Standard Auditing – Your Partner in Success
A Business Guide for the Formation of a Company in UAE
- Doing Business in UAE
- Companies locally registered
- Free Zones in UAE
- Offshore Companies
- Our Services
Doing Business in UAE
The Market in UAE is the leading regional trading hub; it offers access to a market of outstanding potential for overseas companies. Among its key characteristics are:
- A growing market of UAE , imports have more than doubled since 1989; regional economic growth and liberalization is set to boost demand;
- A prosperous market – strategic location at the heart of one of the world’s richest regions – the U.A.E. is the prime location for business with Saudi Arabia, Iran, India and Iraq.
- A diversified market – wide import requirements; opportunities for suppliers of most products.
UAE has Double Taxation Avoidance /Agreements (DTAA) with a number of countries, in particular Austria, Belarus, Belgium, Canada, China, Czech Rep., Egypt, Finland, France, Germany, India, Indonesia, Italy, South-Korea, Lebanon, Luxembourg, Malaysia, Malta, Mauritius, Morocco, New Zealand, Netherlands, Pakistan, Poland, Romania, Seychelles, Singapore, Spain, Sudan, Thailand, Tunisia, Turkey, Ukraine, Libya – among others.
UAE offers incoming businesses all the advantages of a highly developed economy. The infrastructure and services match the highest international standards, facilitating efficiency, quality and service. Among the benefits are:
- Free enterprise system
- Prices have significantly decreased in the market which makes it al lot more affordable for investors
- Highly developed transport infrastructure
- State-of-the-art telecommunications
- Excellent financial and services sector
- The best international exhibition and conference venue
- High quality office and residential accommodation
- Reliable power, utilities etc.
- First class hotels, hospitals, schools, shops etc. Cosmopolitan lifestyle.
UAE Business Climate
- Doing business in the UAE is very attractive due to the following reasons :
- No personal income and capital taxes
- No corporate taxation
- 100% repatriation of capital and profits
- No currency restrictions
- Competitive import duties (5% with many exemptions).
- Modern efficient communication facilities
- Abundant and inexpensive energy supply
- Simple staff recruitment procedures
- Competitive freight charges
- Competitive real estate costs.
- Easy access to both sea and airports.
There is no corporate tax or personal tax in the UAE. The only exceptions to this are oil producing companies and branches of foreign banks. Direct taxation is against the traditions of the UAE and it is highly unlikely that it will be introduced in the near future.
Currency and Exchange rate
There are no exchange controls in the UAE and its currency, the UAE Dirham, is freely convertible. The Dirham is linked to the US dollar, the currency by which oil prices are measured. The exchange rate has remained at Dh 3.675 = US$ 1 since 1977.
Onshore (locally registered) business entities – UAE
The basic requirement for all business activity in UAE is in the following three categories of licenses:
- Commercial licenses covering all kinds of trading activity;
- Professional licenses covering professions, services, craftsmen and artisans;
- Industrial licenses for establishing industrial or manufacturing activity.
Some categories of businesses require approval from ministries as well: for example, banks and financial institutions from the Central Bank of the UAE; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health; branch of foreign company from the ministry of Economy and Commerce. More detailed procedures apply to businesses engaged in oil or gas production and related industries.
Fifty-one percent participation by UAE nationals is the general requirement for all UAE established companies except:
- Where the law requires 100% local ownership;
- In the Free Trade Zones where 100% foreign ownership is permitted;
- In activities open to 100% AGCC ownership;
- Where wholly owned AGCC companies enter into partnership with UAE nationals;
- In respect of foreign companies registering branches or a representative office in Dubai;
- In professional or artisan companies where 100% foreign ownership is permitted.
Procedures governing the operations of foreign business interests
In practice, however, Dubai and the other emirates followed the same general system, whereby foreign companies operated in one of three ways: with a local sponsor, through a partnership with a UAE national or company, or through a private limited company or public shareholding company incorporated by Ruler’s decree. Since 1984, steps have been taken to introduce a codified companies law applicable throughout the UAE. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 – the “Commercial Companies Law” – and its by-laws have been issued. In broad terms the provisions of the Law are as follows: The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organization which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.
Limited Liability Company
The limited liability company (LLC) is the most widely used commercial entity for companies with a non-UAE national element wishing to conduct commercial activities in Dubai. An LLC is a private company and shares in it cannot be offered to the public. Shareholders, as the name suggests, benefit from limited liability.
The Companies Law requires at least 51 per cent of the shares in any UAE company (including an LLC) to be held by a UAE national(s).* However, the Companies Law permits shareholders of an LLC to agree on an economic benefit that deviates from this shareholding ratio. This means that, up to a certain percentage, profits and losses of an LLC may be distributed disproportionately among the shareholders (including where the shareholders are both UAE and non-UAE nationals). The ratio should be set out in the LLC’s memorandum and articles of association (also referred to as the contract of establishment).
