The main methods by which foreign businesses may establish a presence in the UAE are as follows:
Incorporating a limited liability company in the mainland (LLC);
Establishing a branch in the mainland;
Establishing a professional partnership or professional sole proprietorship (with unlimited liability) in mainland.
Establishing a company or opening a Branch in a free trade zone.
The procedures and requirements for establishing a business often involve liaising with a number of institutions and bodies, both local and federal depending on the nature of the venture and the legal structure.
Incorporating a Limited Liability Company (LLC)
Under the Commercial Company Law, foreign investors can conduct business in mainland through a license obtained from Department of Economy Development (DED). LLC is a popular method of doing business in the UAE in all business sectors, with exception to banking, insurance and financial investment which may not be legally carried out by an LLC.
UAE National Partner Requirements
Under the new regime and according to the Activity of the New Company proposed to be set up, foreign investor can setup LLC with 100% ownership. LLC can be incorporated with sole or minimum of two and a maximum of fifty shareholders.
Capital requirements
The minimum share capital imposed is in accordance with the Activity and as may be imposed by the Department. However, it is not required to bring in the Capital at the stage of the incorporation and the same can be inducted at a later stage.
Procedure
An initial application seeking approval of the LLC’s name and activities should first be made to the relevant government registration authority. In Dubai this is the Dubai Department of Economic Development (DDED). In Abu Dhabi the Abu Dhabi Department of Economic Development is the relevant authority. Depending on the type of activity contemplated, special approval from interested ministries or departments may also be required. For example, tourism activity would ordinarily require the approval of the Ministry of Tourism.
A memorandum of association should then be prepared in accordance with the provisions and requirements set out in the Commercial Company Law and signed before a UAE Courts’ Notary Public.
A copy of the EJARI (Rent registration) certificate evidencing the LLC’s lease agreement will also need to be submitted to the relevant government registration department, along with various supporting documents pertaining to the identity of the shareholders and the LLC’s proposed manager.
Provided the application is in order and all necessary fees are paid, the relevant Emirates’ business licensing department will enter the LLC into the Commercial Registry database and issue a licence to operate.
Branches of foreign commercial companies
A foreign company can establish a branch office in the UAE. The registration of branch office of the foreign company does not constitute the establishment of a new company or separate legal entity. Consequently, the foreign company will be fully responsible for the liabilities of its branch office as per the normal legal standard procedure.
A branch office is a fully-fledged business which is granted a commercial licence and is permitted to perform contracts or conduct other activities in the name of its parent company. Such activities must be specified on the branch office trade licence and must be ancillary to the activities of the parent company. Authorities may, however, impose restrictions on the activities undergone by a branch. Such restrictions will vary between Emirates.
Branch office can also be established by UAE bases company in another free zone or mainland.
Procedure
Branch offices must obtain an operating licence from the relevant Emirates’ Department of Economic Development. Once initial approval has been received an application must be made to the Ministry of Economy. The fees charged by each department will vary between Emirates and the approval of other ministries may also be required if the activity is regulated.
Various corporate documents including the parent company’s memorandum of association, audited accounts, certificate of incorporation and board resolutions pertaining to the establishment of the branch office must be submitted to the relevant licensing authority and Ministry of Economy. Powers of Attorney granted by the parent company to the managers or other employees of the branch office will also be required.
Professional Partnerships and Sole Professional Proprietorships
Professional partnerships may be formed between two or more individuals carrying out professional activities. An individual can also conduct such activities through a professional licence issued in his or her own name. These types of businesses may be 100% foreign owned but generally must appoint a UAE national agent as sponsor similar to those needed by a branch office.
Individuals conducting business under a professional partnership or sole professional proprietorship are liable to the full extent of their assets for the liabilities of the business. Examples of professional partnerships/sole professional proprietorships include those rendering legal advice, auditing and accounting services, managerial and economic consultancy, educational services and medical services.
Procedure
Special approvals may be required from concerned ministries/government departments, depending on the activity to be practised.
For example, law firms in Dubai must obtain a professional licence from the Government of Dubai Legal Affairs Department and medical professionals would ordinarily require the approval of the Ministry of Health.
An application for a licence should be made to the Department of Economic Development of the relevant Emirates. Various documents including the national service agent agreement, tenancy contract (Ejari) of the office premises and degree or work experience certificates should be submitted. Certificate(s) of good standing from the foreign body responsible for registering the relevant profession may also be required.
Establishing an Entity in a UAE Free Trade Zone
The UAE’s free trade zones offer foreign investors the opportunity to establish a business presence in the Middle East region with 100% foreign ownership. Unlike most other entities in the UAE, companies operating from the various free zones do not require a UAE national partner or agent. However, if a foreign entity based in the free zones wishes to sell products within the UAE, it may only do so through a distributor or an agent appropriately licensed in the UAE or by obtaining a suitable licence of its own and establishing a Branch through the Department of Economic Development of the relevant Emirates’ licensing authority. However, some of the Free Zones like Meydan free Zone are issuing NOC for establishing office in the mainland area. Also it is possible for a Free Zone entity to hire space/office in various Business centres located in mainland area.
