Establishing business in UAE

Types of companies in UAE

Foreign investors can carry out any activities in the UAE only after being registered and licensed by the relevant authorities in the UAE. In general, a foreign investor can establish a suitable business presence in either the UAE mainland (also commonly known as ‘onshore’) or a business presence ‘offshore’. An ‘offshore’ business presence typically refers to a registration in one of the UAE free trade zones. This type of registration of business inside the free trade zone is not to be confused with the regulatory system for offshore companies (also referred to as ‘International Business Companies’) which exist in certain freezones. In terms of the legal forms, UAE Company Law provides the regulations governing the operations of foreign business. The Federal Law provides for seven categories of business organisation: limited liability company, branches, partnership, joint venture company, public shareholding company, private shareholding company and share partnership company.

However, owing to certain restrictions, the choices commonly adopted by foreign companies in UAE are generally limited to a limited liability company (‘LLC’) or a branch. The other options e.g. partnerships and joint venture etc. are usually not favoured by foreign investors. As per the UAE Commercial Companies Law, the foreign ownership of a LLC may not exceed 49%, with the balance of 51% to be held by a UAE national. The UAE Commercial Companies Law is currently being re-drafted, and the new law is expected to allow 100% foreign ownership (subject to approval from the relevant authorities) for specific industries set up onshore. However, there are no further details at this time as to how this new law will apply. A branch is an extension of the foreign parent company. As such, it is wholly-owned by its parent company and there is no requirement for UAE nationals to take an ‘equity’ interest in the business of the branch. A representative office is broadly similar to a branch, except in that a representative office is only permitted to promote its parent company’s activities and is not permitted to undertake any income earning activities.

Investors also have a choice to set up operations in one of the free trade zones in the UAE. A free trade zone is a geographical area within the UAE that has been established by the UAE government to generally encourage direct foreign investment into the UAE and, as such, there are generally no foreign ownership restrictions, unlike ‘onshore’ entities. That is, foreign investors can set up 100% fully-owned entities in the free trade zones. The principle drawback of a free trade zone is that strictly, entities registered in the free trade zone are not permitted to conduct commercial activities in the UAE, outside of the free trade zone. Currently, there are over 30 established free trade zones in the UAE, of which the majority are in the Emirate of Dubai. The free trade zones also provide a choice of establishing either a company or a branch.

Setting up a company in UAE

International Business Company (IBC) in UAE

Businesses not intending to do any business in the UAE, whether in a free trade zone or onshore, can be set up under the offshore regulatory system. Typically, such businesses act as holding companies for subsidiaries outside the UAE. Under the offshore regulations of certain free trade zones, these companies act as a vehicle to own freehold property onshore.

Limited Liability Company (LLC) in UAE

A LLC can be formed by a minimum of two and a maximum of fifty persons and the minimum capital requirements vary from Emirate to Emirate (e.g. Dubai is AED 300,000, whereas Abu Dhabi requires AED150,000). The foreign minority shareholder is, however, able to exercise control of a LLC through powers vested to the foreign partner in the Memorandum and Articles of Association. It is also possible to attribute profit entitlements in favour of the foreign partner in a ratio other than the respective shareholdings would otherwise suggest. It takes approximately eight to twelve weeks to incorporate a LLC, since there are a number of steps, and supporting legalised documentation, to complete in the incorporation process.

Establish a branch in UAE

A branch has no separate legal personality and is an extension of the foreign parent company. According to Law number 13 of 2011 free zone companies are allowed to set up branches in the wider Emirate, provided they obtain the proper licence from the Department of Economic Development and the approval of the Ministry of Economy. Branch registrations may not be available to all businesses (in broad terms they are permitted for service International Business Companies Businesses not intending to do any business in the UAE, whether in a free trade zone or onshore, can be set up under the offshore regulatory system. Typically, such businesses act as holding companies for subsidiaries outside the UAE. Under the offshore regulations of certain free trade zones, these companies act as a vehicle to own freehold property onshore. Annual filings Under the UAE Commercial Companies Law, most companies or branches are required to have their accounts audited locally, and these accounts will then need to be filed with the appropriate Emirate level authorities on an annual basis as part of the licence renewal filing process. There is also an annual licence renewal fees to be paid which is based on the type of licence, entity and its activities. Similar requirement is for the free trade zone entities, although the requirements and fees vary and need to be considered based on the legal entity set up and its location. Foreign Exchange requirements There are currently no foreign exchange control restrictions in the UAE that may impact the repatriation of profits or capital. providers and contractors) and the trade licence limits the activities of branches to specified permitted activities only. A branch is wholly-owned by its parent company and there is no requirement for UAE nationals to take an ‘equity’ interest in the business of the branch. A UAE national service agent, sometimes referred to as a ‘sponsor’ must, however, be appointed to represent the branch in all administrative dealings with Government departments (such as immigration formalities). The remuneration of the sponsor is normally agreed on an annual fixed fee basis, and is a matter of commercial agreement and can vary depending on the prominence of the sponsor and the precise contribution he makes to the business of the branch. It takes approximately eight to twelve weeks to establish a branch.

Representative office in UAE

A representative office is broadly similar to a branch except, as mentioned above, it is not permitted to undertake any income earning activities. A representative office however, is also required to recruit the services of a UAE national services agent or sponsor. It takes a similar amount of time to set up a representative office as it takes to set up a branch.

Free zone company formation

The free trade zones are governed by their own regulatory authorities and have their own rules and regulations and are seen to adopt an industry focus. This means that the free trade zones are typically tailored to specific industries and only licence specific types of activities. The regulations for establishing and operating a business in the zones are less rigorous and time consuming than those applying to entities located in the ‘onshore’ UAE. The registration requirements are more or less similar across the free trade zones and involve a two-staged process. The first stage is to obtain an initial approval from the free trade zone authority and the next stage is to apply for a trade licence and registration. As mentioned above, the free trade zones also provide a choice of establishing either a company or a branch. The capital requirements (only for companies, not branches), licence categories and fees vary among different free trade zones according to their rules, industry prioritisation as well as the type of entity that is established. It normally takes up to four to six weeks to complete a registration, though this may vary for each free trade zone.