Articles

Setting Up a Company in the UAE

24 October 2019

By: Suraya Turk

The investment environment within the UAE has witnessed significant changes over the past year with progressive legal and administrative frameworks available to all incoming investors. There are 7 Emirates and 45 free zones, all of which offer a variety of options to foreign investors who wish to set up a company. Deciding where to establish a company is a major decision that depends on your planned business activities, required infrastructure and the costs for obtaining and maintaining your new company’s license.

The constituent emirates of the UAE are Abu Dhabi (the capital), Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain. The economically strongest as well as most popular emirates are Dubai and Abu Dhabi. Although there are relevant federal legislations such as Commercial Companies Law, Labour Law, Consumer Protection Law, Civil transactions law etc., each emirate can exercise its own sovereignty and is independent both from an organisational and legal perspective.

A foreign investor may choose between various opportunities when setting up a new business, the first decision being whether set up in the “mainland” or in one of UAE’s free zones.

MAINLAND

The term ‘mainland’ refers to all areas except the free zones. Depending on where the investor plans to set up its business, the rules, regulations and requirements of the chosen Emirate need to be considered. The licensing process can vary widely from one Emirate to another. The most relevant corporate forms available for foreign investors are:

  1. Limited Liability Company (LLC)
  2. Branch of a foreign company
  3. Branch of a free zone entity
  4. Representative Office

The choice of a company’s legal form of incorporation is closely linked to the type of business activities it wishes to partake in. In order to register an entity on mainland Dubai, the investor will have to apply to the Department of Economic Development (DED). If they wish to combine commercial and industrial business activities, they will have to apply for further DED approval.

On a general basis, all forms of companies on the mainland require the participation of an Emirati citizen. In the case of an LLC, an Emirati partner must legally hold at least 51% of that limited liability company. As such, for the application, an Emirati national will have to be chosen as the local partner.

In the case of a branch, the branch can be wholly owned by a foreign company or a free zone entity, however, a UAE national is required to be appointed as a Local Service Agent. The Local Service Agent manages licensing requirements and other government related matters for the branch, in exchange for an annual fee. The Local Service Agent has neither any civil responsibility or financial obligations to the business of the branch nor shall he have any legal interest in the management, business, profits or assets of the branch.

After the DED application, initial approval will need to be sought through tradename reservation. Depending on the required license activities, additional approvals by Dubai Municipality may also need to be obtained.

 FREEZONES

Free Zones are zoned areas in the territory of the UAE where import, export and re-export to countries other than the UAE are duty-free. The UAE’s broad system of industry-specific free zones provide modern facilities and infrastructure for doing business.

The UAE Law may apply in these special economic zones to a limited extent as certain free zones issue their own rules and regulations specifying the requirements and procedures for setting up a Free Zone entity. The advantages of a free zone company are:

  1. 100% foreign ownership of the entity
  2. 100% import and export tax exemptions
  3. No restrictions on repatriation of capital and profits
  4. No personal and corporate income tax

Each Free Zone is designed around one or more business industry categories and only offers licenses to companies within those categories. An independent Free Zone Authority governs each free zone and is the body responsible for issuing operating licenses and assisting companies with establishing their business in the Free Zone.

Most common free zone corporate forms:

  1. Free Zone Establishment (limited liability company one shareholder)
  2. Free Zone Company (limited liability company with two or more shareholders)
  3. Branch of a foreign company
  4. Representative Office

Examples of Free Zones:

  • Abu Dhabi: Abu Dhabi Global Market (ADGM), Khalifa Industrial Zone
  • Dubai: Jebel Ali Free Zone, Dubai Multi Commodities
  • Centre, Dubai Inter-net and Media City, Silicon Oasis,
  • Dubai Financial Centre, Dubai Air-port Free Zone
  • Sharjah: Sharjah Airport Free Zone.
  • Ras Al Khaimah: Ras Al Khaimah Free Trade Zone, RAK
  • Investment Authority
  • Fujairah: Fujairah Free Zone
  • Um Al Quwain: Um Al Quwain Free Trade Zone
  • Ajman: Ajman Free Zone

 

While processes for registration of an entity differ between free zones, there is a basic procedure that stays consistent throughout:

Step 1

Trade name reservation and application for pre-approval of the company’s registration: At least three trade name proposals and first information and documents must be provided to the free zone authority.

Step 2

Registration and issuing of a provisional approval: Submitting original documents such as constitutional documents of the shareholder and others to the free zone authority; paying the registration and license fees.

Step 3

Issuing the license: Signing the office lease agreement and the articles and memorandum of association of the new company.  (processing time: approx. 3 to 5 working days)

Step 4

Applying for a UAE residence visa for the General Manager of the new company: The appointed General Manager of the free zone company must be under the sponsorship of the respective free zone and hold a UAE residence visa.

Step 5

Opening a corporate bank account and transfer of share capital: As soon as the free zone authority has been provided with the proof of the share capital deposit, the share capital can be withdrawn from the account and used for the company’s operation.

As aforementioned, the required documents could vary from one free zone to the next as well, however, there are some documents that will be required throughout:

  • Business Plan (in the format as per the free zone authority)
  • Passport copies and residency proofs of Manager/Director(s)/Shareholder(s)/ Legal Representatives of the new free zone entity
  • Resolution approving the registration of the free zone entity and appointing its manager, either signed in front of the free zone authority or notarized and attested (if applicable)
  • New Memorandum and Articles of Association (provided by the free zone authority)
  • Office lease agreement and Ejari registration (if applicable)


KEY FACTORS IN CHOOSING A BUSINESS LOCATION

The key factors in choosing which Emirate to set up your business and whether to establish in the mainland or in one of the free zones of the UAE are the following:

  1. Required license type and approvable business activities
  2. Infrastructure (proximity to airport, seaport etc.)
  3. Prestigious reasons (e.g. customer traffic)
  4. Ownership
  5. Tax implications
  6. Costs
  7. Attractiveness and ease of access of the location for prospective employees.

Along with these factors, investors should decide on a business location that is most conducive to the business activities they wish to conduct in the UAE. Once they have gone through the initial steps of determining these, the procedures to register their respective business can commence.

For further information or assistance, please contact our colleagues at Germela Law at +971-4-554-1201or at info@germela.law