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:

• agriculture
• manufacturing
• transport and storage
• hospitality and food services
• information and communications
• science and technology
• healthcare
• education
• art and entertainment, and
• construction

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.

FEATURES OF A MAINLAND, LOCAL or LIMITED LIABILITY COMPANY:

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.