An LLC is required to have a minimum of two shareholders and a maximum of 50 shareholders.
A recent amendment to the Companies Law (effective since 1 June 2009) has eliminated the minimum share capital requirement of LLCs. Founders of LLCs are now given the flexibility to determine the capital required for the establishment and sustainability of such companies. Shares of an LLC cannot be other than ‘equal shares’ (ie different classes of shares cannot be issued).
There are no nationality restrictions regarding the management of an LLC. It may be managed by a sole director and may have up to five directors. An LLC may not conduct the business of insurance, banking or the investment of money on behalf of third parties.
Several administrative steps must be completed before the incorporation of an LLC is affected. In short, the process includes the reservation of a trade name,**obtaining initial approval from the sector-specific regulator(s) (if any) notarizing the memorandum and articles of association,*** depositing the share capital and obtaining the DED’s approval or any other approval(s), as the case may be. The LLC will then be issued the requested license and will need to be registered with the Chamber of Commerce and Industry.
Public joint-stock company
A public joint-stock company (PJSC) is very similar to a UK public limited company or GermanAktiengesesallschaft (AG). It requires a minimum share capital of AED10m and, unless founded by the state or an emirate government, a minimum of 10 founders, who are responsible for the incorporation of the company.
Shares in a PJSC must be offered for public subscription and the subscription notices must be published in two local daily Arabic newspapers. The founders are obliged to subscribe for a minimum of 20 per cent of the share capital (but must not exceed 45 per cent). The Companies
Law does not permit a PJSC to issue different classes of shares or shares that carry different rights and entitlements.
A PJSC is required to have between three and 15 directors, who are elected for three years. The chairman and a majority of the board of directors must be UAE nationals.
Private joint-stock company
A private joint-stock company (private JSC) is similar to a UK private limited company. It requires a minimum share capital of AED2m and a minimum of three founding shareholders. Shares in a private JSC may not be offered for public subscription but in all other respects provisions applicable to a PJSC apply equally to a private JSC.
The rest of the legal forms
The other four entities are not commonly used in the UAE for several reasons, including restrictions on foreign ownership and foreign management.
Branch/representative office of foreign commercial companies
The Companies Law regulates the operation of branch and representative offices of foreign companies in the UAE. These may be wholly owned by a foreign entity, provided that a UAE national is appointed as local agent. The agent’s role is further discussed below.
As a general rule, a branch of a foreign company may carry out activities similar to those of its parent company. However, the activities that may be carried out through a branch of a foreign company are limited to those permitted by the UAE Ministry of Economy from time to time.
A representative office’s activities are restricted to promoting the activities of its foreign parent company through, for example, gathering information and soliciting orders and projects to be performed by the company’s head office. It is not, however, permitted to carry out the parent company’s activities. Representative offices are also restricted over the number of employees that they can sponsor and, due to these constraints, representative offices tend to act as administrative and marketing centre for their foreign parent companies.
Branches of foreign companies and representative offices are required to appoint a local service agent. The agent’s role is to assist generally with administrative matters such as obtaining visas and licenses and dealing with local authorities. A local service agent is generally paid a fixed fee and does not have a right to participate in any profits from the branch or representative office.
A branch or representative office must be registered on the registry of foreign companies at the Ministry of Economy before it starts trading.
Professional services establishments and companies
As a general rule, but with a few exceptions, a professional firm that carries out only professional as opposed to commercial activities is permitted to be wholly owned by non-UAE nationals. Professional firms may be in the form of a sole proprietorship or a civil company; both these corporate forms have unlimited liability. Such firms may engage in professional or artisan activities. A UAE national must be appointed as local service agent for sole proprietorship. The agent shall have no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover. His role is similar to that of the agent appointed by a branch of a foreign company, as set out above.
- Under a UAE cabinet resolution, Gulf Co-operation Council (GCC) nationals enjoy preferential treatment and may hold up to 100 per cent of a UAE company, provided there are no non-GCC shareholders in the company. If any non-GCC national becomes a shareholder in any UAE company, UAE nationals must then hold at least 51 per cent of the issued share capital.
- The Companies Law sets out various requirements that must be followed when naming an LLC: these include a requirement to derive the name from either the business’s purpose or the name of one or more of its shareholders.
- The DED provides a very basic standard form of memorandum of association, which may be deviated from to the extent that such deviation complies with UAE law.
Free zones in UAE
Businesses wishing to operate in Dubai should be aware that several zones, known as ‘free zones’, have been established to ease foreign investment in Dubai. However, businesses operating within a free zone are restricted over the types of dealings they may conduct outside the designated free zones. Businesses wishing to conduct business in the mainland UAE must comply with the requirements of the Companies Law and other relevant laws applicable to the respective industry. Below is an overview of the most popular methods used by foreign companies to operate in Dubai within a free zone.
