Federal Law No. 32 of 2021: UAE Commercial Companies Law Explained

Federal Law No. 32 of 2021 on Commercial Companies represents the most significant overhaul of UAE corporate legislation since the original 1984 law, fundamentally transforming foreign ownership rules, audit requirements, corporate governance standards, and filing obligations for all UAE mainland companies.

Background and Effective Date

Federal Law No. 32 of 2021 replaced Federal Law No. 2 of 2015, taking effect January 2, 2022. This landmark legislation modernized UAE's business environment to attract foreign investment and align with international best practices.

100% Foreign Ownership Revolution

Previous Regime

Before Law 32/2021:

• Most business activities required 51% UAE national ownership
• Foreign investors limited to 49% ownership
• Local service agent or sponsor often required
• Complex nominee arrangements common

New Regime Under Law 32/2021

100% Foreign Ownership Permitted: Foreign individuals and companies can own 100% of UAE mainland companies for most commercial activities.

Exceptions (still requiring UAE participation):

• Activities of strategic impact (determined by Cabinet decision)
• Certain natural resource exploitation
• Specific security-sensitive sectors

Audit Implications: Enhanced beneficial ownership transparency required; auditors verify UBO register accurately reflects actual ownership without nominee arrangements.

Enhanced Audit Requirements

Company Size Classification

Law 32/2021 introduced three-tier classification system:

Small Companies (meeting 2 of 3 criteria):

• Revenue < AED 50 million
• Assets < AED 25 million
• Employees < 50

Medium Companies (meeting 2 of 3 criteria):

• Revenue AED 50-200 million
• Assets AED 25-100 million
• Employees 50-250

Large Companies (exceeding 2 of 3):

• Revenue > AED 200 million
• Assets > AED 100 million
• Employees > 250

Audit Obligation by Company Size

Small Companies: Audit optional unless specific activities or turnover thresholds met

Medium and Large Companies: Mandatory annual audit by Ministry-approved auditor

All Public Joint Stock Companies (PJSC): Mandatory audit regardless of size

Audit Exemptions: Certain small companies may be exempt, but Ministry may require audit for specific reasons (regulatory concern, stakeholder request).

Beneficial Ownership Transparency

Ultimate Beneficial Owner (UBO) Requirements

Law 32/2021 mandates all companies maintain beneficial ownership register identifying:

Who Qualifies as UBO:

• Natural person owning 25% or more (directly or indirectly)
• Natural person exercising control through other means (voting rights, board appointments)

Information Required:

• Full name and nationality
• Passport number and expiry
• Residential address
• Ownership percentage
• Date of becoming UBO

Indirect Ownership: If Company A owns 60% of Company B, and Mr. Ahmed owns 50% of Company A, Mr. Ahmed indirectly owns 30% of Company B (qualifies as UBO).

Audit Verification of UBO

Auditor's Responsibilities:

• Verify company maintains UBO register
• Review ownership structure documentation
• Trace complex structures to natural persons
• Assess disclosure accuracy
• Report non-compliance to Ministry if material

Common Audit Findings:

• UBO register shows corporate entities instead of natural persons (incorrect)
• Indirect ownership not traced to ultimate natural person
• Register not updated for ownership changes during year

Corporate Governance Requirements

Board of Directors Responsibilities

Law 32/2021 enhanced board obligations:

Fiduciary Duties: Directors must act in company's best interests with duty of care and loyalty

Financial Statement Approval: Board must approve financial statements before audit

Internal Controls: Board responsible for establishing adequate internal control systems

Compliance Oversight: Board ensures company complies with all applicable laws

Audit Implications:

• Verify board minutes document financial statement approval
• Assess internal control environment adequacy
• Review board's oversight of compliance risks
• Evaluate director independence (especially for PJSCs)

Audit Committee Requirements

PJSCs Must Establish Audit Committee with:

• Minimum 3 members
• Majority independent directors
• Financial expertise required

Audit Committee Responsibilities:

• Oversee external audit process
• Review financial statements
• Monitor internal controls
• Assess compliance with regulations

Audit Procedures: Review audit committee charter, verify committee composition, assess committee meeting frequency and documentation.

Filing Deadlines and Penalties

Financial Statement Filing Requirements

Large Companies: File within 90 days of year-end

Medium Companies: File within 120 days of year-end

Small Companies (if required): File within 150 days of year-end

Example for December 31 Year-End:

• Large: April 1 deadline
• Medium: April 30 deadline
• Small: May 31 deadline

Penalties for Non-Compliance

Late Filing:

• 1-30 days late: AED 10,000
• 31-60 days: AED 25,000
• 61-90 days: AED 50,000
• 90+ days: AED 50,000 + potential license suspension

Non-Filing: License suspension, potential company dissolution

Incorrect Information: Fines up to AED 100,000 for materially false or misleading filings

Capital and Share Structure Changes

Minimum Capital Requirements

LLC (Limited Liability Company): No minimum capital requirement (previously AED 300,000 for most DED licenses)

PJSC: AED 30 million minimum (up from AED 10 million)

Private Joint Stock Company: AED 5 million minimum (up from AED 2 million)

Share Transfer Restrictions

LLC: Members can freely transfer shares to other members; external transfers require majority member approval

Joint Stock Companies: Shares freely transferable unless restricted by Articles of Association

Audit Implications: Verify share transfers properly authorized and documented, assess whether pre-emption rights exercised, confirm share register updated.

Compliance Checklist Under Law 32/2021

For All Companies

• ☑ Maintain updated beneficial ownership register
• ☑ Ensure Articles of Association aligned with new law
• ☑ File annual financial statements within applicable deadline
• ☑ Maintain statutory books (minutes, resolutions, contracts)
• ☑ Comply with audit requirements for company size

For Public Joint Stock Companies

• ☑ Establish audit committee (minimum 3 members, majority independent)
• ☑ Appoint compliance officer
• ☑ Implement enhanced governance controls
• ☑ Prepare detailed annual governance report
• ☑ Ensure minimum capital maintained (AED 30M)

For Foreign-Owned Companies

• ☑ Verify activities not on restricted list
• ☑ Document actual ownership clearly (no nominees)
• ☑ Maintain transparent ownership structure
• ☑ File beneficial ownership with relevant authorities

Audit Implications Summary

Enhanced Transparency: UBO disclosure and foreign ownership transparency increase auditor scrutiny on ownership structures.

Stricter Deadlines: Compressed filing timelines require earlier audit engagement and faster completion.

Governance Focus: Stronger governance requirements mean auditors assess board effectiveness, audit committee functioning, and internal controls more rigorously.

Penalty Risk: Significant penalties for non-compliance require auditors to emphasize deadline adherence and accurate disclosure.

Transitional Provisions

Companies had 12 months from effective date (until January 2, 2023) to:

• Update Articles of Association
• Establish required committees (for PJSCs)
• Update beneficial ownership registers
• Comply with new capital requirements

Most companies completed transition by end of 2022; however, auditors continue verifying full compliance with all provisions.

Conclusion

Federal Law No. 32 of 2021 represents a fundamental modernization of UAE corporate law, introducing foreign ownership liberalization alongside enhanced governance, transparency, and audit requirements. The law's compressed filing deadlines, beneficial ownership obligations, and strengthened audit thresholds create significant compliance implications for all UAE mainland businesses.

As Ministry-approved auditors with deep expertise in UAE Commercial Companies Law requirements, Farahat & Co guides businesses through Law 32/2021 compliance including audit requirement assessment, beneficial ownership verification, filing deadline management, and corporate governance enhancement, ensuring full regulatory compliance under the modernized legal framework.