This is a repost of the article of the same name on Virtuzone Blog
If you’re planning to set up a new business in the UAE you’ve got some exciting challenges ahead of you. There is plenty to think about, and many options as well.
Overseas entrepreneurs who want to do business in the UAE can choose from a number of setup options, with the two most commonly explored being free zones and mainland LLCs. Both have their pros and cons. Free zones offer a host of tax benefits and 100% foreign ownership, but business activities and trade with the mainland can be limited. Conversely, a mainland LLC allows a foreign entrepreneur to trade directly with the local UAE market, but must be established with the aid of an Emirati sponsor who holds a 51% share in the business.
What first-time entrepreneurs don’t always realise is that there is another way: opening a representative office in the UAE.
The difference between representative offices and branch offices
A representative office is essentially an extension of an existing business – which can be based either in the UAE or overseas. Often confused with branch offices, there are a few defining characteristics that set the two apart. The most notable difference relates to business activity: whereas a branch office can conduct business in the UAE and turn a profit, a representative office in the UAE cannot – it must outsource all its work back to the parent company.
A representative office is essentially an extension of an existing business – which can be based either in the UAE or overseas. Often confused with branch offices, there are a few defining characteristics that set the two apart.
So why set up a representative office in the UAE?
For one, it can be a very cost-effective way of breaking into the local market. There is often no share capital requirement to open a representative office. And since operations are usually smaller – as most of the business’ resources remain with the parent company – running costs are often lower as well. As with free zone setups, you can maintain 100% ownership of your company since it is treated as an extension of the parent. And, depending on the jurisdiction and country of origin, parent companies may be able to take advantage of the UAE’s 0% corporate tax rate.
Essentially, representative offices act as a powerful marketing and promotional tool for your existing business, allowing you to get a foothold in the ever-growing UAE market while you expand your business at home – all at a low cost and with favourable tax conditions.
Seven things to know about setting up your representative office in the UAE
So if everything mentioned above sounds tempting, here is what you need to know to get started.
1. Easy setup: The process for setting up a representative office is similar to the usual process for UAE mainland businesses, but with a couple of extra steps. The first step is to identify a Local Services Agent (LSA) who will act as your representative in all dealings with the UAE authorities – a company formation specialist can help you select one. You must then choose your business activity and company name and apply to the Department of Economic Development (DED) for approval.
Once you have received DED approval, you then apply to the Ministry of Economy (MOE) – your application would need to include information on your business activities, proof that you have permission to set up the representative office, as well as documents such as a certificate of incorporation and memorandum and articles of association. Keep in mind that if the parent company is based outside the UAE, all documents must be notarised, attested and translated into Arabic before submission – and this should be done as early as possible in the application process. Once the MOE has approved the establishment of your new representative office, you can then proceed with the standard DED licence application. Licences are usually granted for one year and renewed annually.
2. Minimal sponsorship requirements: All UAE mainland companies owned in part by a foreign national must be set up with a local partner or sponsor – and representative offices are no different. This stage of the process is very simple, as your LSA will be more than sufficient. Unlike individual or corporate sponsors, LSAs take no ownership or control of your business, and are not involved in the day-to-day running of your company, or any decision making. Their role is confined to administrative tasks such as licence, visa and permit applications, for which they are paid a set fee. Please note however that an LSA must be either a UAE national or a corporate entity entirely owned by UAE nationals.
3. Straightforward pricing structure: While the cost of applying to establish a representative office in the UAE may be slightly more expensive than a standalone business – due to the extra steps in the process – the pricing structure is simple and transparent. Prices vary depending on the exact location and nature of your business, but the total setup cost usually comes to around AED 100,000, plus whatever fee is negotiated with your LSA. This total cost includes a refundable deposit of AED 50,000.
4. Apply for multiple visas: As with most UAE mainland companies, setting up a representative office allows entrepreneurs to apply for multiple visas. While there is no upper limit on the number you can apply for, it should be linked to the size of your office. As a general rule of thumb, think 100 sq. ft. of office space per visa. There are exceptions to this rule, however: for example, a domestic cleaning company may have 500+ employees working remotely – and therefore would not be required to take 50,000 sq. ft. of office space.
As with most UAE mainland companies, setting up a representative office allows entrepreneurs to apply for multiple visas.
5. Sponsor dependants’ visas: As well as applying for visas for yourself and your employees, owning a representative office also allows you to sponsor dependants for their visa applications. Whether you wish to sponsor a parent, spouse, child, maid or driver, the process is straightforward: entry permit, status adjustment, a medical fitness test, then Emirates ID registration and visa stamping. As this is such an important process, it’s a good idea to get advice from an expert in setting up UAE businesses, to ensure that before starting an application, both you and those you are hoping to sponsor meet the entry criteria.
6. Set up with multiple shareholders: There’s no need to go it alone when setting up your representative office in the UAE – simply establish your business with multiple shareholders. These can be either individuals or corporate entities and while there’s no official upper limit, there is a generally accepted rule that the number of shareholders will not exceed 50.
7. Possibility of no paid upfront share capital: It is possible to set up a representative office in the UAE without the need for share capital, however this will depend almost entirely on your chosen business activity. This can be a tricky area but a company formation specialist can advise you on the requirements and whether you will need upfront share capital or not.
Why set up a representative office in the UAE?
Setting up in a new country for the first time can be a daunting experience, even for entrepreneurs who already own and run businesses elsewhere. This is particularly true when setting up on the UAE mainland – with its well-known quirks and intricacies regarding foreign ownership. So setting up a representative office is a fantastic way to get a foot in the door of the UAE market without getting bogged down in these complexities.
Setting up a representative office is a fantastic way to get a foot in the door of the UAE market without getting bogged down in these complexities.
Representative offices offer foreign business owners the opportunity to expand their enterprise overseas – promoting their products and services directly to the local UAE market to boost their business back home. For entrepreneurs looking to move quickly to gain a presence in the UAE – one of the world’s fastest-growing and most strategically placed economies – there’s nothing quite like it.
What’s more, for many business people, opening a representative office acts as stepping stone to other types of business ownership – an opportunity to get to know local customs and business practices and assess the viability of launching a standalone company.
Whatever your reasons for launching one, there’s never been a better time to do it. Expo 2020 is on the horizon and is expected to boost the UAE economy to the tune of around USD 23bn.
Don’t miss your chance to earn a slice.
Virtuzone Mainland is dedicated to helping clients open a company on the UAE mainland, providing advice and assistance with every aspect of the company formation. To set up a consultation, please call us on +971 4 457 8200, or click here.