United Arab Emirates: Key Considerations For Multinational Business Looking To Setup In The UAE

Last Updated: 23 July 2019
Article by Jimmy Haoula

Q1: Key considerations on how a multinational business can set up as a group in the region

The United Arab Emirates ("UAE") economy continues to flourish and be attractive to businesses from around the world. The potential options available to foreign multinational companies to undertake business or commercial activities in the UAE are set out hereunder. Essentially, foreign businesses are advised to consider the legal and procedural requirements and select the option that would best match their business objectives.

There are various options for multinational companies to setup their operations directly or indirectly in the UAE. The options would depend on the nature of the business conducted, the strength of the multinational company (foreign entity) and the commercial plans of such multinational company.

Some of the available options for setting up in the UAE are:

A. Mainland License

I. Operation through third party distributors or agents

II. Limited Liability Company LLC

III. Branch license / representative

B. Free Zone

I. Offshore Limited Company

II. Onshore Free Zone Company

A. Mainland License



A.I. Agent / Distributor

  • This form of operation entails that the multinational company will sell / supply its services and products through one or more agents or distributors operating and licensed in the UAE
  • Historically the difference between agents and distributors in the UAE have been the nature of the agreement entered between the multinational company and the agent/ distributor.
  • An agency agreement usually results in the UAE agent registering such agreement on exclusive basis with the Ministry of Economy or the relative authorities. Distributors on the other hand would have an arm length commercial arrangement.

A. II. Limited Liability Company (LLC)

This is the most common form of legal business setup in the UAE. This structure permits multinational companies to conduct operations inside and outside the mainland UAE. The disadvantage of setting up an LLC is the requirement to have a UAE national (Or a UAE company 100% owned by UAE nationals) to own 51% of the multinational company operations or license in the UAE. The market in the UAE has developed means to comply with the Commercial Companies Law (Federal Law No. 2 of 2015) re the requirement of a UAE national partner. Documentation have been developed to secure the interest of the multinational business in the UAE operation and assets.

Aspects to consider when setting up an LLC:

  • No minimum share capital requirement.
  • Activities varies depending on the multinational business requirements.
  • Subject to the nature of the business to be developed, the multinational company may fall under the new Foreign Direct Investment law (Federal Law No. 19 of 2018).

A. III. Branch

A branch license in the UAE, is simply a license permitting the multinational company to operate its business in the UAE as conducted in the headquarter of the multinational company.

Aspects to consider when setting up a branch license:

  • The need of a UAE national sponsor. This is not the same as a UAE national partner, as explained above for an LLC. A sponsor will not own any shares in the company branch but will act as a service provider for local requirements.
  • A branch license permits the headquarter of the multinational company to conduct trade and provide service activities.
  • The branch license would not have an independent legal capacity. Any liability assumed by the branch license will need to be borne by the multinational company headquarter.

B. Free zones

There are various designated free zones in the UAE, each one of the free zones regulates certain activities in the UAE. For example, the DIFC and the ADGM were setup regulate the financial sector; the Jebel Ali Free Zone and Dubai Airport Free Zone were setup for the trading sector; and TwoFour54 and Dubai Knowledge village were setup for the education sector.

The most common structure for setting up non-regulated entities in the UAE are:

I. Offshore Limited company

II. Onshore Limited Liability Company or Free Zone Establishment

B. I. Offshore Limited Company

The offshore is a special service vehicle usually setup for purposes of owning an asset, holding shares or related to a specific transaction. This structure is similar to that of limited companies incorporated in the BVI (British Virgin Island) and other jurisdictions.

Aspects to consider when setting up Free zone offshore:

  • This entity cannot be conducting services or trade in the UAE. This entity however, can hold shares or assets in the UAE.
  • This type of company does not have operational offices and premises and as such cannot employ / sponsor personnel.

B. II. Onshore Free Zone Limited Liability Company / Free Zone Company

These are entities setup as 100% owned by the multinational company without the need for a UAE partner or UAE sponsor. These entities are usually setup to develop the multinational company in the region and to assist their operations in the UAE.

Aspects to consider when setting up Free zone onshore:

  • An onshore free zone company must operate from the free zone it is incorporated in.
  • Any trading from within the free zone to the mainland must be conducted through a proper legal structure and will be subject to custom duties and VAT.

Q2: The effect of the recent bankruptcy legislation on those businesses facing difficulties because of cash flow issues

The Federal Law by decree No. (9) of 2016 on Bankruptcy (hereinafter referred to as the "Bankruptcy Law") adopts new rules to protect businesses from bankruptcy and help them try to restructure rather than liquidate their assets.The Bankruptcy Law is based on economic principles aimed at reorganizing the financial obligations of the debtor and allowing businesses to return to growth by restructuring and regulating their debt.

A company facing financial distress due to lack of liquidity reasons or insolvency and are unable to pay debts when due, are advised to consider using one of the remedies provided for in the Bankruptcy Law. The prescribed remedies are "preventative composition" and "restructuring" mechanisms.

A company that is unable to pay its debts for a period not exceeding 30 consecutive business days, but is otherwise in good form and solvent, shall seek to apply for an order of "preventative composition" under the Bankruptcy Law from the competent court. Preventative composition may assist the business in rescheduling its debts.

In case the company ceased to pay its due debts for more than 30 consecutive business days, it is advised to initiate bankruptcy proceedings. Bankruptcy proceedings initially commences with the appointment of an expert to help in restructuring the business and avoid declaration of bankruptcy. If the court finds that the restructuring of the company is not feasible, then the company would be declared bankrupt and the court will have to liquidate its assets to repay their creditors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions