UAE Business Set-up

Investors, all across the world, see the United Arab Emirates (UAE) - the geographic and economic backbone of the Middle East - as a vital element of their operations. It is one of the prime destinations for multinationals to set up their regional base and serve their high growth clients in the Middle East, Africa and South Asia. It is also the perfect location for new business setups across diverse sectors.

Dubai is ranked as the UAE’s most important port and commercial center. It has transformed itself into a widely diversified economy, focusing on all the major sectors, such as, manufacturing, logistics, financial services, information technology, retail, travel, tourism, healthcare, education, and green technologies.

Dubai is considered as an ideal location for business setup and company formation because of the many initiatives it has taken, which range from investing heavily in its transport, telecommunications, energy and industrial infrastructure, to levying no income or capital taxes, except for oil and domestic banking, and withholding taxes, to having zero foreign exchange controls, trade barriers or quotas.

A foreign company, wanting to start a business in the UAE, can either set up a branch office, a representative office or a registered company, or appoint a commercial agent to sell its products in the UAE market or export them to the UAE market. New companies can also choose to conduct their activities from a Free Zone, which is a designated, self-regulated area, set up to catalyze an economic activity within an emirate, and is governed by its own rules and regulations.

It is important for a company, wanting to have a presence in the UAE, to have a full understanding of its options regarding the establishment. One wrong choice and the overall growth of the company may get hampered, so we, at Indigenesis, are here to help you decide the best structure for your needs.

Cost of setting up a business

The cost of setting up a business involves components, such as raising capital investment, paying for licenses and employee visas, and depends on:

the nature of activity and license required; whether it is commercial, industrial or service-oriented, and the legal form of the company; whether it is an establishment, a company, or a branch of a company.

Capital requirements

Capital requirements for a company on the mainland are determined on the basis of the legal form of business. For eg, for a Public Joint Stock Company (PJSC), the minimum capital required is AED 30 million, whereas for a Private Joint Stock Company (PrJSC), it is AED 5 million, paid in full.

The UAE Commercial Companies Law did not specify a minimum capital for other type of businesses. But, it stated that the minimum capital:

  • should be mentioned in the Memorandum of Association
  • should be sufficient to achieve the purpose of business incorporation.

Nationality of partners

The nationality of partners is important to determine the type of business they can set up on the mainland. Following are the type of companies which can only be set up by UAE nationals:

  • Joint liability companies
  • Simple commandite companies (SCC)/li>
  • An industrial or commercial type sole proprietorship
  • Licence for home-based businesses
  • SME licence (in Dubai)

People of other nationalities (excluding the other GCC countries) can conduct other types of businesses, but need to involve a UAE national as a sponsor. The UAE national could be:

a partner with at least 51 per cent ownership of the business, or  a Local Service Agent (LSA), with the investor having a 100 per cent ownership of the business.

Company types that require a UAE national partner:

  • Limited Liability Company (LLC)
  • PJSC - it must have at least 5 founding members who are UAE nationals, owning between 30 per cent and 70 per cent of the capital shares
  • PrJSC  Civil company, with an engineering activity

Company types that require an LSA:

  • A professional type sole establishment
  • Civil company, with no engineering activity
  • Branch of a foreign company

Please note that a GCC national can be a partner in any form of business, except the following:

  • A representative office
  • Simple commandite companies (SCC)

Benefits of setting up a business on the mainland

Some of the benefits of setting up a business on the mainland are as follows:

  • Flexibility to do business in any part of the UAE
  • Convenient registration and approval processes
  • No limit on number of visas
  • More business activities available for licensing
  • No minimum capital investment requirement
  • Permission to undertake government projects
  • Exemption from any business or personal tax charges

REGISTRATION OF A FREEZONE COMPANY IN THE UNITED ARAB EMIRATES:

For international investors who seek 100% ownership of their business, a UAE freezone company is the best option. Freedom to operate a business, licence to employ unlimited number of foreign workers, minimal government intrusion, tax exemption, inexpensive setup and maintenance costs, and other factors make UAE freezones the most attractive area for company formation and attract investors. Investors can select between a UAE Free Zone Business License Package with Zero Visa Quota starting at AED 11,500 and a UAE Free Zone Business License Package with Zero Visa Quota starting at AED 11,500.

