Lawyers have voiced disappointment at a decision to delay UAE legislation that would allow expatriates to take a majority share in a business.
It follows the decision by the Federal National Council (FNC) on Wednesday to reject the draft companies law in its current form.
Instead, members of the government advisory body decided the most keenly anticipated part of the legislation - an easing of the existing 49 per cent restriction on foreign ownership - should instead be part of the investors law, which is not due to be discussed until after the summer break.
"It's disappointing and damaging for the business environment in UAE as it causes uncertainty - and markets hate uncertainty," said Niall O'Toole, a managing partner at the Abu Dhabi office of Clyde & Co.
Considered a key plank in efforts to modernise the business environment, the companies law will set out a framework for how companies should be run.
But it was the foreign ownership component of the law that was being most closely watched by prospective international investors. Currently, at least 51 per cent of a business has to be owned by an Emirati if it is located outside a free zone.
Following a two-day review of the draft law, FNC members agreed with the Minister of Economy, Sultan Al Mansouri, last week to move that piece of the legislation to the investment law, which focuses on foreign investment. In its current form, that law offers statutory protection rights to investors.
FNC members felt the companies law should focus more on Emirati business. But lawyers say an easing of foreign ownership limits would help to bolster new start-ups including local companies.
"We will continue to prosper as a country but it will certainly be considered a setback to start-up businesses in so far as it will limit the number and magnitude of investment that can flow into the country," said Faraj Ahnish, the managing partner of Hadef & Partners in Abu Dhabi.
In its current format, the companies law has remained in the planning stage for several years. The existing draft dates from 2006. Dating from 1984, the current companies law is considered inadequate for overseeing the country's now vibrant business climate.
"Given the scale of foreign investment in the UAE economy, it is important that these laws clarify the extent of foreign ownership which will be permitted," said Mr O'Toole.