Companies incorporated and operating within the free zones are not subject to many of the restrictions imposed by the Companies Law and other UAE laws and regulations. Entities operating within the free zone may be wholly owned by foreigners, who benefit from a guarantee that tax will not be applied for a certain period, notwithstanding any subsequent change to federal or local laws.
There are around 30 free zones in Dubai including the Dubai International Financial Centre (DIFC), the Jebel Ali Free Zone (JAFZ), the Dubai Airport Free Zone (DAFZ), the Dubai Technology and Media Free Zone (TECOM), the Dubai Health Care City, the Dubai Multi Commodities Centre and the Gold and Diamond Park etc…
The commercial activity that will be carried out normally dictates which free zone should be used. For example, the DAFZ is intended for businesses that import and export goods and the business activities permitted in the TECOM include ‘design, development, use and maintenance of everything related to information technology, e-commerce and media’.
The JAFZ is the largest and oldest free zone in Dubai; it was established in 1985.
Each free zone is governed by an independent free zone authority (FZA), which, among other things, is responsible for drafting and implementing the zone’s regulations, policies and strategies and for issuing the necessary operating licenses for operation within the zone.
The Free Trade Zones have been set up with the specific purpose of facilitating investment. The procedures for investing in the free zones are relatively simple.
The companies operating in the Free Zones are treated as being offshore or outside the UAE for legal purposes.
The free zones are suitable for companies intending to use UAE as a regional manufacturing or distribution base, with the bulk of their business outside the UAE.
Type of Entity:
A UAE Free Zone Company can be established in the following ways:
A branch of an existing company
Foreign Branch – A foreign affiliate that is legally a part of a firm residing outside of the UAE
Local Branch – A domestic affiliate that is legally a part of a firm residing in the UAE
A new establishment
Free Zone Company (FZCO) – A new business entity which is owned by 2 – 5 partners.
Free Zone Establishment (FZE) – A new business entity with a sole business owner.
Such companies can be owned 100% by foreign investor with no involvement of local partner or sponsor.
A UAE Free Zone company offers the following incentives to investors:
- 100% foreign ownership.
- No corporate taxation for 50 years – a concession that’s renewable.
- Freedom to repatriate capital and income in totality
- No personal income tax.
- Full exemption from import duties.
- No currency restrictions
- No bureaucratic red-tape.
- No recruitment problems.
- Modern efficient communication
- State of the art infrastructure.
- Abundant energy.
- Attractive working environment.
- Owned premises on leased land can be mortgaged.
Types of Licenses:
Activities allowed: Import raw materials, manufacturing, processing, assembling, packaging, and exporting finished products.
Activities allowed: Import, export, distribution, consolidation, storage or warehousing of items specified on the License. Maximum limit is seven similar product lines.
Consulting and Service License
Activities allowed: Offering consulting services in management, finance, investment, legal issues, labor relations, economics (including feasibility studies), industrial development, marketing, and related subjects. Other services include logistical support such as: restaurants or food outlets, catering services, travel agencies, leisure and social activities, insurance, cargo & freight forwarding, accounting, and audition services.
Commercial – General Trading License
A General Trading License can be obtained under a Commercial License, which allows for more than seven product lines.
Offshore companies (IBC) – UAE
What makes the establishment of UAE offshore companies very attractive for investors all over the globe is the pull of its taxation system and the privacy that it provides to offshore companies. If you plan on incorporating in UAE through the offshore company structure, you will be exempt from paying any corporate tax, whether on profit or any other form of capital gains.
Secondly, UAE offshore companies enjoy a level of privacy and security that is maintained by the fact that Dubai has not entered into any contract regarding exchange of information with other countries, seeing that doing so would not result in any taxation profit whatsoever. Thus, going into the offshore business would give any investor the smart advantage of keeping his affairs private and secure, and away from the prying eyes of any public or private entities. Even when you choose to open a bank account, your financial undertakings will still be kept in high confidentiality, assuring you of the strictest standards in privacy and asset protection.
UAE is definitely one of the most ideal locations for off shoring, and it is not difficult to see why. An attractive taxation system and the lack of exchange of information requirements make this country an excellent area to reduce costs and maintain confidentiality on affairs. Costs can be greatly minimized due to the absence of corporate taxation, since tax rates can take up a huge chunk on the total expenses of any business. Dubai offshore companies are definitely worth looking into when considering locations in doing business offshore.
UAE has two main Offshore Authorities; one is located in the Jebel Ali Free Zone (JAFZA) and the other in Ras Al Khaimah (RAK).
The Offshore Company can be used for:
- International consulting
- Receiving commissions
- Holding intellectual property
- Top-holding of a corporate structure
- Acquiring local real estate
E-commerce business (except websites with porn, gambling or anti-Islam topics).