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The most adopted legal structure in mainland UAE is a Limited Liability Company (LLC) and a Branch Office (Branch). In addition, it is also possible to establish a Representative Office (also known as a Liaison Office) which is a legal structure identical to that of a Branch, however its activities are limited to serving as an administrative and marketing center for the parent company.
LOCAL LIMITED LIABILITY COMPANY (LLC)
An LLC is a separate and distinct legal entity with limited liability. It requires 51% of the total shareholding to be owned by a UAE national or a company wholly owned by UAE nationals.
The UAE government has recently introduced the Foreign Direct Investment (FDI) law which can ease the requirement for a 51% shareholding held by a UAE national or company. It will be possible for foreign ownership to therefore exceed 49% contingent upon which economic sector the company will be operating in. The minimum percentage of UAE ownership will vary from one economic sector to another and the requirement may even be waived. The economic sectors will be categorized into two lists, the negative list and the positive list.
122 economic activities are specified in the “positive list” that is attached to the Positive List Resolution, including (amongst others) activities in the following sectors:
The resolutions are conducted on a case by case basis, minimum share capital requirements which will need to be met for companies that are or become owned 100% by Foreign Investors.
Representative Office
Identical in all respects to a Branch office except that it is not permitted to perform contracts or any other activities other than the marketing of the parent company’s products and services and not allowed to issue invoices in its name
A Representative Office is required to be registered with the Ministry of Economy (MOE) and to provide a bank guarantee in the amount of AED 50,000 that is payable in favor of the MOE.
Branch Office
A Branch is not regarded as a separate entity but treated as an extension of its parent company. It requires a UAE national or a company wholly owned by UAE nationals to act as the Local (National) Agent (sometimes known as a ‘Sponsor’). The Local Agent provides licensing and other governmental services for the Branch for a fixed fee to be paid at the date of the license issuance but will not have any rights or entitlements to the entity’s business.
Mainland or Local Companies are also called Limited Liability Companies (LLC)
Minimum Capital Requirement
The UAE Companies Law does not prescribe any minimum share capital, but the entity should have adequate capital to achieve the purposes of its incorporation and the capital shall consist of shares equal in value. Until recently the generally accepted minimum share capital for an LLC registered in Dubai was AED 100,000 but now it has been reduced based on the activity. Presently, there is no requirement to deposit the share capital in a UAE registered bank. It will suffice to include details of its share capital in the LLC’s Memorandum of Association and to have the same duly notarized by the UAE notary public.
Legal Liability
The shareholders are generally not liable for the debts of the LLC aside from their contribution to the LLC whereas a Branch Office is legally regarded as part of its parent company and does not have a separate corporate personality or legal identity from that of its parent company. Consequently, the parent company of the Branch Office is fully responsible for any liability of the Branch.
Tax Presence
There are no personal income tax or corporate taxes payable, save for companies engaged in oil, gas, hospitality and petrochemical activities, etc. There are some municipality taxes paid on rent and certain land transfer charges paid when transferring real estate. Effective January 1, 2018, the UAE has implemented a Value Added Tax (VAT) at a rate of 5%, as recommended by the World Bank and the International Monetary Fund.
Business Expansion
License and Memorandum of Association are required to be updated. For this purpose, approval from the Dubai Economic Department (DED) and possibly other competent authorities will be necessary. Approval from the DED is necessary for updating a Branch license.
Exit Strategy
Internal procedures are to be followed such as shareholder approvals and undertakings that the company has met its debts and obligations. The dissolution must be registered with the commercial register and published in two local daily newspapers in the Arabic language. An auditing firm registered in the UAE should be appointed to act as the liquidator of the company and instructed to prepare the liquidation report.
Nationality or residency requirements for Shareholders, Directors and Officers
A UAE national or a company wholly owned by UAE nationals must hold at least 51% of the shares (except for single shareholder companies and exemptions under FDI). There are no nationality restrictions when appointing a manager/director/officer. While opening a Branch there is no nationality restrictions while appointing a general manager.
‘Know Your Customer’ (KYC) Requirements
There are strict requirements for banks, money exchange houses, finance companies and financial institutions operating in the UAE to follow KYC guidelines to prevent money laundering. In accordance with the UAE Central Bank regulations, the bank is required to trace the details of the ultimate beneficial shareholder owning 5% or more of the shares in the company. The Dubai Economic Department (DED) only requires details of the immediate shareholders of the company and will not request for details of the ultimate beneficial shareholders.
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A Local (Emirati) Partner or Local Service Agent is required to sign up all the applications connected to governmental bodies. They do not interfere in the daily business operations unless agreed. An Expat Partner is responsible for handling the day-to-day business activities of the company.
A Limited Liability Company (LLC) allows you to freely operate anywhere in the UAE and you can trade within the country and internationally. You will need a Local (Emirati) Partner who has 51% ownership of your company.
You can open a company in Dubai Mainland with 100% ownership as some activities are eligible for sole proprietorship and professional licenses which can be owned 100% by an Expat. A Local Service Agent will be required.
Yes, you are required to have a physical address in Dubai to set up a business in Dubai. You will need to have a valid lease for an office or warehouse space to even qualify for a license. A minimum of 200 sqft of space is needed to be leased on an annual basis for forming a Mainland Company in Dubai.
While there are many benefits to having a Free Zone company, there are also some limitations. Those include:
Cannot trade directly with the consumers.
Can trade within the UAE only through locally appointed distributors
A 5% custom duty is applicable
Employees must work only from the company’s offices within that Free Zone
The time to set up a business in Dubai will depend on the type of business and on clearance from the government and if there are any external approval requirements on the business activity. On an average it takes 3-4 working days.
This depends on the legal structure. The General Manager, who has the authority to sign on behalf of the company, should certainly have one. The UAE visa holder needs to be in Dubai every six months, or the visa will be cancelled.
No. You can open a UAE-based company from any country in the world. We will work as an intermediary between you and the UAE government. Even after it is registered, you do not have to move to the UAE to run it, since you can appoint a manager to do the job. However, if you formed a business that provides professional services, you must reside in the UAE to provide the service.
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