This is a repost of the article of the same name on www.expatwoman.com
We often get asked about how to set up or open a business in Dubai, so here we take a closer look at how you can do that.
How do you set up a business in Dubai? Will it be a public, an LLC or a Freezone company you’ll need to investigate all of the options you have available to you. Here’s an in depth guide to everything you need to know…
- Ownership Requirements
- Legal Structures of Business
- Joint Venture Companies
- Public & Private Shareholding Companies
- Limited Liability Companies
- Branches & Representative Offices of Foreign Companies
- Professional Firms
- Free Zone Incentives
- Free Zone Licenses
- Setting up a Branch of a Foreign Company
- Setting up a Free Zone Establishment
- Key Free Zones in Dubai
Business Set Up Overview
In the UAE, economic activity is regulated by individual emirates as well as the Federal Government. In Dubai, the authorities have deliberately sought to create an environment which is well ordered without being unduly restrictive. As a result, Dubai offers businessmen operating conditions that are among the most liberal and attractive in the region.
There are many options open to international companies seeking to establish a business relationship with Dubai. Apart from forming a trading relationship, many companies find that there are distinct advantages in having an on-the-spot presence in order to research market prospects, make contacts, liaise with customers, and see through the details of any transactions and orders secured. Having such a presence can provide considerable business advantages in the Middle East.
Businessmen in the region prefer to deal with someone they know and trust and personal relationships are much more important in doing business in the Arab world than they are in western Europe or America. Also, the buying patterns of some countries served by Dubai tend to be unpredictable, creating a need for first class market intelligence and information. Dubai offers foreign companies a wide choice of business options, including:
- Direct trade – selling directly to established dealers and distributors
- Commercial agency arrangements – appointee must be a UAE national or company; agreement to be registered with Ministry of Economy and Commerce
- Branch or representative office – 100% foreign ownership permitted; local agent (sponsor) must be appointed; Economic Development Department license required
- Limited liability company – foreign ownership restricted to 49%; Economic Development Department license required
- Special free zone investment incentives.
The basic requirement for all business activity in Dubai is one of the following three categories of licenses:
Commercial licenses covering all kinds of trading activity;
Professional licenses covering professions, services, craftsmen and artisans;
Industrial licenses for establishing industrial or manufacturing activity.
These licenses are issued by the Dubai Economic Development Department (with the exception of licenses for hotels and other tourism-related businesses which are issued by the Department of Tourism and Commerce Marketing.) Also, licenses for some categories of business require approval from certain ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health. More detailed procedures apply to businesses engaged in oil or gas production and related industries. In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.
Fifty-one per cent participation by UAE nationals is the general requirement for all UAE established companies except:
- Where the law requires 100% local ownership
- In the Jebel Ali and Airport Free Zones
- In activities open to 100% AGCC ownership
- Where wholly owned AGCC companies enter into partnership with UAE nationals
- In respect of foreign companies registering branches or a representative office in Dubai
- In professional or artisan companies where 100% foreign ownership is permitted.
Legal Structures of Business
Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 – the Commercial Companies Law – and its by-laws govern the operations of foreign business. In broad terms the provisions of these regulations are as follows: The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organization which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies. The seven categories of business organization defined by the Law are:
- General partnership company
- Joint venture company
- Public shareholding company
- Private shareholding company
- Limited liability company
- Share partnership company
General partnership companies are limited to UAE nationals only. The Dubai government does not presently encourage the establishment of partnership-en-commendam and share partnership companies.
Joint Venture Companies
A joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be prescribed. There is no need to license the joint venture or publish the agreement. The foreign partner deals with third parties under the name of the local partner who (unless the agreement is publicized) bears all liability. In practice, joint ventures are seen as offering a suitable structure for companies working together on specific projects.
Public and Private Shareholding Companies
The Law stipulates that companies engaging in banking, insurance, or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, however, can establish a presence in Dubai by opening a branch or representative office.
Shareholding companies are suitable primarily for large projects or operations, since the minimum capital required is Dh. 10 million (US$ 2.725 million) for a public company, and Dh. 2 million (US$ 0.545 million) for a private shareholding company. The chairman and majority of directors must be UAE nationals and there is less flexibility of profit distribution than is permissible in the case of limited liability companies.
