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An Indian company or Entrepreneurs intend to incorporate a company in the UAE can choose to set up operations as a branch, representative office or registered company, or it can appoint a commercial agent to sell its products in the UAE market or export them. New companies can also choose to conduct their activities from a Free Zone, which is a designated, self-regulated area set up to catalyse economic activity within an emirate and is governed by its own set of rules and regulations. There are around 40 Free Zones in the UAE, with more under development.
Foreign ownership restrictions are contained in the Commercial Companies Law (CCL), which requires that UAE nationals or their wholly owned companies hold a minimum of 51% of the shares of all companies established in the UAE. The CCL provides for the establishment of the following business entities for foreign investors: joint stock companies (JSC), limited liability companies (LLC), unincorporated joint ventures and branch offices of foreign companies. The CCL does not apply to companies that are established in the free zones.
It is important to have a full understanding of your options before deciding how to establish your company’s presence in the UAE. Overall growth for your company in the UAE can be hampered by making the wrong choice, so consider the following points when deciding the best structure for your needs.
The main attractions of establishing an entity in one of the UAE’s Free Zones is that there are no foreign ownership restrictions and companies are governed by an independent Free Zone Authority (FZA), which is responsible for issuing operating licences and regulating the activities of companies within the Free Zone.
The UAE is now a major business hub and ideal for setting up a business or a representative office, there are now over 40 different “Free Trade Zones” in the UAE so identifying the best Free Zone through which to conduct business in the region can be a tedious task. It is also a common misconception that a Free Zone Company is an offshore company, however, in spite of their similarities; they do also have very differing characteristics.
In addition to enabling shareholders, directors and employees to obtain residency visas in the UAE, the benefits of a Free Zone include:
The nature of the business activity that you intend to carry out will have a big influence on selecting the Free Zone to meet your requirements. The principal Free Zones and their licence activities include:
You can either register a new company in the form of a Free Zone Establishment (FZE) or a Free Zone Company (FZC) – an FZE has one shareholder and an FZC has two or more – or simply establish a branch or representative office of their existing or parent company based within the UAE or abroad. An FZE or FZC is a limited liability company governed by the rules and regulations of the Free Zone in which it is established. The provisions of the UAE Commercial Companies Law (CCL) do not apply.
In order to begin the process of setting up a Free Zone Company, we will require the following documentation and due diligence from all shareholders/directors of the proposed new company:
Please note that some Free Zones may request a detailed business plan, depending on the business activity of the proposed new company. Sovereign has a variety of templates in order to assist you.
Once a legal presence has been established in a Free Zone, the business will need to lease premises or land and acquire an operating licence from the FZA. Different types of licences apply in the different types of free zone. Companies with trade and industrial licences can only conduct business within the Free Zone or abroad. To sell products in the UAE, a UAE official agent is required, and a joint venture needs to be formed.
FAQs
Why set up a Free Zone Company? Would an Offshore Company be easier to set up and serve the same purpose
=> A Free Zone Company is more expensive than an Offshore Company and it typically takes 4 to 6 weeks to establish. However, it is an onshore company (with some offshore characteristics). This type of company is ideal for market entry because it will give you the physical presence in the UAE through office space and visas without the need for a local sponsor. A Free Zone Company has offshore characteristics in the sense that all business needs to be carried out offshore/internationally or within the Free Zone itself.
As it is an onshore company, will I receive a licence once the company is incorporated?
=> Yes, all Free Zone companies have a trade licence reflective of their business activity. It is possible to obtain licences for Trading, Manufacturing, Industrial, Consultancy and Services activities and, as mentioned above, most Free Zones specialise in a particular sector.
Can I carry out business anywhere with a Free Zone Company?
=> No, you can only carry out business internationally (outside the UAE) or within the Free Zone itself. You are not allowed to carry out any business on the mainland of the UAE. If your target market is mainland UAE you will need to establish a UAE Onshore Company with a local sponsor. Sovereign can also assist with this.
Are there any restrictions on business activities?