There are more than 42 freezones in the UAE, each with its own set of rules. More than 8000 businesses have registered in each major freezone.  Each freezone has its own set of requirements, for forming a business.

Entrepreneurs can select from a variety of Free Zones in Dubai, Sharjah, and other emirates based on their business requirements and budget. The cost of establishing a company in the Dubai Airport Free Zone begins at AED 30,900 for a Smart Desk Office package with two visa quotas. Sharjah Airport International Free Zone, meanwhile, offers company registration options starting at AED 10,800 for three visa quotas.

Planning to set up a business in a free zone:

If a company does not know a UAE national, to partner with, or wish to partner with a UAE national, it can set up a business in a free zone. A free zone offers 100 per cent foreign ownership to the enterprise.

What is a free zone?

According to Dubai Multi Commodities Centre (DMCC), a free zone or a free trade zone or a free economic zone is a designated geographical area, where certain taxes or restrictions on businesses, employments or trades do not apply in the same manner as they apply to the country in which the zone is located.

In a free zone, goods may be landed, handled, manufactured, reconfigured or re-exported without the intervention of the customs authorities. They become subject to the prevailing customs duties only when they are moved to consumers within the country in which the zone is located.

A free zone is often organized around areas, offering many geographical advantages for trade, such as major seaports, international airports, and national frontiers.

Benefits of setting up a business in a free zone

  • 100 percent foreign ownership
  • 100 percent repatriation of capital and profits
  • 100 percent exemption from import and export tax
  • 100 percent exemption from corporate and personal tax
  • Absence of currency restrictions
  • Easy start-up and licensing procedures

Mainland Company in UAE:

The UAE is one of the safest countries in the world, as well as the Middle East's trading hub. As a tax haven with a strong banking network, businessmen see the UAE as an ideal location to establish a company and a bank account.

According to UAE Commercial Company Law, a company is defined as a contract in which two or more people agree to participate in an economic enterprise with the goal of profit realisation by contributing a share of capital or work and dividing the enterprise's profit or loss among themselves. According to Article 8, Clause 3 of the CCL, a company can be incorporated or held by a single person in accordance with the provisions of this Law.

Limited Liability Company (LLC) is a popular business structure on the UAE mainland. Investors can form a Limited Liability Company with as few as two shareholders and as many as fifty. The UAE National Sponsor is the majority shareholder (51 percent ownership of the company), and the remaining 49 percent ownership can be retained by foreign investors.

The recent cabinet decision allows expatriates to own 100 percent of mainland companies in selected industry sectors, eliminating the need for a local sponsor in those industries and business activities.

The amendments to Federal Law No. 2 of 2015 on Commercial Companies, as well as the amended Law No. 26 of 2020, apply to any entity engaged in commercial, financial, industrial, agricultural, real estate, or other types of economic activities on the mainland.

The expat's 100 percent ownership in a mainland company is subject to certain capital requirements and conditions outlined in the UAE Government's Cabinet decision. The minimum share capital required to obtain 100 percent ownership in mainland (onshore) companies in the UAE ranges between AED 2 million and AED 100 million, depending on the industry sector and business activity selected by the investor.

Other types of company structures exist on the UAE mainland. Investors can select them by evaluating the company's requirements and business objectives. Expert Business Consultants at INDIGENESIS will walk you through the various available Company Structures in the UAE Mainland and help you select the best option for your company.

FORMS OF COMPANIES:

1. SOLE PROPRIETORSHIP

A sole proprietorship is a business owned by an individual rather than a corporation. This individual will own 100% of the company, control all aspects of its operations, and keep 100% of any profits. He or she will also be fully responsible for business obligations and other financial obligations.

2. CIVIL COMPANY

A Civil Company is a professional business partnership made up of doctors, lawyers, engineers, and accountants.

