Business setup in UAE and especially Dubai, is an attractive proposition for existing companies as well as entrepreneurs. No personal income and capital taxes, no corporate taxes, 100% foreign ownership in Free Zone companies, 100% repatriation of capital and profits, no currency restrictions and competitive import duties (5% with many exemptions) are only some of the reasons that make UAE a global business hub for business start up.
The Market in UAE is the leading regional trading hub; it offers access to a market of outstanding potential for overseas companies.
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:
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.
The basic requirement for all business setup in UAE is in the following three categories of licenses:
Some categories of business setup in UAE require approval from certain ministries as well. More detailed procedures apply to businesses engaged in oil or gas production and related industries.
Fifty-one per cent participation by UAE nationals is the general requirement for all UAE established companies except:
In practice, however, Dubai and the other emirates follow 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.
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.
The limited liability company (LLC) is the most widely used commercial entity for business setup in UAE for companies with a non-UAE national element wishing to conduct commercial activities in UAE. 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.
Several administrative steps must be completed before the incorporation of an LLC is effected. 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.
A public joint-stock company (PJSC) is very similar to a UK public limited company or German Aktiengesesallschaft (AG). It requires a minimum share capital of AED 10 million 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.
A private joint-stock company (private JSC) is similar to a UK private limited company. It requires a minimum share capital of AED2 million 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 other four entities are not commonly used in the UAE for several reasons, including restrictions on foreign ownership and foreign management.
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 centres 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.
As a general rule, but with a few exceptions, a professional firm that carries out only professional services 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.