=> Yes. Depending on the nature of business, some external approvals may be required from certain Ministries or regulatory authorities for particular activities. For example, an investor looking to set up an educational or training practice may be required to seek approvals from the Knowledge and Human Development Authority (KHDA). If there are no external approvals required, the Free Zone Authority will carry out its own review of proposed business activity during the incorporation process.
What are the statutory requirements of a Free Zone Company?
=> Each Free Zone has its own governing authority so requirements vary from Free Zone to Free Zone. However, the majority follow a similar framework. There are two types of companies you can establish in the Free Zone and they are a Sole Establishment (FZE) with one shareholder and a Free Zone Company (FZC) where there are two or more shareholders. Both individual and corporate shareholders are allowed.
A manager must be appointed for the company and this person will be responsible for the day-to-day running of the company and is generally responsible for the operation of the bank account and the signing of any contracts on behalf of the company. For any changes that are made to the company structure, the manager will be required to sign off. The manager must be a UAE resident or have the intention of taking up residency.
How many residency visas will I be allocated?
=> That will generally depend on the type of office/premises selected. Between 2 to 3 visas will generally be allocated for a Virtual Office/Flexi-Desk option, while the size of a physical office space will dictate how many visas are allocated (generally 1 visa per 10sq. /m).
Is it possible to obtain a Tax Residency Certificate for the Company?
=> It is possible to apply for a Tax Residency Certificate for a Free Zone Company and this can be extremely beneficial if the intention is to utilise the UAE’s network of double tax treaties.
There may be many reasons to register an Offshore Company, but the general benefits of utilising an offshore corporate structure include:
The two principal jurisdictions offering Offshore Companies in the UAE are Ras Al Khaimah (RAK) and the Jebel Ali Free Zone (JAFZA). Both are “tax free” jurisdictions that levy no income tax or corporate tax and permit 100% foreign ownership. The UAE has Double Tax Treaty agreements with over 40 other countries.
Offshore Companies are permitted to open multi-currency accounts in the UAE and carry out business internationally. They may not, however, carry on business with persons resident in the UAE or have physical premises within the UAE.
Both RAK and JAFZA have their own specific benefits. RAK is the more cost effective of the two, but JAFZA is the only Offshore Company that is legally permitted to own property situated in Dubai.
UAE Offshore Companies should not be confused with UAE Free Zone Companies. Free Zone Companies are onshore entities permitted to carry out business in Dubai with certain restrictions. They are similarly subject to the 0% rate of corporate tax but they enable their shareholders, directors and employees to obtain residency in the UAE.
As a matter of local company law, both RAK International Companies (RAK ICs) and JAFZA Offshore Companies MUST appoint an approved registered agent (Sovereign Corporate Services is approved for this purpose).
JAFZA Offshore Company Incorporation
The JAFZA was created in 1985. It is an industrial area surrounding the Jebel Ali Port, one of the world’s biggest shipping ports, which allows the international companies based there to enjoy the special privileges of the free zone. These include exemption from corporate tax for 15 years, no personal income tax, no import or export duties, no restriction on currency, and easy labour recruitment.
Jebel Ali is located just outside Dubai and is about an hour’s drive from Abu Dhabi, the UAE’s capital city. Al Maktoum International Airport, which is planned to be the largest airport in the world in both freight and passenger volume, is constructed just outside the port area.
The Jebel Ali Free Zone Authority (JAFZA), in conjunction with the Dubai Government, introduced the Offshore Company in 2003 under the Jebel Ali Free Zone Offshore Companies Regulations 2003.
Key features of a JAFZA Offshore Company:
A) Shareholders – A minimum of one shareholder is required and corporate shareholders are permitted. International corporate shareholders are required to have all company documents attested;
B) Directors – A minimum of two directors are required and corporate directors are not permitted. Details of directors are not available on the public register;
C) Secretary – Every company must have a secretary. A company director may also act as company secretary;
D) Share Capital – No minimum share capital requirements;
E) Annual Reporting – Every company must keep accounting records for 10 years from the date of preparation. The company must appoint an auditor (from an approved list) to examine and report on accounts.
