Acerca of
CORPORATE
Doing business in the United Arab Emirates
Are you interested in establishing a company in the United Arab Emirates or reorganising an existing business structure? We gladly support you in the following areas:
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Developing and revising market entry strategies
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Advising on the formation, restructuring and dissolution of companies located in the mainland or in free zones of the United Arab Emirates
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Drafting memoranda and articles of association, resolutions and powers of attorney
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Assisting with the preparation and holding of general assemblies
Frequently Asked Questions
What is a free zone?
Free zones are geographically confined areas within the United Arab Emirates in which no customs duties accrue upon import of products into the free zone and their re-export into countries other than the Emirates. In these special economic zones, the laws of the United Arab Emirates apply to a limited extent only. Instead, the respective free zone authorities have issued their own rules and regulations, which stipulate, for example, the requirements for company formation in the particular free zone.
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What is the difference between a free zone and the mainland?
The mainland of the United Arab Emirates (UAE) is defined as the area of each individual Emirate with the exception of its free zones. Depending on where you wish to incorporate your company, you must comply with the rules and regulations of the respective Emirate or free zone. Mainland and free zones differ in particular when establishing a company with limited liability. In free zones, 100% of the shares can at all times be held by foreigners. In contrast, it depends on the activities to be conducted by a UAE mainland company whether 100% foreign ownership is permissible or whether an Emirati majority shareholder (so-called sponsor) needs to be appointed.
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What is meant by a Sponsor?
With the liberalisation of the commercial companies law, a sponsor is now only mandatory in exceptional cases. In this regard, the term "sponsor" has various meanings which depend on the legal form and location of the company you wish to set up. Should you establish a company with limited liability (LLC) in the territory of the United Arab Emirates, the sponsor, if at all to be appointed, has to be a co-shareholder or the majority shareholder of the LLC, which depends on the activities to be conducted by the company. By contrast, the sponsor merely serves as a so-called national service agent for sole establishments and civil companies and has no authority to exert influence at partner or management level. In any case, if still required, a sponsor either has to be an Emirati national or a company with 100% of its shares held by Emirati nationals. A sponsor in form of a national service agent is generally no longer required when establishing a dependent subsidiary of a foreign mother company (so-called branch) in the territory of the United Arab Emirates.
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What is a license?
Each activity carried out in the United Arab Emirates against payment requires an appropriate permit (so-called license). The license must cover the commercial activities conducted by the company. Generally, the license is valid for one year and must be renewed for a further year in due time. Depending on the location of your company, different authorities are responsible for issuing and renewing the license.
What should I do if I no longer wish to continue my business in the Emirates?
Once the company's objectives have been achieved, the business is no longer profitable or if there is another reason why you no longer wish to continue your business, the company must be wound up in an orderly manner. Mere inaction, such as by letting the license and residence visas expire and not renewing the same, is not sufficient and will trigger ongoing payment obligations and penalties. The proper winding up (so-called liquidation) of a company follows certain administrative procedures, regularly involving an auditor as liquidator. In the course of the liquidation proceedings, you must, amongst others, cancel all residence visas and work permits issued in relation to the company, close bank accounts and terminate current contracts, such as those with the landlord and utility providers.
Overview
Doing Business in the United Arab Emirates
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The United Arab Emirates ("UAE") provides an attractive business environment for investors. Some of the numerous incentives offered are a liberal economic policy, political stability, the exemption from personal income tax, the existence of diversified free zones, unrestricted repatriation of capital and profits as well as the tying of the UAE Dirham ("AED") to the US Dollar.
Business in the UAE can successfully be conducted by exporting products to the UAE, by taking advantage of appointing a commercial agent or distributor or by establishing a local company.
When considering a company set-up, three areas have to be distinguished: (1) the UAE mainland, (2) the free zones and (3) the offshore jurisdictions. Each location is governed by its own laws and regulations and offers various opportunities to the investor.
Establishing a Company in the UAE Mainland
The mainland of the UAE is defined as the area of each individual Emirate with the exception of its free zones. A representation can be established in each of the seven Emirates.
The Commercial Companies Law governs commercial legal entities established in the UAE mainland. The most common legal form amongst foreign investors is the limited liability company.
The liberalisation of socio-political and economic aspects, that has been consistently pursued in recent years, is also reflected in amendments to the Commercial Companies Law. One of the most important reforms concerns the abolition of the decade-old principle that at least 51% of the shares had to be held by a UAE citizen or a company wholly-owned by Emirati nationals. Now, foreigners are generally able to hold 100% of the shares in a limited liability company as well. The possibilities to put the new rules into practice vary in each Emirate and are set out in implementing regulations issued by the respective licensing authority. Exemptions apply to companies carrying out activities with a strategic impact for the UAE. In such cases, a local participation is still required.
The shareholders of a limited liability company are generally free to determine its share capital provided the amount is adequate to achieve the purpose of the company's incorporation.
On the condition that no trading activities will be conducted, another option is establishing a branch, which is a dependent subsidiary of a foreign mother company. A branch does not have to meet any capital requirements. However, a bank guarantee amounting to AED 50,000 needs to be submitted to the competent authority.
Establishing a Company in a Free Zone
An alternative to a company formation in the mainland of the UAE is to set up in one of the country's numerous free zones.
Dubai, for example, offers a wide range of specialised free zones, which provide the investor with a tailor-made business environment. Some of the most prominent free zones are the Jebel Ali Free Zone, the Dubai Airport Freezone, the Dubai International Financial Centre, the Dubai Internet City, the Dubai Multi Commodities Centre, the Dubai Healthcare City as well as the Dubai Design District.
Free zones are geographically defined areas in the UAE in which the laws of the UAE only partially apply.
Until recently, one of the main incentives for foreign investors to establish a company in a free zone was the fact that free zone regulations – in contrast to the laws that prevailed outside the free zones – have always allowed complete foreign ownership of a limited liability company. Nowadays, due to revised provisions of the Commercial Companies Law, foreign participation of up to 100% is generally also possible outside the free zones, i.e. in the UAE mainland.
Other advantages of free zones, however, still exist. These include the centralised handling of all administrative matters via the free zone authority itself and the possibility of bringing goods into the free zone duty-free for temporary storage or permanent use.
In addition, free zone companies, which are currently promised tax exemption, are supposed to remain exempt from the levying of corporate tax envisaged from 2023. However, this will only apply to companies that meet all regulatory requirements and do not conduct business with the UAE mainland.
Establishing an Offshore Company
The formation of an offshore company is one of the most cost-effective alternatives in the UAE because no office rent has to be paid. However, offshore companies are generally not allowed to conduct business with contractual partners located in the UAE.
Choosing the Right Set-Up
Location and legal form of a new company are influenced by a number of factors, such as the kind of activity to be conducted, the location of important business partners and the available budget. In order to make best use of the various advantages in each of the different locations, a thorough analysis that takes both economic and legal implications into account should be made before deciding on one of the alternatives.
In any case, however, it must be ensured that the future company will meet the requirements of the so-called Economic Substance Regulations.