UAE Scraps Capital Rule for Start-ups

The latest amendment to the corporate law came into force through a new decree issued by The President, His Highness Shaikh Khalifa bin Zayed Al Nahyan, the official news agency Wam said.

Under the amended law, would-be business partners are free to determine the capital requirements of their new company. They are no longer bound to provide a bank guarantee of Dh150,000, as required by the previous law, for forming a company.

In Dubai, the capital requirement for setting up a limited liability company was Dh300,000, twice as high as the national minimum.

“The amendment of federal law number 8 of 1984 in regard to corporate law is aimed at reducing the cost of setting up new businesses. The move reflects the federal government’s stance to boost the investment environment,” Wam said.

“The amendment also aims to limit bureaucratic procedures, as the investor need not have to produce any bank guarantees to set up a business. It is hoped the move will benefit the small and medium-sized business sector and will promote innovation and the spirit of entrepreneurship among business leaders,” Wam said.

Corporate experts and business leaders welcomed the move and agreed that the biggest beneficiary of the new regulation would be small and medium-sized businesses.

In a previous step in this direction, the federal government launched a programme in June, in partnership with banks across the UAE, to provide loans to entrepreneurs.

Minister of Economy Sultan bin Saeed Al Mansouri described the new rule as “a positive step to attract more investments to the country.”

Dr. Nasser Saidi, Chief Economist at Dubai International Financial Centre, called the move, “a very important policy reform (that) will help the UAE significantly improve its ranking in the World Bank’s ‘Ease of Doing Business Report.’” According to the World Bank, the cost of doing business in the UAE is one of the highest in the world, given that the initial capital investment required has been three times as big as the country’s per capita income.

The new decree comes amid other developments in a government campaign to increase the UAE’s international competitiveness. Analysts told Khaleej Times that Monday’s amendment is a likely precursor to a long-awaited refom to the nation’s company law that would end the 51 per cent national ownership requirement for limited liability companies owned partly by foreigners.

“The issue of 51-49 ownership is being seriously discussed, and hopefully we will see it amended in future to make the local investment climate better,” Dr Saidi said.

James Mathew, Managing Director of Dubai-based Horwath MAK business consultancy, said he believes the government might allow foreigners to own as much as 100 per cent of certain types of companies.

· issacjohn@khaleejtimes.com