Plan My Firm

Below is the information required to determine which company type to use and the associated information related to it.

Types of Company’s

You can choose to form a company in either a free zone or on the mainland or, you can set up an offshore company in the UAE.

The Companies Law applies to all companies, branch offices, and representative offices of foreign entities established and operating in mainland Dubai (i.e. outside the free zones).

The five forms of companies permitted by the Companies Law are:

1. Limited liability company
2. Public joint-stock company
3. Private joint-stock company
4. Partnership company (general partnership)
5. Limited partnership company (simple liability partnership)

Limited liability companies, public joint-stock companies and private joint-stock companies are the most commonly established types of legal entities in the UAE and are also the most commonly used or invested in by foreign investors.

An overview of these three forms is provided below. Partnership (general and simple liability) companies are not commonly used in the UAE for several reasons, including the restrictions on foreign ownership and foreign management.

Alternatively, instead of establishing a local legal entity, a foreign business can carry out certain activities in Dubai through a representative office or a branch of a foreign company as will be further explained in this guide.

Non-commercial activities (including professional services) may be carried out through a civil company or a sole proprietorship, which both have unlimited liability.

 

Limited Liability Company

The limited liability company (LLC) is the most widely used form of company by foreign investors looking to conduct commercial activities in Dubai. An LLC is a private company and its shares cannot be offered to the public. Shareholders of an LLC benefit from limited liability status. An LLC has a separate legal capacity that is independent of its shareholders. The liability of each shareholder to the other shareholders and to third parties is limited to such shareholder’s capital contribution to the LLC. The objects of an LLC must not include insurance, banking, or investment of funds for the account of third parties. An LLC must have an initial capital sufficient for it to achieve its objectives, and the founders of an LLC have the right to determine the amount of such initial capital.

The management of an LLC may be comprised of either a single manager or a management board (functioning as a director and board of directors, respectively, would in other jurisdictions). Generally, there are FIVE forms of companies permitted by the COMPANIES LAW:

1. Limited liability company
2. Public joint-stock company
3. Private joint-stock company
4. Partnership company (general partnership)
5. Limited partnership company (simple liability partnership)

There are no nationality requirements regarding the composition of the board. Specific conditions may be required to form an LLC in mainland Dubai. These conditions depend on the nature of activities to be conducted by the company. It should be noted that certain activities are restricted to those companies that are fully owned by UAE nationals (e.g., commercial agency and supply of labor).

Additional approvals from other local or federal authorities may be required before obtaining a license from the Dubai Department of Economic Development (Dubai Economy), depending on the nature of the activities that are to be carried out by the company. For example, a company looking to carry out certain telecommunications activities will need to get prior approval from the UAE Telecommunications Regulatory Authority.

 

Public Joint-Stock Company

Public joint-stock companies are required to have at least five founding members (unless founded by the UAE federal government or the government of one of the seven Emirates that make up the UAE, or unless it is the result of a conversion of any company into a public joint-stock company), and an initial capital commitment of AED30 million (approximately US$8.2 million). The articles of association of the company may provide for an authorized share capital, which may be up to two times the issued share capital of the company. The capital of a UAE public joint stock company is required to be divided into negotiable shares of equal value. The nominal value of each share must not be less than AED1 (approximately US$0.27) or exceed AED100 (approximately US$27). All of the company’s shares must have equal rights and must be subject to equal obligations. Partly paid shares are permitted, provided that at least 25 percent of their value is paid upon their issue and the remainder of their nominal value is paid up within three years of such issue. Between 30 percent and 70 percent of shares must be offered to the public.

With the exception of shares in public joint-stock companies wholly-owned by the UAE federal government or the government of one of the Emirates, shares in all public joint-stock companies must be listed on a securities market in the UAE (the Dubai Financial Market or the Abu Dhabi Securities Exchange).

A public joint-stock company has a separate legal capacity independent of its shareholders. Like LLCs, 51 percent of the share capital of public joint-stock companies must at all times be held by UAE nationals. GCC ownership also satisfies the UAE ownership requirements in public joint-stock companies, although the articles of association of a particular public joint-stock company are capable of providing otherwise.

A public joint-stock company is required to have an odd number of directors, which may be between three and eleven; each director is elected for a term of three years and may be re-elected for further three-year terms. The chairperson and a majority of the board of directors must be UAE nationals. At least two-thirds of the directors must be shareholders of the company.

A public joint-stock company cannot provide financial assistance to any shareholder.

 

Private Joint-Stock Company

A private joint-stock company requires at least two founding members and a minimum initial capital commitment of AED5 million. As an exception to the rule, the law permits the incorporation of sole shareholder private joint-stock companies, known as “sole proprietorship – private joint stock” entities. A private joint-stock company may not have more than 200 shareholders. Shares in private joint-stock companies may not be offered for public subscription. In all other respects, provisions of the Companies Law applicable to a public joint-stock company also apply to a private joint-stock company. A private joint-stock company may be converted into a public joint-stock company. Private joint-stock companies with more than 75 shareholders must comply with corporate governance rules.

 

Branch or Representative Office of a Foreign Company

Foreign companies are permitted to establish wholly-owned branches and representative offices in Dubai. The primary difference between a branch and a representative office is that a branch may carry out activities similar to those of its parent company and generate revenue in the UAE. By contrast, a representative office may only promote its foreign parent company’s activities by gathering information and soliciting orders but may not carry on its parent company’s activities.

The scope of activities that may be carried out through a branch of a foreign company is limited to those activities permitted by the UAE Ministry of Economy from time to time, which have traditionally excluded trading of goods in addition to certain other service activities.

A branch or a representative office is not considered a separate legal entity from its parent company. The liabilities of a branch or representative office therefore attach to the foreign parent company establishing it. Generally, foreign companies are required to appoint a local service agent for licensing and registration of a branch or a representative office in the UAE. The local service agent must be a UAE national or a company wholly-owned by UAE nationals. Unlike a shareholder, a local service agent has no equity or management interest in the branch or the representative office and does not bear any of its liabilities or obligations. The compensation of a local service agent is typically an annual fee stipulated in a local service agency agreement between the local service agent and the foreign company, in consideration for certain administrative and licensing assistance that the local service agent may perform for the branch or the representative office. External approvals from other authorities may also be required before obtaining a license and a registration certificate from Dubai Economy, depending on the nature of activities to be carried out by the branch. In general, annual fees are due to the relevant authorities for the renewal of licenses and certificates of registration, in addition to the one-time establishment fees paid at the outset. There are also other incidental fees relating to the issue and maintenance of immigration, labor, and residency permits. Moreover, office space needs to be leased within mainland Dubai in order for a license to be issued by Dubai Economy to any entity operating in mainland Dubai.

 

Mainland

Forming a company on the mainland is governed by the Federal Law No. 2 of 2015 on Commercial Companies. The type of license is linked to the business activity.

Commercial License

Issued to a company engaged in trading activities

Industrial License

Issued to a company engaged in manufacturing activities

Professional License

Issued to service providers, artisans and/or craftsmen

 

Free zone

The UAE government has set up multiple free zones in the UAE, each designed for specific business activity. The free trade zones offer lucrative facilities to non-resident companies, such as the convenience of single-window administration, no bureaucratic red tape, and 100 per cent ownership. There are about 44 free zones situated all over the United Arab Emirates that have attracted foreign direct investment in the form of 200,000 companies contributing to the GDP's growth.