Key benefits of an offshore company registration in JAFZA:
A) 100% Foreign Ownership – The JAFZA Offshore Companies Regulations require no local shareholding;
B) Local Real Estate Ownership – The JAFZA Offshore Company is the only offshore company that is permitted to directly own local Dubai real estate. Most properties in Dubai can be owned by JAFZA offshore companies but both Free Zone and developer approval are required;
C) Shares in Local Companies – Despite a general prohibition on Offshore Companies conducting business with persons resident in the UAE, the authorities do allow Offshore Companies to hold the shares of both Free Zone and Onshore (LLC) Companies. Documents for use in the UAE, Bahrain, Saudi Arabia and Qatar do not need to be attested;
D) Local Bank Account – An Offshore Company can hold multi-currency bank accounts in the UAE to carry out routine international transactions;
E) Shareholder/Director details – The names of shareholders and directors do not have to be disclosed on a public register;
F) Inspection – The registrar has the power to appoint inspectors to investigate the affairs of an Offshore Company. The owner of the company may be liable for all inspection fees.
RAK Offshore Company Formation
Ras al Khaimah, situated approximately an hour’s drive from Dubai, is one of the fastest growing of the seven Emirates that form the UAE. RAK has the highest level of industrialisation in the UAE, with manufacturing at 26% of the GDP. It has built its reputation on a business-friendly investment environment and competitive costs. The cost of doing business in RAK is 25 to 50% lower than the UAE average, allowing companies to maximise their return on investment.
In September 2006, the Ras al Khaimah government launched the International Company structure, also known as the RAK Offshore Company. These are regulated under the Ras Al Khaimah Free Trade Zone Authority International Companies Regulations 2006.
Key features of a RAK Offshore Company:
A) Shareholders – A minimum of one shareholder is required and corporate shareholders are permitted. International corporate shareholders are required to have all company documents attested;
B) Directors – A minimum of one director is required and corporate directors are permitted. Details of directors are not available on the public register;
C) Secretary – Every company must have a secretary. A company director may also act as company secretary;
D) Share Capital – No minimum share capital requirements;
E) Annual Reporting – Every company must keep accounting records for 7 years from the date of preparation. The accounts do not however have to be filed with the RAK authorities.
Key benefits of opening a RAK offshore company:
A) 100% Foreign Ownership – The RAK International Company Regulations require no local shareholding.
B) Shares in Local Companies – Despite a general prohibition on Offshore Companies conducting business with persons resident in the UAE, the authorities do allow Offshore Companies to hold the shares in both Free Zone and Onshore (LLC) Companies. Documents do not need to be attested for use in the UAE, Bahrain, Saudi Arabia and Qatar;
C) Local Bank Account – An Offshore Company can hold multi-currency bank accounts in the UAE to carry out routine international transactions;
D) Fast Incorporation – RAK IC company registration will typically take 1 week after receiving all application and due diligence documentation;
E) Shareholder/Director details – The names of shareholders and directors do not have to be disclosed on a public register.
FAQs
How long will it take to register a UAE Offshore company?
=> It takes approximately 1 week to register a RAK IC after Sovereign receives all of the necessary registration documents from all shareholders and directors of the new company. A JAFZA Offshore company will take approximately 4 weeks to register.
Am I required to visit the UAE to register a UAE Offshore Company?
=> There is no such requirement for registering a RAK IC. However, for a JAFZA Offshore Company, the shareholders and directors are required to sign in the presence of the authorities in Jebel Ali.
Is it possible to obtain UAE residency visa through a UAE Offshore company?
=> No. Only Free Zone and Onshore Companies can offer UAE visas.
Can an offshore company lease office space in the UAE?
=> No. However, each company must have a registered address and can use this address to receive mail and perform other secretarial services. Sovereign can provide these services as a company’s registered agent.
Am I required to have my bank account located in Dubai or can I have an international account?
=> UAE offshore companies are typically incorporated in order to utilise the local banking services and 0% rate of tax. However, it is possible for these companies to have accounts elsewhere in the world. Sovereign has many international banking relationships worldwide and can provide the necessary introductions.
