UAE company formation

Types of Business License

The types of Business Licenses issued in Dubai and other emirates in United Arab Emirates (UAE) are:

Professional License Commercial License Industrial License

Professional license covers services offered by professionals, artisans and craftsmen.

Commercial license covers all trading and commercial activities performed with an intention of making profit.

Industrial license covers all industrial and manufacturing activities.

In nutshell, the type of license depends on the business activity of the company or enterprise.

Jurisdiction of the Company

In UAE, a company can be formed in any of the following three jurisdictions:

- Mainland - Free Zone - Offshore

The licensing authority in mainland is the Department of Economic Development of the respective emirates. In Free Zones, the relevant Free Zone Authority will be the licensing authority and respective Offshore Authority in the case of Offshore jurisdiction.

Legal Forms of Business

Following are the common legal forms of business in UAE:

Sole Establishment Civil Company Limited Liability Company (LLC) Partnership Private Share Holding Company Public Share Holding Company Branches Representative Offices

Under UAE Law, there are five types of business establishments applicable to foreign entities interested in establishing a formal presence in the UAE. UAE government has implemented wide range of economic and administrative policies which has made UAE an attractive business destination.

A company can create a permanent establishment, create an entity in a UAE free zone, enter into a commercial agency agreement, establish a branch office, create a civil company (currently limited to Sharjah and Dubai).

Limited Liability Company

A Limited Liability Company (LLC) is the most common type of registration in the UAE and is recommended where the purpose of the entity is to make sales within the region. However, it should be noted that 100% foreign ownership of such an entity is not permitted. Under the UAE Commercial Companies Law (CCL), foreign investors are permitted to hold up to 49 per cent equity ownership in UAE companies and 51 per cent of the equity must be held at all times by one or more UAE nationals.

In accordance with Article (218) of the CCL a Limited Liability Company can be formed by a minimum of 1 (as per Article 8 of the Federal Commercial Company Law of 2015) and a maximum of 50 shareholders whose liability is limited to their shares in the capital of the company. Recent amendments to Article (217) of the CCL that came into force in June 2009 removed the requirement for minimum share capital (previously AED 300,000 in Dubai and AED 150,000 in other Emirates) allowing founders of a limited liability company the freedom to determine the company’s share capital which could be less than the earlier prescribed bottom line.

A LLC must appoint a minimum of one manager and up to a maximum of five managers for the business. Managers must be appointed by a Memorandum of Association or by a management contract, for a fixed term or an unlimited term. Unless the Memorandum of Association states otherwise, the manager has full powers of administration and management of the LLC. LLC is not allowed to practice its activities in the UAE without a Trade License and Commercial Registration Certificate.

Free Zone Company

Establishing a business entity in one of the UAE's many Free trade zones (FTZs) can be an attractive option for foreign investors. UAE has over 35 FTAs of which more than 20 are located in Dubai. The main attraction for setting up a company in a free zone is that there is no UAE national shareholding required. All free zones in UAE offer the following incentives:

- 100% foreign ownership of the enterprise

- 100% cent import and export tax exemptions

- 100% repatriation of capital and profits

- No currency restrictions

- Corporate tax exemption for 15 years, renewable for an additional 15 years

- No personal income taxes

Free Zone companies can only operate within the free zone boundaries and are generally limited to performing solely those activities listed in their license(s).

It is mandatory for every company registered in the Free Zone to lease minimum office space within that particular Free Zone. A Free Zone Company can obtain UAE residence visas for the director, shareholder and also employees of the company through the Free Zone where it is registered.

Offshore Company

UAE Offshore company registration is a very popular method of doing business in the Middle East region. In UAE there are two offshore jurisdictions – Dubai (Jebel Offshore Company) and Ras Al Khaimah. They offer similar services but serving different strategic goals of offshore company registration. The Jebel Ali Offshore Company is an International Business Company and is the only offshore vehicle that is permitted to own / hold real estate in the Emirate of Dubai.

The RAK Offshore and the RAK International Company (RAKIC) are International Business Companies. They provide a flexible and credible option for foreign investors to register an offshore company in UAE without the need to establish a physical presence in the UAE.

UAE Offshore companies offer the following benefits:

- No Corporate tax

- 100% foreign ownership

- Limited Liability Company

- No TIEAs

- Absolute Privacy and Confidentiality

- Ability to maintain multi-currency Bank accounts in the UAE

- Virtual office facilities available in the UAE

Branch / Representative Office

A branch office has the same legal identity as its parent company and conducts business under the name of its parent company. A branch office may only be engaged in activities similar to those of its parent company but it is not permitted to carry on the business of importing the products of its parent company, a function reserved for local trade agents. In some cases the Branch of a foreign company are required to obtain an additional license from UAE Ministry of Economy.

Representative office, on the other hand, is limited to promoting its parent company’s activities i.e. gathering information and soliciting orders and projects to be performed by the company’s head office.

A UAE national must be appointed as a ‘service agent’ for the branch or representative office.

Civil Company

A civil company is a business partnership for professionals like doctors, lawyers, engineers and accountants. A civil company is 100% owned by the professional partners (except for engineering civil company), however, a UAE National Local Service Agent is normally required. A foreign company can be a partner in a civil company, as long as the foreign company is in the same field as the civil company.