UAE Government repeals Anti-Fronting Law

Federal Decree-Law No. (26) of 2024 has cancelled Federal Law No. 17/2004 concerning Combating Commercial Concealment (the Anti-Fronting Law), with effect from 1 October 2024.

History of the Anti-fronting Law

One of the last legislative acts of the late President of the UAE, H.H. Sheikh Zayed, was to pass the Anti-Fronting Law. Recognising the potentially serious consequences on business practices in the UAE, however, the Law provided that it would take effect three years from the date of its publication in November 2004.

Although the Anti-Fronting Law was generally considered to be in force, its implementation was postponed year after year.

The Law defined 'fronting' as “enabling a foreigner - whether a natural or a corporate person - to carry on any economic or professional activity prohibited for him by the laws and resolutions in force in the UAE, be it for his own account or in collaboration with others, or enabling him to evade his responsibilities”.

The "fronting of any foreigner" might, for example, have included allowing a foreigner to use the name of a UAE national, or their commercial registration, or providing other assistance to enable the foreigner to conduct business in the UAE without following the correct processes.

The fine levied for contravention of the Fronting Law was set at a maximum of AED 100,000 and a repeat offence carried with it a further fine and a possible prison sentence of up to two years. In addition, an offender’s registration for the fronted activity could be cancelled for a period of between two and five years.  

It was not possible predict, with any certainty, how the Fronting Law would be interpreted in practice by the courts in the UAE and, to our knowledge, the Law was never actively prosecuted.  

Foreign ownership

UAE law previously imposed general foreign ownership restrictions under which at least 51 per cent of the capital of a company established 'onshore' (i.e. outside a free zone) in the UAE had to be owned by one or more UAE nationals unless an exemption applied. The UAE significantly relaxed these legal restrictions on foreign direct investment in 2021. A UAE company may now be wholly owned by a non-UAE national, unless specific restrictions apply to limit foreign ownership in the particular sector.  

Over the years, in order to address these foreign ownership restrictions, certain arrangements developed, often referred to as 'protective schemes' or 'nominee arrangements'. In essence, these arrangements involve putting in place contractual documentation between a UAE national shareholder and a foreign investor to pass greater control and proportionately more of the economic interest in an onshore company to the foreign investor than the required 51/49 capital split. In return, the UAE national typically receives a fee. These schemes are typically carefully structured, often involving a complex set of agreements, to avoid any potential breach of the Anti-Fronting Law. Many such schemes remain in place today, particularly in sectors which still include limits on foreign ownership.  

Next steps

The repeal of the Anti-Fronting Law is a logical next step to the UAE's decision to relax its foreign ownership restrictions and will be welcomed by foreign investors, UAE businesses, and legal practitioners in the country.   

If you would like further information or advice on the Anti-Fronting Law, please contact Benjamin Smith or Julia Ofer.