Limited Liability Companies
A limited liability company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the company’s capital. Such companies are recognized as offering a suitable structure for organizations interested in developing a long term relationship in the local market.
In Dubai, the minimum capital is currently Dh. 300,000 (US$ 82,000), contributed in cash or in kind. While foreign equity in the company may not exceed 49%, profit and loss distribution can be prescribed. Responsibility for the management of a limited liability company can be vested in the fore or national partners or a third party. The following steps are required in establishing a limited liability company in Dubai.
- Select a commercial name for the company and have it approved by the Licensing Department of the Economic Development Department
- Draw up the company’s Memorandum of Association and have it notarized by a Notary Public in the Dubai Court
- Seek approval from the Economic Development Department and apply for entry in the Commercial Register
- Once approval is granted, the company will be entered in the Commercial Register and have its Memorandum of Association published in the Ministry of Economy and Commerce’s Bulletin. The license will then be issued by the Economic Development Department
- The company should then be registered with the Dubai Chamber of Commerce and Industry.
Branches and Representative Offices of Foreign Companies
The Commercial Companies Law covers the formation and regulation of branches and representative offices of foreign companies in the UAE and stipulates that they may be 100% foreign owned, provided a local agent is appointed. Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local agents (which should not be confused with the term commercial agent). Local agents – also often referred to as sponsors – are not involved in the operations of the company but assist in obtaining visas, labor cards, etc. and are paid a lump sum and/or a percentage of profits or turnover. To establish a branch or representative office in Dubai, a foreign company should proceed as follows:
- Apply for a license from the Ministry of Economy and Commerce, submitting an agency agreement with a UAE national or 100% UAE owned company. Before issuing the license, the Ministry will:
- forward the application to the Economic Development Department to obtain the approval of the Dubai government;
- forward the application specifying the activity that the office or branch will be authorized to undertake in the UAE, to the Federal Foreign Companies Committee for approval;
- Once this has been done, the Ministry of Economy and Commerce will issue the required Ministerial license specifying the activity to be practiced by the foreign company;
- The branch or office should be entered in the Economic Development Department’s Commercial Register, and the required license will be issued;
- The branch or office should also be entered in the Foreign Companies Register of the Ministry of Economy and Commerce;
- Finally, the branch or office should be registered with the Dubai Chamber of Commerce and Industry.
In setting up a professional firm, 100% foreign ownership, sole proprietorships or civil companies are permitted. Such firms may engage in professional or artisan activities but the number of staff members that may be employed is limited. A UAE national must be appointed as local service agent, but he has no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover. The role of the local service agent is to assist in obtaining licenses, visas, labor cards, etc.
The Jebel Ali Free Zone and Dubai Airport Free Zone have been set up with the specific purpose of facilitating investment. Accordingly, the procedures for investing in the zones are relatively simple. While the free zones are designed to complement and contribute to Dubai’s growth and development, their legal status is quite distinct.
Companies operating there are treated as being offshore, or outside the UAE for legal purposes. The option of setting up in the free zones is therefore most suitable for companies intending to use Dubai as a regional manufacturing or distribution base and where most or all of their turnover is going to be outside the UAE.
Free Zone Incentives
- 100% foreign ownership
- Exemption from all import duties
- 100% repatriation of capital and profits
- Freedom from corporate taxation, as applied throughout Dubai, with the added bonus of a renewable 15 year guarantee in the free zone
- Abundant inexpensive energy
- Simple and efficient recruitment procedures ensuring the availability of a competitive skilled and experienced workforce
- A high level of administrative support from the free zone authorities.
