United Arab Emirates: The Essential Guide To Setting Up Business In The United Arab Emirates

The UAE was established on 2 December 1971 and is comprised of a federation of seven Emirates namely, Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain as well as numerous free zones (the Dubai International Financial Centre, the Dubai Multi Commodities Centre, the Dubai Creative Clusters Authority, Abu Dhabi Global Market, Khalifa Industrial Zone Abu Dhabi and the Ras Al Khaimah Economic Zone being some of the most commonly referenced free zones). It is based on a civil law regime and the process for setting up business is heavily regulated, requiring not only an assessment of the activities to be conducted, but also an analysis of the proposed geographical location of such activities. Attendances before the Notary Public and various other governmental departments or free zone authorities are also often required and this can be both cumbersome and time consuming.

Whilst the federal laws of the UAE apply across all of the Emirates, each Emirate has its own local laws of civil procedure and evidence. Most of the Emirates also have their own free trade zones. Each free trade zone is subject to the specific laws of that free trade zone along with the federal laws of the UAE and the local laws of the relevant Emirate, where that free trade zone's laws are silent, but there are exceptions.1

Why set up in the UAE?

  • Companies in the UAE enjoy one of the least demanding tax frameworks in the world, which can help lessen the financial and administrative strain on international business.
  • The UAE has one of the most liberal trade and customs regimes in the Gulf Cooperation Council (GCC) and attracts strong capital flows from across the region.
  • The UAE is diversifying its economy and has been witness to sustained growth in the tourism, trade, transportation, science and technology sectors, thereby minimising vulnerability to oil price movements.
  • The UAE is strategically placed at the crossroads of the major Eastern and Western economies. The UAE hosts some of the busiest ports and airports in the region making it a logistics hub for international business.
  • The UAE has numerous free trade zones, catering to various industrial and business clusters where foreign investors can enjoy 100 per cent ownership, zero corporate taxes (in most cases) and a sophisticated infrastructure.
  • The UAE attracts a highly skilled work force due to its liberal labour policies, quality of lifestyle and culture of excellence.
  • The extraordinary perception and vision of UAE leaders have created one of the world's most successful and vibrant regions, where locals and expatriates alike coexist harmoniously.

How to establish a legal presence in the UAE

In order to conduct business in the UAE, a foreign investor is required to either establish a formal legal presence within the UAE or use a commercial agent. There are several ways in which this can be done:

  • incorporating a local entity;
  • registering a branch or representative office of a foreign company;
  • establishing a free zone entity; or
  • entering into a commercial agency relationship.

Setting up onshore

Local entities formed under UAE Federal Law No. 5 of 1985 promulgating the Civil Transactions Law (as amended) (the UAE Civil Code)

Entities formed under the UAE Civil Code are restricted to carrying out "non-commercial" or civil activities and are typically used by the professions. UAE Civil Code entities may take one of the three following forms:

  • professional services company;
  • speculative venture partnership; or
  • Mudaraba (an Islamic Shari'a-compliant arrangement).

The professional services company is the most common form of UAE Civil Code entity used by qualifying foreign investors as it can be 100 per cent foreign-owned and is appropriate for carrying on service businesses, such as medical and some consultancy services. One of the main disadvantages of using a professional services company is that it is not considered as a legal entity separate from its foreign owners (it is effectively a sole trader operating under a licence, meaning that the foreign owners will be liable for all of the liabilities of the professional services company). A UAE national service agent must also be appointed to sponsor the professional services company for its licence application and assist in dealings with governmental authorities and other administrative matters. The fees for this appointment are usually paid as an annual lump sum.

Local entities contemplated by UAE Federal Law No. 2 of 2015 promulgating the Commercial Companies Law (the CCL)

All locally incorporated entities (other than those established under the UAE Civil Code) must be set up in accordance with the CCL.

There are five main forms of entity expressly contemplated by the CCL:

  • public joint stock company;
  • private joint stock company;
  • limited liability company (LLC);
  • partnership companies; and
  • limited partnership companies.

Of the CCL entities set out above, most foreign investors will choose to set up onshore as an LLC or by way of a branch or representative office (please see below).

LLCs

An LLC commonly undertakes commercial, trading and industrial activities and must, by law, have at least 51 per cent of its shares owned by one or more UAE nationals (or entities wholly owned by UAE nationals) (the Local Partner).2

Footnotes

1 For example, the Dubai International Financial Centre (a financial free zone within Dubai) has its own body of law, including corporate law, contracts law and employment law, as well as its own court system i.e. it is not subject to the laws of the UAE other than the criminal laws.

2 Please refer to article 10 of the CCL.

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