Our Corporate Structuring lawyers at Al Tamimi & Company discuss CCL 2021: Liberalisation of foreign investment for education providers and provide updates
Nazanin Maghsoudlou Senior Associate, Corporate Structuring
Shaima Mahmoud Paralegal, Corporate Structuring
Schools, colleges and universities in the UAE have long been set up, partly-owned and run by foreign investors. Such educational institutions therefore are within the ambit of laws governing inwards foreign direct investment (FDI).
A new and crucial piece of legislation is Federal Decree-Law No. 32 of 2021 concerning commercial companies (“CCL 2021”). It applies to the mainland of all emirates within the UAE.
The new default position under CCL 2021 is that all companies incorporated in the UAE mainland may be wholly owned by non-UAE nationals unless a specific restriction is created that partly or entirely prohibits such ownership.
It is to be noted that companies carrying on activities with a ‘strategic impact’ such as oil & gas, banking, insurance, and weapon manufacturing will remain subject to foreign ownership restrictions.
While the UAE Cabinet has the right to exclude strategic activities from foreign ownership, the Department of Economic Development (“DED”) of each emirate of the UAE has the right to determine the extent of foreign ownership in the non-excluded activities.
It is to be noted that the DED of both Dubai and Abu Dhabi have issued lists of activities permitted under the Foreign Direct Investment (“FDI”) regime. Education is included in both lists. It been liberalised in that:
Limited liability companies may be owned 100% by foreign investors, now that the local ownership restriction of 51% has been lifted pursuant to the CCL 2021; and
Branches of foreign companies are no longer required to appoint a local service agent, given that this requirement has been waived under the CCL 2021.
It is to be noted that Free Zonesare regulated by their own framework of regulations, and as such, the local ownership restriction, which was in place prior to the CCL 2021, does not apply to companies established therein. Free Zones grant non-GCC nationals the ability to own 100% of shares in any entity in a free zone. Therefore, the application of the CCL 2021 is for entities registered in mainland UAE.
A key element for education investors to consider when moving towards 100% foreign investment is the approvals required for this process.
The approval of the the DED of the respective emirate, will be obtained subject to prior receipt of external approvals from the concerned regulatory bodies.
Education providers in Dubai and Abu Dhabi, depending on the activities, are regulated by the Knowledge and Human Development Authority (“KHDA”) and Abu Dhabi Department of Education and Knowledge (“ADEK”), respectively. The KHDA and ADEK streamline the education investment and operation process of the education providers they regulate.
In addition to this, the Abu Dhabi Centre for Technical and Vocational Education and Training (“ACTVET”) regulates technical and vocational educational institutions in that emirate, and is also responsible for the licensing of trainers and tutors.
A starting point for a transfer of shares process involving the exit of local shareholder is a review of contractual arrangements that are in place with that local shareholder. Such arrangements would be for instance agreements documenting the terms of relationship between the shareholders and beneficial owners.
Additionally, it is advisable to assess the extent to which the cooperation of the exiting shareholder is required to process the transfer of shares. In doing so, the continuing shareholder can avoid any practical issues that may arise during the share transfer.
The labor card and immigration card of the educational institution in question will need to be amended to add the general manager (as opposed to the local partner) as the authorized signatory with the Ministry of Human Resources and the Immigration Department. This process requires the general manager to be sponsored by the institution and have the e-signature card issued under his/her own name.
It is advisable that this process is completed before removing the local partner to avoid any inconvenience in terms of the residency visas for the institution’s employees.
It is important to check in advance whether the change in ownership requires the prior approval of the landlord or government agencies.
1.1 With regards to the existing contracts with customers, suppliers, lenders taken by the educational institution, it is advisable that an internal due diligence be conducted before proceeding with any change of ownership. This is to ensures that the transfer of shares is not hampered by:
Restrictive covenants in documents under which finance, and bank facilities have been provided to the entity.
The need for third party prior approval for any material contracts.
Adverse impacts on a branch of the institution that is being operated in another emirate.
Certain restrictive clauses in insurance arrangements.
With CCL 2021 and the general liberalisation of the UAE’s inwards FDI regime, it is likely that a number of foreign owners of educational institutions in the country will move towards 100% ownership. This process is, as noted, not necessarily straightforward. While considering the licensing requirements is vital to change of ownership, applicants should also consider other factors which could affect the operations of a company as a result of such change of ownership.
For further information, please contact Nazanin Maghsoudlou or Omer Khan.
Published in August 2022
Illustration of Maria Montessori
