The United Arab Emirates is situated in the crossroad of Asia, Europe and Africa, holding a prime and strategic location for business and trade. While the main language is Arabic, English is widely spoken and usually used in business transactions, making the communication between the transacting parties far easier.
In addition to the above, and due to recent changes to the local Law, UAE allows a foreigner to retain 100% of ownership of their business without the need for a local partner, unless special exemptions apply to permit them. Furthermore, the current taxation code is highly beneficial to businesses and the financial incentives include 0% corporate and income tax rate, no customs duties levied on imports and exports and the option to repatriate 100% of the profits from the business.
Types of Business Establishments in the UAE
1) Mainland Establishments
The most commonly used business forms in the UAE mainland are the Limited Liability Company (LLC) or a branch of a foreign company.
a) Limited Liability Company (LLC)
As per the recent Decree Law No. 26 of 2020, it is now permitted for LLCs to be wholly foreign owned, unless a specific exemption applies to restrict them. LLCs are not subject to any minimum share capital requirement; however, this is at the discretion of the Department of Economic Development and, usually, they require investors to make a paid-up capital injection of at least AED 300,000.
b) Branch of foreign company
Even though the branch entity does not require a local shareholder, however, it is mandatory to appoint a local service agent (LSA) which should be either a UAE national or a company owned by UAE nationals. The LSA’s main role is to facilitate communication with the local government and ministries. Regulating the Conduct of Economic Activities, the relationship between the parent company and LSA must be governed by a notarized agency agreement based on the templated provided by the Department of Economic Development.
2) Free Zone establishments
In the aforementioned establishments, foreign investors can hold up to 100% of the ownership and enjoy various other benefits such as import duty and VAT exemptions. The Free Zone was established solely to attract foreign investments to the UAE.
At the moment, there are over 40 Free Zones in the UAE, each one with its own rules, regulations and authorities which are responsible for licensing and registration matters in relation to foreign entities looking to establish their business in the given Free Zone. These Zones have been established to accommodate specific industries, i.e. technology, finance, media etc.
Investors interested in establishing a business in one of the Free Zones can choose between a Free Zone Company (FZCO) and a Free Zone Establishment (FZE). Each type of company is distinctively different from the other in terms of structure, capital requirements and number of shareholders permitted.
3) Offshore establishments
A number of Free Zones permit foreign investors to establish offshore entities that could act as holding companies within the group structure. These companies are not permitted to perform any activities in the UAE but are allowed to own freehold property within the UAE jurisdiction.
Table 1. Comparison of Mainland and Free Zone Companies
Registration of a UAE company
Generally, the procedure of registration of a UAE company is as follows (in the case of Free Zones, variations may apply depending on the specific Free Zone):
Decide on the business activity
Decide on the trade name
Prepare required documents and provide an official translation. Ensure attestation and legalization of said documents with the UAE Embassy in the country of origin and the Ministries of Foreign Affairs and Justice in the UAE.
Apply for initial approval from the Department of Economic Development
Open a bank account and deposit the share capital into the bank account
Prepare expand to memorandum of association (MoA) and partnership agreement
Establish business location
Obtain final approval from the Department of Economic Development
Obtain commercial license
Register with the Chamber of Commerce, Ministry of Labor and Immigration, the Municipality and Civil Defence.
Typically, the documents requested by the UAE authorities for the purpose of company registration are as follows:
Attested and legalized resolution from the parent company to set up a subsidiary in the UAE
Attested and legalized certificate of incorporation/trade license of the parent company
Passport copy of the directors of the parent company
Attested and legalized memorandum and articles of association of the parent company
Copy of the last financial statements of the parent company
Office lease agreement
Passport copy of the manager to be appointed for the new company
Letter of authorization for a third party to submit documents to the authority on behalf of the parent company
The aforementioned documents should be attested and legalized with the UAE Embassy and the Ministry of Foreign Affairs in the country of origin and with the Ministry of Foreign Affairs in the UAE. Furthermore, all documents should be officially translated in Arabic and attested by the Ministry of Justice in the UAE.
*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.
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