Doing Business in Dubai
There are seven Emirates in the UAE and each of such Emirates has its own procedures to start business. The UAE (United Arab Emirates) is comprised of seven emirates: Abu Dhabi, Sharjah, Fujairah, Dubai, Umm Al Qaiwain, Ras Al Khaimah and Ajman. Even though there are federal laws which, clearly, have the power along all UAE, different Emirates have different additional rules and regulations which apply. Thus, for example, the procedure and requirements to start business in Dubai and the procedure to start the same business in Abu Dhabi would be rather different.
In each Emirate there are different options for the company formation – as the Free Trade Zone onshore or offshore company as well as the Non-Free Trade Zone Company with the local sponsor or local agent in Dubai or other Emirate.
It is also a prerequisite to define the exact scope of the services the company would provide. For example, if you do the company formation with the local sponsor in Dubai and decide to participate in governmental tenders in Abu Dhabi, most likely your company would be rejected from such tenders in Abu Dhabi as it must be, for such cases, be formed in Abu Dhabi.
It is important for a new start up company to set up the appropriate business vehicle to suit the needs of the company. Taking the wrong decision at the very start will cost the business valuable time and money.
Dubai company formation
Many think about Dubai when they decide to start business in UAE. However, to start business in UAE, there are a number of other options in the United Arab Emirates for the company formation. Generally if you are not linked to Dubai, other Emirates of UAE may be the more cost-efficient option for the company set up as well as the office and land / storage facilities costs.
What are the most common difficulties faced when starting business in Dubai and other Emirates?
- Definition of the right type of the company and right type of its license and place (Emirate, Free Trade zone) of the company formation / registration.
- Finding a local sponsor.
- Preparing and filing all the documents for the company formation with the respective authorities.
- For the licenses which require some professional qualifications – preparing and filing all the necessary documents to receive the respective approvals for the license.
- Opening bank account. Even though it does not seems to be hard to open a bank account, sometimes, without the knowledge on how the banks work, opening a bank account in Dubai can be quite complicated and time-consuming.
- Business in Dubai and other Emirates of UAE can be formed in a number of different ways with different costs and requirements. In total the options are as follows:
- types of companies;
- Under UAE federal law, foreign businesses have three main entities to choose from in order to conduct business in the UAE: a local limited liability company ("LLC"), a free zone entity ("FZE"), and an international business company ("IBC").
- Companies can also operate by setting up a branch of a foreign company or a representative office of a foreign company.
Six out of seven emirates (the exception is Abu Dhabi) offer the possibility to conduct business out of a free zone. And two emirates, Dubai and Ras al Khaimah (RAK), offer an IBC regime.
The UAE offers a great market for a wide variety of products and services. Due to the uniqueness of UAE as compared to other worldwide business jurisdictions, it is important to understand the business options that exist in UAE before doing business. As for onshore companies, there are three options that permit you to undertake business activities within UAE
Type of UAE Companies
Establishing a Free Zone Company
A free zone is a designated area in UAE where specific rules and regulations are applied. There are currently around 40 free zones within the United Arab Emirates with more expected to come into existence as time goes by. If there is no need to sell goods directly to the local market, but office space and local staff are required, then setting up in a free zone is often more attractive than using a local company. Free zone companies also meet the growing necessity in international tax planning of having necessary substance. This is often impossible to deliver from the traditional offshore jurisdictions since they typically only offer an IBC regime.
Establishing a Limited Liability Company (LLC)
A LLC can be formed with a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the company’s capital. Companies with expatriate partners typically opt for this form of company. The voting rights in the company may not exceed 49 percent, profit and loss distribution, and the share in allocation of liquidation proceeds can be mutually agreed upon. LLCs can sell directly to the local market.
If the scope of the activities in the UAE is limited, a branch or representative office can be considered. Such an office would also need a local sponsor. However, the sponsor in this case does not gain any voting rights and the role is limited to dealing with local and federal government requirements.
Establishing a Foreign Branch in Dubai
Foreign companies can establish a branch office in the UAE. A branch office may not carry out any commercial activity in its own name, it may only negotiate and enter into contracts on behalf of the parent company, and if goods and services are required to fulfill that contract, they have to come directly from the parent. Support activities by the branch are allowed.
Tax Framework
There is no federal corporate or income tax levied in the UAE (except on oil companies and foreign banks). Dubai introduced a local income tax under the Dubai Income Tax Ordinance of 1969; however, the tax has not been implemented and it is understood that there are no plans to do so. In addition, free zone entities are subject to a number of tax concessions. There is no value added tax or sales tax in Dubai or the UAE. There are no exchange controls on the remittance of profits or repatriation of capital and there are virtually no restrictions on foreign trade. Corporate governance Dubai has embraced the need to develop and encourage principles of good corporate governance in the Middle East which can only help to attract foreign direct investment. Hawkamah Corporate Governance Institute, the first institute of its kind in the UAE, has been established with the mission of assisting the countries and companies of the Middle East region to develop and implement sound and globally well-integrated corporate governance frameworks.
Dubai’s serious attitude to developing corporate transparency and principles of good corporate governance and anti-money laundering is a beacon for the Middle East region and is a significant attraction to the international investment and financial community.