All mainland (onshore) UAE legal entities are required to be licensed by the Department of Economic Development (DED) and governed by the UAE Commercial Companies Law (CCL). The main advantage for foreign investors establishing a business in mainland UAE is that, unlike the Free Zones, there is no territorial restriction on business activities or the location of offices/premises. A mainland company therefore has the freedom to trade anywhere in the UAE or wider Gulf Cooperation Council (GCC) states, including all the Free Zones, and will have a far wider range of real estate options from which to choose.
Limited Liability Company (LLC)
The standard type of company in the UAE mainland is the Limited Liability Company (LLC). The DED is the government body authorised to issue all licences for LLCs and is responsible for classifying and regulating the types of economic activity that may be undertaken.
An LLC is not restricted on where it can trade in the UAE (unlike Free Zone companies) or GCC; furthermore there is no restriction on real estate ownership, or on the number of visas that can be obtained. There are no minimum share capital requirements. A mainland company is not required to pay the standard 5% customs duty on imported goods.
UAE Foreign Ownership Restrictions
The principle limitation for foreign investors setting up an LLC is the UAE foreign ownership restrictions. When setting up an LLC, the CCL prescribes that at least 51% of shares must be registered to a UAE/GCC national sponsor (either a UAE/GCC national individual or a corporate entity 100% owned by UAE/GCC nationals), often referred to as a local partner.
If your business requires you to trade on the UAE mainland with local companies then you will need a DED-licensed company and this will require a local partner. Many foreign investors are concerned by the foreign ownership restrictions and uncomfortable about relinquishing control of their company to a local partner. To allay these concerns, Sovereign has created a “corporate shareholder” model that allows clients to effectively maintain 100% ownership control of their business while remaining in full compliance with UAE companies law.
Sovereign Corporate Shareholder Model
Sovereign Corporate Services has created a number of 100% UAE-owned LLCs – e.g. a Sovereign Corporate Shareholder LLC – that it fully manages and controls through power of attorneys and other legal agreements. These companies can act as the 51% local partner (Corporate Sponsor) and, through a suite of risk mitigation documentation, pass all management control, financial control and the day-to-day running of the business back to the 49% shareholder in return for a “Fixed Annual Sponsorship Fee”.
Sovereign will not take any commercial role in the new company and its annual fee will be fixed such that there will be no variation dependent on increased turnover or profitability of the business.
The primary benefit of the Corporate Sponsorship model is that the investor will not be dealing with an individual person as a shareholder but rather with an international, fully licensed and regulated company that has no emotional ties to the business and no local vested interests.
Sovereign has multiple signatories who are available all year round and, as a company, a Sovereign Corporate Sponsor offers perpetual succession such that the business will not be affected by the ill-health or death of a local individual partner.
A Sovereign Corporate Shareholder LLC ca n also act as the local services agent even where a 51% local sponsor is not required – for example, for a Professional Licence, Branch or Representative Office.
Strategic Partnership with Government of Dubai
Sovereign Corporate Services has entered into a formal, strategic partnership with Dubai FDI, the dedicated investment development agency within the DED. Sovereign has signed a Memorandum of Understanding (MoU) with Dubai FDI that sets out a commitment to attract foreign companies to establish and grow in the region and to optimise the services offered.
This partnership with Dubai FDI not only guarantees that foreign investors receive the best service available, but will also ensure that they can be fast-tracked through setting up procedures and introduced to a wider audience in the region.
Steps to setting up an LLC:
A) Speak with one of Sovereign’s consultants who will advise on the correct legal structure based on the activities that a business intends to undertake in the UAE and its intended markets. A client may further choose to obtain a legal opinion to confirm Sovereign’s advice.
B) If a mainland (onshore) legal entity is the preferred option, then a UAE local partner will be required to hold 51% of the shares in the LLC. See the Sovereign Corporate Shareholder model above.
C) The required documentation will vary greatly depending on the type of business activity, including but not limited to:
D) If the shareholder is to be a corporate entity, the required documentation will include:
E) All documents are required to be notarised and attested in both the applicant’s home country and at the relevant UAE consulate. The notarisation process should be commenced as early as possible because it can take a significant time.
