Establishing a business entity in the United Arab Emirates (UAE) can be a very attractive option for foreign companies, with varied opportunities for expanding operations in the region.
The existing business types in the UAE fall into four categories:
- Professional licences, covering services offered by professionals, artisans and craftsmen.
- Commercial licences, covering all trading and commercial activities with profit-making intentions.
- Industrial licences, covering all manufacturing activities.
- Tourism licences, covering all hospitality and tourism activities.
The type of licence required will therefore depend on the activity of an enterprise, making this the first thing for a business to identify before starting up in the UAE. Once this has been determined, there are three main jurisdictions to consider: mainland, free zone and offshore.
A mainland company is an onshore company licensed to the Department of Economic Development (DED) of the respective Emirate (free zones have their own licensing authorities, as do the offshore jurisdictions). They are allowed to do business in the local UAE market, as well as outside of the UAE, without any specific restrictions.
For commercial and industrial mainland licences, a law came into effect on 1 June 2021 that now allows for up to 100% ownership for foreign investors. For professional licences, foreigners can also own 100% of the company’s shares, however, they are required to appoint a local service agent to the company.
Professional licences can be held by individual shareholders, but corporate shareholders are not able to own an entity in mainland jurisdictions. Corporate shareholders can only take ownership if they are opening brands of a foreign company, which is subject to approval based on the desired business activity.
Free Zone Companies
There are currently 45 free zones operating in the UAE, with several more under construction. The main attraction of setting up in a free zone is that there is no national holding requirement – a foreign investor can own 100% of the company outright.
Along with full ownership of the enterprise, free zones also have the following incentives for investors:
- 100% import and export tax exemptions
- 100% repatriation of capital and profits
- No currency restrictions
- Corporate tax exemption for 10 to 15 years (depending on the zone) – although corporate tax will apply to oil, gas, and international banking corporations
- No personal income tax (for mainland or free zone companies)
However, it is mandatory for every company registered in a free zone to lease office space within that particular zone. This can be a virtual office, a service desk, or a physical office.
For mainland and free zone companies, there is a visa quota for employees that is determined by the office size. The ratio is currently one visa per 80 square feet of office space. A company must have an area of operation that warrants the number of visas requested. There are exemptions for businesses such as food establishments, as their operations will often exceed the space required, particularly those that require delivery drivers or wait staff. There is also an exception for companies that provide engineering services related to construction or architecture. However, for most professional licences the area per person ratio is mandatory.
Offshore company registration is another popular method of doing business in the Middle East. In the UAE, there are three main offshore jurisdictions: Jebel Ali Free Zone (JAFZA), Ras Al Khaimah International Corporate Centre (RAKICC), and Ajman Free Zone.
The advantages are similar to those of free zone corporations, however, the difference for offshore companies in the UAE is that they cannot hire employees. To be employed in the UAE a resident visa is required, but an offshore company is not issued with the requisite establishment immigration card that would allow them to employ people or operate an independent office.
Legal Forms of Business
There are several legal forms of business in mainland, free zone, and offshore formations in the UAE. Foreign investors can form a:
- Sole proprietorship
- Civil company (formed with two or more shareholders on a professional licence)
- Limited Liability Company (LLC) (these are particularly common for trading and industrial companies)
- Private shareholding company (which can be opened in financial markets, like the Dubai International Financial Centre or Abu Dhabi Global Market).
- Public shareholding company
- Branch of foreign companies or a representative office (this applies to foreign companies undertaking either trading or professional activities)
- Branch of Gulf Cooperation Council (GCC) companies (wherein the parent company is from another GCC country, i.e. Saudi Arabia, Oman, Kuwait, Qatar, or Bahrain)
- Branch of free zone companies (if a company opens in a free zone and wants to expand into the mainland, they can form a branch)
- Branch of Dubai or UAE companies (e.g. a company in Dubai looking to open an additional office in Abu Dhabi or another Emirate will have to open a branch office)
There can then be additional requirements for certain types of businesses. For example, international law firms in the UAE are required to form as branches of foreign companies. The legislation to form a legal entity is subject to approval from the Legal Affairs Department (LAD), then through the Dubai Financial Services Authority (DFSA). Five foreign offices are also required before setting up in the UAE, as are a number of qualified bar members within the company.
There are trading requirements between jurisdictions to consider as well. Companies that are based in free zones are able to trade with mainland companies, but free zone trading companies will have to appoint a distributor or an agent first, as they cannot sell directly to consumers in a different jurisdiction. However, a B2B company with a service licence or professional licence (e.g. a software company) can trade directly with businesses in different jurisdictions.
Navigating the formation and registration requirements in a new jurisdiction may seem complex, but an experienced service provider can provide the assistance and guidance your business needs to expand into the UAE.
Lloyd Kashaya (BSc) is a guest author on the COGENCY GLOBAL blog. Mr. Kashaya is a Business Development & Corporate Structuring expert with more than 7 years experience specialising in setting up operations for global businesses, federal, state and local government agencies in the UAE.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.