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SETTING UP A BUSINESS IN THE UAE

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Introduction

For those wishing to set up a business in the UAE, Al Bawardi Advocates and Legal Consultants as one of the renowned and long established law firms is well placed to provide advice and guidance.

When considering the different basic forms of UAE representation it is important to remember that all require a relevant trade licence and some form of UAE national involvement. Once the trade licence is granted, residence visas can then be finalised.

There are four appropriate options available when considering establishing a presence in the UAE. These are as follows:

1) Branch/Representative office
2) Professional/Consultancy businesses
3) Limited liability company
4) Free zone areas companies
.

We will briefly describe each of these in turn:

1) Branch/Representative office

Historically, a representative office is not permitted to carry out commercial activities, import or trade in goods within the UAE. Therefore, office activities will be limited to promoting, advertising or marketing the goods of its foreign parent company.

A branch may carry out commercial activities but those activities are limited to the activities of the foreign parent company licensed by the UAE authorities. Under the Commercial Companies Law 1984, a foreign company is entitled to open a branch/representative office in the UAE after being issued with a licence by the Ministry of Economy.

Whilst the branch/representative office may be wholly-owned by the foreign company, the law requires that the foreign company retains the services of a UAE National as its local service agent.

A local service agent will generally only agree to act as such where he bears no liability whatsoever for the operations of the branch/representative office. His obligations to the branch/representative office are normally restricted to assisting the foreign company in obtaining its requisite licence and complying with visa and labour formalities.

2) Professional/Consultancy businesses

Generally, professional/consultancy businesses (e.g. engineering consultants, accountants, etc.) wishing to establish a presence in the UAE may currently open a foreign wholly-owned and controlled office, however, the foreign company or business must appoint a local UAE national service agent.

Licensing of the professional/consultancy business will be subject to compliance with the formalities of the Department of Economic Development or depending on the Emirate, the Ministry of Economy, and their respective procedures. These procedures primarily involve establishing the qualifications of the party wishing to establish the business, its personnel and in particular the local manager. You should only consider setting up as a professional/consultancy business if you intend to practise as consultants, and the local manager must reside in Dubai for at least eight months in every year.

 

3) Limited Liability Company

A Limited Liability Company ('LLC') can carry out most types of business activity depending on the licence applied for.

Under the UAE Law, an LLC can be formed with anything from between two and fifty partners, and liability is limited to the extent of their respective shareholding in the company.

The law states that at least 51% of the shareholding must be vested in a UAE National or a 100% owned national company. However, the UAE National's involvement in the company's affairs can be restricted by agreements behind the company formation. These restrictive agreements can include a Deed of Trust, Loan Agreement, Mortgage of Assets outside the UAE, General Power of Attorney and Management Agreement.

Most importantly, management of the LLC may be vested in foreign or national managers who need not be equity participants.

4) Free Zone Areas

There are a number of Free Zone Areas (FZAs) in the UAE. The most popular one being the Jebel Ali Free Zone but the Dubai Airport Free Zone, Sharjah International Airport Free Zone, Ras Al Khaimah Free Zone and the Ajman Free Zone may prove to be appropriate, taking into consideration location and the cost of setting up.

Foreign companies can base their manufacturing, warehousing and trading operations in one of the FZAs without having to meet the usual requirements for carrying out business in the UAE.

A Free Zone company or establishment can be 100% foreign owned and there is no requirement to have local ownership or local involvement in the company.

There are a number of incentives for operating in a FZA which include:

  • The ability to import and export goods from the FZAs exempt from payment of custom duties and levies.
  • Companies and individuals are exempt from paying corporate or income tax for 15 years, extendible for a further 15 years.
  • Companies can repatriate 100% of their capital and profits either to their home country or offshore.
  • Companies can obtain visit visas for their personnel from the Free Zone Authority.
  • The Authority obtains the visas, then seconds the employees to their Free Zone Employer. Accordingly, they remain employees of the Authority, not the company. The advantages of this is that the UAE Labour Law will not apply. For example, the end of service gratuity payable in the Free Zone is much lower than that payable under the UAE Labour Law.
  • Once a company is accepted in a specified Free Zone it will operate under one of the different types of licence categorised by the nature of the activity undertaken. These are issued by the Free Zone Authority and are valid while the company holds a lease.

Conclusion

Registration formalities and requirements vary according to the type of business set up. Proper legal advice should be sought to ensure that investors are well protected and to conform with the appropriate legal formalities and registration requirements.

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AL BAWARDI
Al Khaleej Centre, 7th Floor,
Office N0. 701, Al Mankhool Road, Bur Dubai
P.O. Box: 5083 Dubai, United Arab Emirates
Tel: +971 4 3591115 | Fax: + 971 4 3591103
Email: jummaadv@emirates.net.ae