Types of Free Zones
In recent years there has been a proliferation of free zones, with more than Forty currently operating in the UAE. Traditionally the free zones were located around major seaport or airport facilities. Examples include the Jebel Ali and Hamriyah Free Zones which are based around man- made seaports, and the Dubai, Sharjah and Abu Dhabi Airport Free Zones. However, presently many free zones have come up and foreign investor has a varied choice and must choose one according to the requirement. Also as after the introduction of VAT in the UAE, Free Zones have been categorised as Designated Free Zones and Non-designated free Zones. Designated are the ones which are gated Free Zones and has restrictions in entry or exit out of the Free Zone area like Jebel Ali Free Zone.
Types of Free Zones
UAE has host of Free Zones catering to various activities. It is possible to establish branches of foreign companies in the UAE free zones or to incorporate a free zone entity. The types of entities which may be incorporated include single shareholder entities, commonly known as free zone establishments (FZE), and free zone companies(FZC) with commonly two or more shareholders. In most free zones, both free zone establishments and free zone companies will have limited liability. The entities in Free Zone can be 100% owned by foreign investor and the capital and profits are freely repatriable.
Capital requirements
The minimum capital requirements for free zone companies vary significantly between free zones. For example, DMCC incorporated companies have a minimum capital requirement ranging from AED 50,000 to AED1 million. For other free zones a lower capital may be required and some free zones may not prescribe a set capital requirement. However, Capital is not required to be brought in at the stage of incorporation and the same may be inducted at a later stage. There are generally no minimum capital requirements imposed on foreign branch offices operating in free zones.
Procedure
Companies operating in UAE free zones must obtain a suitable operating licence, renewed annually, from the relevant free zone authority and enter into a lease. In most cases it is possible to rent existing office or warehouse space or to custom build premises. The DMCC and some of the other free zones also offer freehold ownership options. Silicon Oasis and various free zones also offer flexi desk solutions for start-up companies with one or two employees whereby an office is not required. Various corporate documents, similar to those required to set up LLCs or branch offices, must be also submitted and regulatory approvals may be required for certain industries.
Dubai International Financial Centre(DIFC)
UAE has also established many Free Zones to cater to specific industries or varied activities. Dubai International Financial Centre (DIFC) is one of the Free Zones which serves the financial sector.
The DIFC is a financial centre which attracts a number of financial services providers as well as insurance companies and legal services providers.
The DIFC is unique amongst the free zones in the UAE as it has its own legislative system of commercial laws and regulations based substantially on the principles of English Common Law. Further, the DIFC has an independent judicial system responsible for the independent administration and enforcement of justice in the DIFC. As well as having exclusive jurisdiction of all civil and commercial disputes arising within the DIFC, parties established outside of the DIFC can choose to have their commercial contractual relationships governed by DIFC law, DIFC courts, or arbitration or mediation in accordance with the DIFC-LCIA Arbitration Centre rules. DIFC has also established DIFC Wills centre where non-Muslims can register their Wills in relation to assets in the UAE.
Other considerations
Legalisation & translation of documents
Most documents originating outside the UAE must be notarised and legalised through diplomatic channels prior to being submitted to the UAE authorities. Once legalised it is usually necessary to obtain a certified Arabic translation of corporate documents before these can be submitted to the UAE authorities. This latter requirement does not apply to free zone licence applicants.
VISA and Emirates ID
VISA and Emirates ID must be obtained by at least one Investor in order to open a bank account in the UAE. This will require the Investor to be physically present in UAE for medical check for VISA and for finger and iris scanning for Emirates ID. Further VISA may be sponsored by the Entity depending upon the VISA quota the Entity has. The quota can be increased in accordance with the regulation of the Free Zone Authority.
Fees and Taxes
Beginning 2018, UAE has imposed Value Added Tax @ 5% across the UAE. However, VAT exemptions are available for exports of goods and services.
Further, the UAE has announced that imposition of Corporate tax @ 9% on Corporate Net Profit for accounting period beginning after June, 2023. However, there will be no Corporate tax on qualifying Free Zone Entities. Further, there is no individual income tax levied in the UAE. There are also no restrictions imposed by the UAE authorities on the repatriation of profits.
Annual fees are payable to the relevant licensing authority in order to obtain and renew business licences. Additional fees for Visas may be imposed and calculated according to the number of employees sponsored by the applicant. Fees are also payable to the relevant Chamber of Commerce and other government departments. The free zones generally impose annual licensing tariffs calculated as a flat fee and charge additional fees to sponsor and renew the work and UAE residence permits of employees.
There is presently a 5% customs import duty on most goods entering the UAE. Additional, and in some cases substantial, duties are payable on luxury products such as alcohol and tobacco.
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