issuance of Cabinet Decision No. 55/2021 on the Determination of the List of Strategic Impact Activities (the “Cabinet Decision”).
This Cabinet Decision, along with the announcements made by several Emirates listing the approved licenced activities open to 100% foreign ownership (the “Green Lists”), have already begun to change the landscape of private investment in the UAE. In this BriefingNote, we examine these developments and their implications for existing shareholders and new investors.
Background
One of the most significant amendments introduced last year to the CCL is the amendment to Article 10, which came into effect as of June 1, 2021. This amendment affects direct foreign ownership of onshore UAE companies by removing the fundamental default requirement of 51% UAE national ownership of an onshore company. The amended Article 10 now provides for, amongst other things, a decision by the UAE Cabinet setting out the activities that have a “strategic impact” and the controls necessary for licensing companies doing business in these activities.
Providing they do not conflict with the activities of strategic impact as set out in the UAE Cabinet’s decision, the competent authorities of each Emirate can determine the specific percentage of UAE national participation in the capital and/or the boards of companies to be incorporated in their jurisdictions.
Activities with strategic impact
Recently, the UAE Cabinet gazetted its decision, listing the following seven categories of activities with strategic impact: Security and defence activities and activities of a military nature; banks, money-changing establishments, finance companies, and insurance activities; printing cash currency; telecommunications; hajj and Umrah services; Holy Quran memorization centres; and fisheries-related services.
Except for the category of fisheries-related services, which does not permit any foreign investor participation, all the activities described above allow for foreign investor and UAE national participation in a company’s capital as determined by the applicable regulatory authority. In addition, the Cabinet Decision permits foreign investor and UAE national membership on the board of directors of a company, with the percentage of such contribution to be set by the applicable regulatory authority, as well.
Accordingly, the Cabinet Decision also lists the applicable regulatory authorities that will ultimately determine the specific percentage of UAE national participation required in the companies engaged in these activities.
To engage any of the applicable strategic activities, a foreign investor must first apply for a licence with an Emirate’s relevant department of economic development, which will in turn submit the application to the appropriate regulatory authority for its review.
If the regulatory authority approves the application, it will also determine the percentage of national contribution that it deems required.
Business activities open to 100% foreign ownership – The Green Lists Even prior to the gazetting of the Cabinet Decision, the departments of economic development of the Emirates of Abu Dhabi and Dubai respectively published lists of business activities that are available for up to 100% foreign ownership within their jurisdictions. In addition, the Ajman Department of Economic Development also published a list of activities, and it has been reported that the other Emirates will follow suit.
Abu Dhabi
The list published by the Abu Dhabi Department of Economic Development sets out over 1,100 commercial and industrial activities that include, among other things, retail and wholesale trading, the provision of repair and maintenance services and manufacturing across various sectors and industries.
A copy of the list of activities open for 100% foreign ownership in Abu Dhabi is available here. Dubai In early June 2021, Dubai Economy also announced a list of over 1,000 commercial and industrial activities open for 100% foreign ownership.
Similar to the Abu Dhabi Department of Economic Development’s list, this list also includes a wide range of activities across many sectors and industries. In addition, Dubai Economy has also stated that pursuant to its guidelines, no additional fees, guarantees or capital are required for full foreign ownership.
Going forward?
Existing onshore companies engaged in a business activity listed in a Green List Foreign shareholders of an existing onshore company may consider restructuring their company’s capital to increase the level of foreign ownership if their company’s licenced business activities are listed in the Green List of the Emirate in which the company was incorporated.
As part of this restructuring process, foreign shareholders will need to commercially negotiate with their local UAE partners to reach an agreement with respect to the transfer of the UAE partners’ shares.
Often there are shareholder arrangements in place and/or provisions in a company’s Memorandum of Association that entitle foreign shareholders to call upon the local partners to sell their shares should there be a change in law.
New companies that will be engaged in business activities listed in a Green List Foreign investors interested in setting up or investing in a new onshore company that will conduct activities listed in the Green List of the relevant Emirate of incorporation may do so with or without UAE national partner participation.
What if the business activity is neither listed in a Green List or the Cabinet Decision? Although Article 10 of the CCL was amended to remove the default requirement for having 51% UAE national ownership of an onshore company, the amendment allows the competent authority of each Emirate to determine the specific percentage of UAE national participation in a company.
Therefore, the question remains as to whether these authorities will nevertheless require at least 51% UAE national participation for companies that are engaged in business activities not listed in either the Cabinet Decision or a Green List. There is anecdotal evidence to suggest that competent authorities may, at their discretion, be open to 100% foreign ownership for business activities that are neither on the Green List, nor on the Cabinet Decision.
Other considerations
Currently, the commercial and industrial activities included in the Green Lists vary from one Emirate to another; and therefore, not all the same activities may be available for up to 100% foreign ownership in every Emirate. Consequently, a question remains whether a company wholly owned by foreign shareholders in one Emirate would be permitted to open a branch in another Emirate that would not otherwise permit the business activities of company to be open for 100% foreign ownership.
In addition, foreign shareholders and investors should note that to be open to 100% foreign ownership in an Emirate, all of a company’s licenced business activities must be included in that Emirate’s Green List.