Free Zone Licenses
Companies approved for operation in Jebel Ali Free Zone or Dubai Airport Free Zone, are granted one of the following types of licenses: Trading; Industrial; Service; or National Industrial. These licenses are renewable annually for as long as the company holds a valid lease from either of the Free Zones. Trading licenses will be granted to companies holding a valid license issued by the Dubai Economic Development Department or an equivalent authority in the UAE, and to companies incorporated outside the UAE. In each case, the permitted activities on the Free Zone license must conform to those on the existing license. Trading licenses are also issued to Free Zone Establishments (FZE)
Industrial licenses are issued to companies incorporated outside the UAE and to Free Zone Establishments
Service licenses are only granted to companies holding a valid UAE license
National Industrial licenses are issued to industrial companies registered within or outside the UAE, provided they meet the conditions of having at least 51% AGCC equity and their local production accounting for at least 40% value added. Such companies must obtain provisional approval from the UAE Ministry of Finance and Industry. A National Industrial license grants its holder the same rights as those of national and other AGCC companies, and products exported to AGCC states will be exempted from custom duties.
If a company wishes to practice more than one of the above mentioned activities, it must obtain a separate license for each category of activity. Companies holding a Free Zone license are permitted to operate in the Jebel Ali or Dubai Airport Free Zones and outside the UAE. Operation within the UAE can be undertaken either by a commercial agent, representative, distributor, or the mother company licensed by the relevant UAE authority. Any company holding a Free Zone license can itself purchase goods or services within the UAE.
Setting up a Branch of a Foreign Company
Any company wishing to set up a project in the Free Zones must first complete a simple questionnaire. From the information provided, the Jebel Ali Free Zone Authority or Department of Civil Aviation can make a first assessment of whether the company’s needs can be met. After consideration of this questionnaire, the company will be provided with:
- a license application including an appendix with details of the documents required concerning the company’s legal status
- a proforma of information required for planning, and
- a consumer request for electricity supply.
On receipt of these documents, the Free Zone authorities will consider the proposal. If provisional approval is given, the company will be asked to prepare and submit the documents called for in the appendix to the license application. After the checking of these documents, a meeting will be called to discuss and finalize the project details. If everything is satisfactory, the Free Zone authorities will issue conditional approval for the project. Thereafter, a lease agreement and, if required, a personnel secondment agreement will be prepared by the Free Zone authorities for signature by the company.
At the time of signing, the applicant will be required to provide the insurance policies called for in the agreements and should pay the agreed rental and license fees prior to collection of the license. If the company wishes the Free Zone authorities to sponsor employees on its behalf, applications for entry permits may be submitted once the license has been issued. The bank guarantee called for in the personnel secondment agreement will be required at this stage together with visa charges.If the company’s project involves the erection of a structure, detailed plans must be submitted after the lease has been signed. When the plans have been agreed, a building permit will be issued.
Administrative work, such as importing equipment or engaging labor for installation of equipment, may proceed in parallel with construction work. But application for entry permits for operatives to be sponsored by the Free Zone authorities will not normally be accepted until a completion certificate for the construction has been issued.
Setting up a Free Zone Establishment
A Free Zone Establishment – or FZE – is an establishment formed and registered within the Free Zones and regulated solely by the Free Zone authorities. Such establishments must have a capital of at least Dh.1 million and liability will be limited to the amount of paid-up capital. A FZE need only have a single shareholder and is an independent legal entity. Any company, organization or individual wishing to form a Free Zone Establishment must submit a completed application to the Free Zone authorities. A decision on whether permission has been granted will be given within 30 days of receipt of the application and any other information and documentation required. If permission is granted, the authorities will record all relevant details in the FZE Register and issue a Certificate of Formation. This will specify the date of registration after which the FZE will be free to conduct any such business as is permitted in its license.
Key Free Zones in Dubai
- Dubai Airport Free Zone
- Dubai Auto Zone
- Dubai Biotechnology & Research Park
- Dubai Flower Centre
- Dubai Gold and Diamond Park
- Dubai Healthcare City
- Dubai International Financial Centre
- Dubai Internet City
- Dubai Knowledge Village
- Dubai Logistics City
- Dubai Maritime City
- Dubai Media City
- Dubai Multi Commodity Centre
- Dubai Outsource Zone
- Dubai Silicon Oasis
- Dubai Studio City
- Dubai Sports City
- International Humanitarian City
- International Media Production Zone
- Jebel Ali Free Zone
- Techno Park
- JLT Free Zone