The United Arab Emirates has rightly gained a reputation as one of the most attractive business destinations in the Middle East and North Africa (MENA) region. The country's economy, business environment and strategic location are key drivers behind its success, in addition to its strong trade ties with many countries in the MENA region and beyond.
The business environment in the UAE was ranked 60th in our 2021 Global Business Complexity Index (GBCI), down from 53rd in 2020, representing a reduction in complexity. In many ways, this change comes as no surprise: the country has one of the most advanced regulatory environments for starting a business when compared to Arab nations, according to World Bank data. Other major factors contributing to this achievement include a fast and efficient registration process and minimal capital requirements when starting up.
Diversification and economic liberalisation
The UAE is one of the most business-friendly economies in the MENA region, benefiting from its strength and diversification. While the country is a major exporter of oil, the government has made significant efforts to reduce economic dependence on exports of the fossil fuel, by promoting other economic activities such as tourism and financial services.
The UAE's economy began to recover from the impacts of the Covid pandemic in the latter part of 2021, with further expansion in non-oil sectors expected in 2022. And, while the tourism sector is likely to take some time to fully recover, data from the Department of Economics and Tourism showed tourism recovering to just under 2019 levels.
The UAE has invested heavily in infrastructure development across all cities. This has led to a liberalisation of business rules and made it easier for foreign investors to set up businesses in the region.
However, with seven emirates and 45 free zones for general or industry-specific activities across the UAE, registering and managing a business entity can present challenges. Dubai alone has more than 20 free zones, each with its own laws and regulations, sometimes making doing business in the UAE a complex affair.
Offshore vs onshore
The United Arab Emirates is an ideal place for a foreign company to establish its presence in the Middle East. It is home to a stable economy and government, with an increasingly diverse range of business opportunities. In addition, the UAE offers tax benefits and other incentives for investors, making it a convenient place to do business.
The first thing to consider when seeking to incorporate in the UAE is whether to establish a business in one of the country's many free zones or onshore for mainland business activities.
Free zones were established to encourage foreign direct investment, and each zone has its own laws and regulations. The types of companies that can be established within free zones differ, but primarily include subsidiaries and branch and representative offices. Entities established in a free zone can have 100% foreign ownership and there is no requirement for having a local service agent for a branch or representative office.
While 100% foreign ownership is allowed in free zones, these entities are not allowed to conduct business on the mainland. Profit-seeking enterprises wishing to tap into the domestic market are required to register an onshore entity.
With the advent of Federal Decree, Law No. (26) of 2020 that amended some provisions of Federal Law No. (2) of 2015 regarding ownership of onshore commercial companies effective 1st June 2021, we can conclude that both onshore and Free Zones may offer limited liability company (LLC) and Branch of Foreign Company options with full foreign ownership.
Nevertheless, full ownership onshore is only applicable for trading-related activities. Accordingly, there are more than 1,000 commercial and industrial activities that may be owned 100% by a foreign investor.
An LLC in the onshore jurisdiction requires a 51% local UAE shareholder. A branch office, a representative office or a sole establishment requires a local service agent as a representative in front of the local authority.
A company license from a free zone jurisdiction allows the company to operate only within the free zone and outside the UAE, whereas a company license from the onshore jurisdiction can be used to operate in the whole UAE.
An entity set up in the UAE is always a combination of the business license, legal entity and registered office. The law specifies that a company license must be linked to the size of the office space as stated in the official office space tenancy contract.
Incorporating in the UAE
Incorporating in the UAE is a relatively simple process and can typically be completed online. However, investors need to consider several factors before beginning the incorporation process.
The following are the basic steps to consider when incorporating in the UAE:
- Choose your legal structure and form of incorporation by considering the activity of the entity to be established
- Submit your application for registration with the Department of Economic Development (DED) for mainland or Registration/Licensing Authority in the Free Zone
- Apply for initial approval from the relevant authorities
- Select your office location and rent a local office space or a serviced office
- Open a corporate bank account
- Obtain visas and work permits for staff as needed
Generally, opening a business bank account in the UAE is a mandatory requirement for any company but is one that can present challenges. Foreign investors incorporating in free zones may be better off working with an international bank, as opening an account with a local bank can be a time consuming process.
Tax changes and new Labour Law
Major changes in the UAE's tax laws are ongoing. In January 2022, the UAE introduced its first federal corporate tax rate of 9%, set to become effective from June 2023. The tax rate is expected to further enhance the UAE's attractiveness to foreign investors.
On the employment side, Federal Law No. 33 of 2021, also known as the Labour Law, governs the labour rights of employees in the private sector working for entities located in onshore and other Free Zones. This law was recently implemented on 2 February 2022.
However, Free Zones such as Dubai International Financial Centre and Abu Dhabi Global Market have its own respective employment rules and regulations.
TMF Group United Arab Emirates
TMF UAE can help to manage all of your compliance obligations in the Emirates – from recommending the most appropriate type of entity and jurisdictions for your set up to ongoing management accounting, corporate governance and even your payroll.
From establishment to business as usual, and right through to wind-down, TMF Group's UAE office can help you at any stage of your company's life cycle. Our teams provide local knowledge combined with global reach, helping you to do business seamlessly across borders.
Contact our experts today to find out how we can help you grow your business.
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.
