A branch company or a representative office set up is considered as one of the best option to retain 100% foreign ownership in United Arab Emirates. Even though these offices do not have a separate legal identity, they are treated as an extension of the foreign company to perform the activities of parent company.
A branch office is legally permitted to do commercial activity in the UAE and can earn profits. It is licensed to do the activities set out in its commercial license similar to the activities of foreign company in its home jurisdiction. Consequently there is no legal protection to the parent company in the form of limited liability. Onshore branches are generally restricted to carrying out the same activities as the parent company.
A representative office is not permitted to earn profits within the UAE and the activities it may undertake in the UAE are limited to marketing and/or promoting its foreign parent company products and services.
There will not be any separate Memorandum and articles of association for the branch company since the parent company shareholding pattern, business activity etc will be followed in Branch or Representative Company set up.
The main features of branch and representative office are similar that both operates under the commercial registration and license of its foreign company. As per Article 329 of Federal Law No. 2 of 2015 on commercial companies, there is a requirement of appointing a local service agent (LSA) who must be a UAE national or it shall be a UAE company and all its partners shall be UAE nationals.
The process involved in branch/representative company set up is as follows:-
APPOINTMENT OF LOCAL SERVICE AGENT.
It is mandatory that a LSA has to be appointed to open up a branch/representative company in the mainland of UAE.
The obligations of the Local Service Agent to the company and third parties shall be limited to providing such services to the company, without any responsibility or financial obligations in connection with the business or activity of the branch or office of the foreign company inside the State or abroad.
Technically, the role of the LSA is restricted to administrative functions such as the obtaining of licenses, permits, visas etc., in return for a sponsor fee as agreed upon the management and the local service agent. The appointment of LSA would be on the basis of a written agreement which must be signed by the parties before the Notary public in respective emirates. There is no fixed format for the agreement and hence the terms and conditions of the agreement needs to be arrived between the parties on the basis of negotiations.
INITIAL APPROVAL AND TRADE NAME RESERVATION.
An application need to be submitted before the relevant Emirate's Department of Economic Development (DED) for a trade name reservation and initial approval of the proposed branch or representative office registration
APPLICATION TO THE MINISTRY OF ECONOMY (MOE)
An application must be made to the Ministry of Economy (MOE) (under article 330 of Federal Law No. 2 of 2015).
The application form requires full details of the foreign company (including share capital, head office, overseas activities, home jurisdiction); the nature of the proposed activities and the name of the proposed general manager in the UAE. The form must be accompanied by the prescribed documents, which will include:-
- Trade name reservation certificate and initial approval
- Corporate documents including a certificate of incorporation (or equivalent), memorandum and articles of association, a certificate of good standing (where one can be obtained in the home jurisdiction)
- A board resolution authorising the opening of the branch or representative office, appointing the general manager and resolving to grant a power of attorney in the general manager's favour; and confirming that the company accepts responsibility for the liabilities of the office once established in the UAE
- A power of attorney in favour of the general manager (authorised by the board resolution) and a copy of the general manager's passport.
- Audited accounts of the parent for the last two years
- A detailed statement setting out the company's main operations and activities.
- Notarised Local Service Agent appointment agreement with LSA's identification documents (or corporate documents if it is a corporate entity).
Considering the above documents, the MOE will issue initial approval, at which point the following additional documents must be submitted to the MOE:
- Application form
- Certificate of incorporation of the parent company
- Initial approval of the MOE
- Local bank deposit certificate.
Once the approval is obtained from MOE, the applicant has to pursue the application before the Department of Economic Development from respective emirates.
LICENSE FROM THE DEPARTMENT OF ECONOMIC DEVELOPMENT.
The MOE will issue a formal approval to either the Abu Dhabi Department of Economic Development or the Dubai Department of Economic Development, as appropriate (collectively referred to as the DED here).
Once the DED has received this approval, the applicant will then need to make a further application to the DED. This requires similar items to those submitted to the MOE; in addition, the applicant will need to include the proposed office address in the UAE.
This application needs to be accompanied by:
The MOE approval obtained together with approvals received from any other authorities applicable to the industry
- A copy of the proposed office lease contract in the UAE
- Copies of all the documents submitted to the MOE
- An undertaking from the foreign parent company
- A letter from a UAE auditor confirming that it acts.
Upon considering all the above documents, DED will issue a commercial license to the branch/representative company valid for one year and further renewal for equal periods meeting certain requirements.
ADMINISTRATIVE TASKS TO BE COMPLETED FOR THE OPERATION.
Branch /representative company may enter into the proposed lease for office space, open bank accounts, Labour file opening and obtain visas and labour cards for its employees etc.
REGISTER WITH CHAMBER OF COMMERCE IN RESPECTIVE EMIRATES.
The branch or representative office has to register as a member with the respective Chamber of Commerce and Industry in the emirates by providing the documents such as copy of license, lease agreement, Board resolution appointing manager etc.
LEGALIZATION, NOTARIZATION AND TRANSLATION OF DOCUMENTS.
The parent company documents needs to be legalized and attested up to Ministry of foreign Affairs – UAE. All the foreign language documents also to be legally translated and attested before submission.
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.