UAE removes obstacles for free enterprise - A Blog from Freemont Group
04 March, 2012
The idea of a free market that reigns free from government interference is often feared as a dog-eat-dog world where ruthless robber barons can get away with everything. This is far besides the truth. In fact, a truly free market is the ultimate democracy where rules of proper conduct are designed and revised constantly to fit current needs. The Free Zones of the UAE can be seen as an experiment to create the ultimate business environment. Free Zone authorities are in essence companies that sell legal frameworks for proper business conduct; they have to compete with one another for clients and experience minimal government oversight. For the ‘robber barons’ to be in business they’ll have to comply with the framework of the free zone authority of their choice, guaranteeing fair conduct. Free markets are as logical, complicated and natural as nature itself.
Outside the Free Zones however the UAE is not entirely open for business. Local companies that operate within the UAE experience more rules and regulations, and many business sectors are the exclusive domain of Emirati nationals. For this reason the UAE is not ranked highest among many annually published economic freedom indexes.
Yet the UAE government is taking steps to reform the most eye catching obstacle for doing business within the UAE: the 49% foreign ownership rule. Under the current Commercial Companies Law - UAE Federal Law No. 8 of 1994 - foreigners cannot own more than 49% of shares in a local UAE business. That means that foreign entrepreneurs depend on Emirati nationals for sponsorship arrangements – a good business for some locals, but an obstruction for many foreign investors.
A proposed amendment to the Companies Law would allow a foreign ownership percentage of more than 50% in some business sectors. Which business sectors it would apply to and what the allowed percentage would be is as yet unknown. Without a doubt that will stimulate foreign investments and remove the need for a representative office in Dubai proper for companies that now operate exclusively within the Free Zone. The measure is preceded by the abolished capital requirements of 300.000 Dirhams or roughly 60.000 Euro for limited liability companies. Combined it could drastically stimulate the small business sector which is already dominated by Indian and Pakistani entrepreneurs. The net result will be an increase in investments and competition will certainly increase living standards for all.
The Freemont Group incorporates local UAE companies as well as 100% foreign owned Free Zone and offshore companies.
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