3. LIMITED LIABILITY COMPANY FOR ONE PERSON

One natural or corporate body owns a one-person limited liability company. This company differs from others in that a contract must be signed by at least two parties. One person makes up the one-person company. It is similar to a sole proprietorship, but there are a few differences, the most important of which is that its liability is limited to the single partner's share, whereas the liability in a sole proprietorship is unlimited.

4. PRIVATE SHARES COMPANY

A Private Shareholding Company (Private Joint-Stock Company) is a partnership of between two and two hundred people. The partners in the business must invest a minimum of AED 5,000,000.

5. COMPANY HOLDING PUBLIC SHARE (PUBLIC JOINT STOCK COMPANY)

The Public Share Holding Company is a PJSC company whose capital is divided into transferable shares of equal value.

6. COMPANY WITH LIMITED LIABILITY

A Limited Liability Company (LLC) is a versatile business structure that combines elements of partnership and corporate structures. An LLC must have 2-50 investors, each of whom is only liable to the extent of his or her share of the company's capital. An LLC, with the exception of a public shareholding organisation, can be changed to any other legal form.

7. SIMPLE LIMITED LIABILITY COMPANY

A simple limited partnership is formed by at least two partners, one general partner and one limited partner. The general partners are liable for the company's liabilities to the extent of their personal and business assets; the limited partners are liable for a share of company liabilities equal to their share of the company's assets.

8. COMPANY IN PARTNERSHIP

The Partnership Company is a single business in which two or more people share ownership. Unless a contract assigns administration to one partner or another party, each partner contributes to every aspect of the business, and the company must be administered.

9. BRANCH OF A FOREIGN COMPANY

A foreign company's branch can engage in professional, commercial, and industrial activities. A permit from the Ministry of Economy is required to engage in commercial and industrial activities.

10. OFFICE OF REPRESENTATION

A Representative Office for Commercial Activities is not a separate business structure, but it is a business activity that a branch can carry out. It has its own criteria, which include the authority to promote and market the parent company's business – but not to conduct business operations. A Local Service Agent (LSA) is required for a Representative Office, who can be a UAE National or a company owned by at least one UAE National.

The Agent's obligations to the company and third parties are limited to providing necessary services to the company without incurring any financial liabilities or commitments related to the company or its branches and offices within and outside the State.

11. DUBAI-BASED COMPANY OFFICE

A branch of a Dubai-based company must carry out one or more of the activities listed in the main company's licence. If a company has multiple branches, each branch can carry out different activities as long as they are all covered by the main company's original licence.

12. OFFICE OF A COMPANY BASED IN THE UAE

A branch of a UAE-based company must carry out one or more of the activities listed on the main company's licence. For a company with multiple branches, different activities can be undertaken by each branch as long as they are all included in the original licence for the main company.

13. A GCC-BASED COMPANY'S OFFICE

A GCC-based company's branch must carry out one or more of the activities listed in the main company's licence. For a company with multiple branches, different activities can be undertaken by each branch as long as they are all included in the original licence for the main company. While other GCC countries may have different rules for combining activities, Dubai branch licences will only accept activities from the same group, regardless of whether other activities are registered in the GCC main company.

14. A FREE ZONE COMPANY'S OFFICE

A free zone company's branch can conduct professional, commercial, and industrial activities as long as the main company's activity is permitted in mainland Dubai. If your company's main licence was issued in a UAE free zone (rather than as a branch of a foreign company), you can apply for a branch licence from DED to expand your operations to mainland Dubai.

15. INTELAQ (Home-based business for UAE Nationals)

Only UAE nationals can establish an Intelaq License Company. It is a home-based business that can operate in almost any professional, trade, or artisan field. To operate in a residential setting, the business must be reasonable. The business must not harm the environment or a person's health, and it must also not generate noise or other irritants that could negatively impact neighbours. The following legal forms are available: Sole proprietorship, limited liability company, civil company, and partnership are all examples of sole proprietorships. Employees cannot be sponsored by Intelaq licence holders.

16. SME LICENSE

An SME licence can be granted to businesses owned entirely by UAE nationals and can take any legal form. This licence lasts three years and allows the owners to sponsor employees.