Different types of companies in the UAE are allowed to be opened and legally operate on its territory. Each type has its own peculiarities of the registration and opening procedure in general.
The Law regulation for business in the UAE
The legal framework for commercial matters in the UAE is primarily Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 on Commercial Companies. This law establishes that for all commercial organizations (outside free economic zones) the requirement for a 51% share of a local partner (a country citizen) is mandatory.
The law also establishes seven types of legal entities that can be registered in the UAE, obligations of partners, directors, minimum authorized capital and registration procedures.
Different types of licenses
The government issues various licenses, but three of them are the most popular. If your goal is to register a firm in the UAE, then decide which license you will apply for:
- Commercial
- Industrial
- Professional.
A commercial license is issued to firms that will conduct activities which are one way or another related to trade.
You cannot do without an industrial license if you open a factory for the production of something or any other manufacturing enterprise.
Professional permission document is a choice for enterprises whose employees will provide a variety of services to people.
The cost of a license depends directly on its type. The cheapest is a commercial license, it can be issued for 3.5 – 4 thousand dirhams, more expensive – industrial (5 thousand dirhams) and the most expensive – for the provision of services: from 7 thousand dirhams.
Available types of companies
There are three types of companies in Dubai:
- Local firms that can operate in any region of the whole country. In order for a foreigner to open a local firm, he will need to find a local sponsor and give him 51% of the shares. If you do not have a person with whom you would like to conduct joint activities, then you can use a proven recipe: find a local resident, sign an agreement with him that he will not interfere in the process and claim profit. True, he will have to pay him a remuneration of 20% of income annually
- Onshore enterprises whose activities are limited by the free economic zone in which they are registered. Such firms can be 100% owned by foreign citizens, conduct international activities, rent premises located in the FEZ, apply for a certain number of resident visas (depending on the working area), etc. The main disadvantage of this type of enterprise is the inability to relocate to other regions of the UAE outside the FEZ.
- Offshores that, having received a legal address, cannot conduct their activities even within it, not to mention other territories of the United Arab Emirates. This type is most often chosen by those who have established their things at home, but seek to reduce tax costs and be able to open a bank account. The owners of such enterprises cannot rent premises or count on resident visas.
Requirements for opening a limited liability company
LLC is a very popular form of organization. It allows them to operate on a completely legal basis. The only but very important restriction is that things should be performed within one chosen economic zone.
Its main advantage for foreigners is that there can be one foreign owner of all the shares, so there’s no need for national participation in any form.
The step-by-step process of registering an LLC (Limited Liability Company) in Dubai looks quite simple:
- Registration of Trade Name. At this stage you’re to choose a name and check if it is not busy.
- Obtaining preliminary approval for an activity registration.
- Applying for a license to the Department of Economic Development (DED).You’re to complete your application and submit it to DED.
- Development of the Memorandum of Association. This document requires a proper notarial certification.
- Certification of the Memorandum of Association by a notary.
- Lease of office premises suitable for company registration and approval of the location in the Planning and Technical Department.
- Payment of license fees to the Department of Economic Development and obtaining a license.
Mainland and Free Zones
There are two main types of jurisdictions with which you can operate in the United Arab Emirates: free zone or mainland. Registration of a local firm allows it to conduct operations on the territory of all the Emirates. While a free zone allows you to do your things only in its territory, in other free zones it is impossible.
Free zones are separate areas in the United Arab Emirates, local laws have been established on their territory that allow them to enjoy tax and other preferences. There are more than 50 free zones, and more than 20 in Dubai alone.
A free zone can be a district or a business center within an emirate. For example, Dubai Airport is also a free zone; aviation and logistics companies are located on its territory. A firm registered in the free zone is exempt from any taxes – this is a big advantage
For complete information, we add that, in addition to the mainland and the free zone, entrepreneurs can open an offshore company in the Emirates, but it does not allow them to conduct any activities in the country, only abroad.
Most entrepreneurs prefer to register in the Mainland. Most likely, this type of jurisdiction is more suitable in order, for example, to deliver goods outside of one area or to other emirates.
From the point of view of organization, starting a business in the UAE is a simple process. The Emirates attract foreign entrepreneurs with virtually no taxes and insurance premiums.
The tax burden. In the mainland, you have to pay only one tax – VAT at a rate of 5%.
Restrictions. Mainland has practically no restrictions on lines, income and number of employees.
In 2021, changes to the Dubai Non-Profit Companies Law came into force. This allowed foreign entrepreneurs to own 100% of the shares of their own organization. Previously, the founders had to include an Arab citizen, and he necessarily owned 51%.
But the changes in the law did not affect all areas and spheres. If a firm with a foreign founder wants to engage in banking or insurance services, it is indispensable to involve a local citizen.
Business forms allowed to foreigners
A great option for foreign companies to operate in the UAE is IBC – International Business Company.
An effective economical tool for conducting operations and international transactions, as well as hiding the beneficiary in the established structures.
Opportunity to act as a shareholder of newly created enterprises in the UAE or outside the country.
Ownership of real estate in permitted construction projects in the territory of the emirate of incorporation.
They do not receive the right to issue resident visas, it is difficult to open bank accounts in the UAE, restrictions associated with offshore status
Final word
Several types of companies in the UAE are not allowed to be owned by foreigners, but still there are a lot of business opportunities for outsiders: work separately, with shared partnership or become a part of the local already operating organization.
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