F) All documents must also be translated into Arabic by an official translator before they can be presented to the authorities in the UAE.
G) All requested documents to be submitted to Sovereign, which will then manage the application process from start to finish.
Advantages of setting up an LLC in Dubai/UAE:
Disadvantages of LLC formation Dubai/UAE:
FAQs
How Many Members Must an LLC Have?
=> Under the new UAE Commercial Companies Law, an LLC may be formed with a single shareholder, but it is common practice for foreign investors to have a minimum of 2 shareholders in order to meet the UAE foreign ownership requirements.
Is a Registered Agent required?
=> There is no requirement for a Registered Agent but due to the foreign ownership restrictions it is imperative that a foreign investor should seek advice and use a firm that has extensive experience and expertise in setting up UAE mainland LLCs.
Does forming an LLC offer any tax benefits?
=> Yes. An LLC is permitted to trade anywhere within the UAE and GCC. An LLC can obtain a Tax Residence Certificate from the UAE Ministry of Economy.
What types of licence can an LLC hold?
=> An LLC can operate under the following licence types:
A common way for foreign companies to retain foreign ownership under the Commercial Company Law in the UAE is to incorporate a Branch or Representative Office (RO), which permits 100% ownership by the parent company. These forms do not have a separate legal identity and are therefore treated as an extension of the foreign company, which remains liable for their activities.
A Branch is permitted to engage in commercial activity in the UAE and to earn profits. It is licensed for the purposes set out in its commercial licence and may only engage in activities similar to those carried on by the foreign company in its home jurisdiction.
An RO is not permitted to earn profits within the UAE and its activities are limited to marketing or promoting the products and services of its foreign parent company in the UAE.
Both Branches and ROs must operate under the authority of a commercial registration and licence in the name of the foreign company, and both are required to appoint a National Service Agent (NSA), which has to be a UAE national individual or a 100% UAE national-owned corporate entity.
Key steps to set-up a Branch or Representative Office in UAE:
A) Speak with one of Sovereign’s consultants who will advise on the correct legal structure based on the activities that a business intends to undertake in the UAE and its intended markets. A client may further choose to obtain a legal opinion to confirm Sovereign’s advice.
B) Appoint a National Service Agent (NSA), which must be either a UAE national or a company wholly owned by UAE nationals. Sovereign Corporate Services has created a number of 100% UAE-owned LLCs that it fully manages and controls through power of attorneys and other legal agreements. These companies can act as the NSA.
C) The required documentation for registration and approval will include but is not necessarily limited to:
D) All documents are required to be notarised and attested in both the applicant’s home country and at the relevant UAE consulate. The notarisation process should be commenced as early as possible because it can take a significant time.
E) All documents must also be translated into Arabic by an official translator before they can be presented to the authorities in the UAE.
F) All requested documents to be submitted to Sovereign, which will then manage the application process from start to finish. The licensing authority will be the Department of Economic Development, with the approval of Ministry of Economy.
Advantages of a Foreign Company office in Dubai/UAE:
FAQs
What language should the company documentation be in for application to Department of Economic Development (DED) and Ministry of Economy (MoE)?
=> The local authorities only accept documents and application forms completed in English and Arabic. All documents must therefore be translated into Arabic by an official translator.
Do I need to rent an office to obtain the licence for a Branch or RO in the UAE?
=> A copy of a proposed lease of office space in the UAE will need to be submitted to the DED once it has received approval from the MoE.
Do I need to appoint a local services agent to incorporate a Branch or RO in the UAE?
=> Both a Branch and an RO are required to appoint a National Service Agent (NSA), which must be either a UAE national or a company wholly owned by UAE nationals. The appointment of an NSA is made by written agreement, which must be signed by the parties before a notary public in the relevant Emirate.
What is the NSA’s role?
=> The NSA is not responsible for the Branch or RO and does not take part in any operations, management or ownership of the office. Its role is restricted to liaising with government offices on administrative functions such as obtaining licences, permits and visas. The NSA is generally paid an annual fee for providing such services.
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