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Plan to relax laws on foreign ownership

Accountants, lawyers and consultants would be able to own bigger stakes of companies they build in the UAE under proposals aimed at liberalising foreign ownership laws.

Accountants, lawyers and consultants would be able to own bigger stakes of companies they build in the UAE under proposals aimed at liberalising foreign ownership laws, say officials from the Ministry of Foreign Trade.

The Government is prepared to relax existing restrictions on ownership of professional service companies under plans to lower barriers to the trade of goods and services between countries, said Juma al Kait, the executive director of foreign trade affairs at the Ministry of Foreign Trade.

"Under our offer we have opened some service sectors to other countries," he told a seminar about the Doha Development Agenda (DDA) yesterday.

"The offer is conditional and is subject to other countries' offers."

The proposals will come into force following a successful resolution of the DDA, a long-running round of trade talks aimed at increasing trade globally.

Globally, officials remain hopeful of a breakthrough in the discussions next year to help guard against the growing risk of a bout of trade protectionist measures breaking out.

In return for increases in foreign ownership, the UAE would expect lower tariffs to be imposed by countries on some of its main exports such as petrochemicals and aluminium. The Government has previously said it is prepared to open up certain sectors of the economy, such as industrial, financial services and high-tech, to foreigners under a revised Companies Law in the pipeline.

The latest moves under discussion open up the potential liberalisation to a much wider section of the economy. Existing laws allow foreigners to own a maximum 49 per cent ownership of businesses, with an Emirati sponsor owning the remainder.

The exceptions are free zones, where foreign companies can have 100 per cent ownership.

Any relaxation of the rules could help boost foreign investment in sectors the country has focused on building up to achieve its aim of developing a knowledge-based economy. The move would also probably be welcomed by the growing number of professional services companies operating in the country.

Some multinational professional services companies have been able to apply for a licence to open a branch of their international businesses outside the free zones with a local sponsor to represent them. Companies pay a fee to the local sponsor annually.

"This would provide a level playing field," said Dean Rolfe, a tax partner and the Middle East tax leader at the professional services firm PricewaterhouseCoopers.

"It would offer more choice to companies about their options for establishing in the UAE, although it may raise new questions specifically around arbitration and dispute resolution solutions."

Although Mr al Kait did not say which professional services companies would benefit from the changes, the sector is usually recognised as including accountants, lawyers, engineers, architects, designers and other consultants. If a final agreement is to be reached on the DDA, the UAE may have to lower its level of bound tariffs, the maximum rate of tariff it can impose on imports of foreign goods.

That limit of 15 per cent is higher than the average 5 per cent tariff it applies to a number of imports such as aluminium, ceramics and plastics, designed to boost demand for domestic goods.

"The UAE is well positioned to benefit from the DDA as it is a sophisticated and open economy," said Peter Pedersen, a councillor at the World Trade Organisation.

The DDA has stalled on a number of issues ranging from agriculture to industrial tariffs and non-tariff barriers since 2001.

But the talks have been given renewed impetus after the recent meeting of the Group of 20 leading and emerging economies in South Korea this month. The US and other world leaders are keen to see an agreement on difficult political decisions required to finalise the agreement after the risk of trade protectionism in the world economy increased due to global currency disputes.

"There's a window of opportunity for the DDA in 2011," said Mr Pedersen. "It will provide a boost to our economy and would not cost national treasuries anything."

tarnold@thenational.ae

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