The United Arab Emirates (UAE) has been a hub for incoming investment in the region, due to its business-friendly environment, solid infrastructure, and stable political environment. In previous years foreign investors that wanted to set up in the UAE needed a UAE national partner with 51% equity interest in the majority of businesses established in the UAE. This need for a partner was a significant factor that determined how joint ventures (JVs) were financed, governed, and their capital structures. With the introduction of extensive reforms regarding foreign ownership in the UAE’s capital structure environment for JVs, namely, Federal Decree-Law No. 32 of 2021 aka (Commercial Companies Law), the capital structure environment will see a fundamental change with the distribution of ownership, financing mechanisms, liability, and control being allowed for 100% foreign ownership in the majority of commercial businesses.
Pre-Reform Capital Structuring Constraints
Prior to the reforms, regulatory compliance rather than business reasoning dominated capital structuring in joint ventures on the UAE mainland. The required 51% local ownership frequently led to:
- Artificial equity splits, in which local partners contributed little in the way of capital or operational support but held the majority of the equity.
- Side agreements (nominee arrangements) to safeguard the financial interests of foreign investors, which raised the risk of legal and enforceability issues.
- Restricted financing flexibility due to lenders’ perceptions of minority control risks and unclear governance.
- Misalignment between capital contribution and control, which results in poor decision-making and diminished investor confidence.
As a result, rather than openly incorporating control into corporate documents, capital structures were frequently conservative, equity-heavy, and dependent on unofficial agreements.
Impact of Foreign Ownership Reforms
- Many LLC’s do not have a minimum capital requirement for the establishment of a JV.
- Thanks to the flexibility of JVs, equity structure can be designed with respect to the parties involved, growth stage, risk profile and exit horizon.
- The New Reforms have also allowed greater access to debt capital. With better defined rights for shareholders and the establishment of governance, lenders have become more comfortable lending to JVs. Lenders including banks and other financial institutions have become increasingly willing to make:
- Term loans and project financing especially for the manufacturing, technology, and infrastructure sectors.
- Loans to shareholders with clear terms of subordination and repayment.
Governance and Capital Control Mechanisms
Post-reform capital structuring is directly interwoven with the governance design. The revised law allows for:
- Board representation in proportion to the equity holdings
- Matters requiring supermajority approval to be reserved
- Mechanisms for resolving deadlocks, like put-call options or escalation clauses
- Provisions for capital calls and dilution that guarantee clearly defined funding obligations
All these governance methods make it possible for the capital providers to have a say in the strategic decisions that are appropriate to their financial input, thus, minimizing agency risk and contributing to long-term stability.
Exit and Liquidity Considerations
Decisions regarding capital structure are being made with the inclusion of exit planning from the start. Lessening of foreign ownership limitations makes it possible for joint ventures to opt for:
- Sales to foreign or local buyers
- Cooperation agreements between joint venture partners
- Initial public offerings (IPOs) on UAE or international exchanges
Liquidity guarantees and investor returns protection through capital devices like redeemable shares, put options, and drag-along rights have recently become common practice.
- Role of Local Partners in the New Regime
Post-reform, the role of local partners in joint ventures has evolved from regulatory necessity to strategic choice. Local partners may now contribute:
- Market intelligence and government relationships
- Distribution channels and customer access
- Operational infrastructure or sector expertise
Capital structures are reflecting this change by giving priority to equity allocation based on value contribution instead of nationality, and making use of performance-linked incentives instead of fixed ownership guarantees.
Sector-Specific Limitations
SECTOR | FOREIGN CAP | KEY RULE |
Banking | 40% max | CBUAE approval |
Oil/Gas | 51% local min | ADNOC mandated |
Defence | 49% max | Govt. golden shares |
Trading | 100% OK | Positive Lists |
Ownership restrictions and/or regulatory approvals continue to apply to some industries (e.g. oil and gas, defense, utilities, banking, telecommunications), notwithstanding extensive deregulation of most sectors. Joint ventures in these industries must structure capital, with consideration for the following components:
- Minimum local participation
- Government’s “golden shares” or veto power
- Regulatory capital requirements
Thus, equity, control and compliance considerations must continue to be taken into account for joint ventures in restricted industries.
Conclusion
The foreign ownership reforms of the UAE are a paradigm shift in the structuring of joint venture capital. The reforms have brought about a shift from the legal formality of ownership to commercial logic, risk allocation, and strategic objectives determining capital structures. Joint ventures can now employ equity arrangements that are flexible, use debt financing, and have governance transparency while also having strong exit mechanisms. This change has raised investor confidence substantially and brought the UAE JV market closer to the best international practices.
2025 compliance: 5% statutory reserves until 10% paid-up capital; 9% corporate tax post-AED 375k profits; ICV certification mandatory for government tenders.
Nevertheless, the post-reform era successful capital structuring still needs careful and sector-specific regulations, smart governance design, and clear alignment between capital contribution and control. When properly structured, the joint ventures in the UAE now present an extremely appealing venue for the entry of sustainable foreign investment and the realization of long-term growth.
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Rajiv Tuli is the Managing Partner at LEGALLANDS LLP, based in New Delhi, with over three decades of professional experience. Having begun his career as a Chartered Accountant and then transitioned into legal practice, he brings a unique blend of financial, tax, and legal expertise.
Areas of Expertise
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Corporate & Commercial Law: Advising on mergers & acquisitions, joint ventures, foreign collaborations, business structuring.
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International Trade & Taxation: Deep involvement in inbound/outbound foreign investment, regulatory compliance, customs & excise issues.
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Project Finance & Infrastructure: Experience with banking, financing, and structuring in infrastructure-intensive sectors.
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Litigation & Dispute Resolution: Tax litigation, arbitration, commercial dispute management.
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Specialized sectors: Education, healthcare, gaming, and non-profit structuring for both Indian and international clients.
Thought Leadership & Writing
Rajiv contributes in-depth commentary and analytical writing on topics such as regulation of foreign investment, digital economy law, Free Trade Agreements (FTAs) including CEPA frameworks, and corporate governance. His writing aims to bridge industry practices with evolving global regulatory trends.
Why His Writing Matters
His multi-disciplinary background—financial, legal, regulatory—allows him to present complex topics in accessible form for businesses, investors and legal professionals alike. His insights are particularly valuable for those engaging in India-UAE trade, corporate establishment or regulatory compliance.