Numerous free zones have been established in Dubai, each with its own individual industry focus and regulatory environment. Businesses operating in the free zones are not subject to many of the restrictions imposed by federal and local laws and regulations. The following are some of the more well-known free zones established in Dubai:

• Jebel Ali Free Zone (JAFZ): Located next to the largest port in the Middle East, JAFZ is primarily targeted at import and export businesses.
• Dubai International Financial Centre (DIFC): Primarily for financial services providers, the DIFC has its own legal system, courts, financial services regulator (the Dubai Financial Services Authority), and stock exchange (NASDAQ Dubai).
• Dubai Development Authority (DDA): Principally for business activities that are related to information technology, e-commerce, media, printing and publishing, media production, broadcasting, information agencies, training and education, DDA acts as an umbrella to a number of smaller and more specialized free zones such as Dubai Media City, Dubai Internet City, Dubai Knowledge Village, Dubai Production City, Dubai Studio City, and Dubai Outsource City.
• Dubai Healthcare City: Provides quality healthcare and an integrated center for clinical and wellness services, medical education and research.
• Dubai Multi Commodities Centre (DMCC): A commodity marketplace, providing industry-specific market infrastructure and a full range of facilities for the gold and precious metals, diamonds and colored stones, energy, and other commodities industries. DMCC is also home to a general free zone for non-commodities-related business that has become increasingly popular in recent years.
• Dubai Airport Free Zone (DAFZ): A general trading, import, and export free zone located next to Dubai International Airport.
• Dubai Silicon Oasis (DSO): A high-tech free zone for the microelectronics and the semiconductor industries, amongst other IT and technology sectors.
• Dubai Logistics City (part of Dubai World Central) (DLC): A logistics-oriented free zone catering to all transport modes, logistics businesses, and value-added services, including light manufacturing and assembly, DLC is located near Dubai’s Al Maktoum International Airport.

The type of business activity to be undertaken will dictate which free zone is appropriate in light of both commercial and regulatory considerations.

 

Establishing a Business Presence in the Free Zones

The free zones operate independently of each other, and each has its own Free Zone Authority (FZA), responsible for issuing the necessary licenses to operate in its respective free zone. As each free zone is different, it is necessary to liaise closely with the relevant FZA in order to determine its particular requirements. An individual or entity wishing to operate in a free zone will need to establish an operating entity to carry out its business. The type of legal entity that may be established differs in each free zone. Broadly, the following are the most common types of entities that may be established in the free zones:

• Free Zone Establishment (FZE): An FZE may have only one shareholder and holds separate legal capacity from its shareholder.
• Free Zone Company (FZCO or FZ-LLC): An FZCO or FZ-LLC is similar to an FZE with a separate legal capacity independent of its shareholders. However, in contrast to an FZE, it may have more than one shareholder.
• A Branch Office of a Foreign or Local Company: A branch office of a foreign or local company is not considered a separate legal entity from its parent. The liabilities of a branch of a foreign or local company attach to the parent company establishing the branch office.
• A Private Limited Company in the DIFC: A private limited company holds separate legal capacity and may have one or more shareholders. There is no minimum capital requirement for the establishment of a DIFC private limited company and the capital is divided into transferable shares.
• An Offshore Company in JAFZ: An offshore company in JAFZ may have one or more shareholders and holds separate legal capacity from its shareholders. An offshore company cannot carry on business with companies or individuals resident in the UAE, and no residency permit or any kind of visas can be issued to an offshore company. There is no minimum capital requirement for the establishment of an offshore company. While it is not required that an offshore company maintains a physical existence or office in JAFZ or Dubai, it is permitted to do so. It is also permitted to maintain a bank account in Dubai (inside or outside the free zone). An offshore company is required to appoint a registered agent approved by the FZA.

Setting up a free zone branch is often the simplest option to establish a business presence in a free zone, although consideration should be given to the desirability of ring-fencing liability within a new company with limited liability. As noted above, depending on the particular free zone, there are minimum capital requirements for incorporating free zone establishments and companies.

The types of licenses that will be granted by the relevant FZA will depend on the type of industry serviced by the free zone. The licenses include trade licenses, industrial licenses, retail licenses, service licenses, warehousing licenses, and professional service licenses.

Annual fees are due to the relevant FZA for these licenses together with a one-off set up fee. There are other incidental fees relating to immigration and, where applicable, an annual rental payment for office or industrial space. The licensing fees are subject to change by the relevant authority and are dependent on the free zone and the type of license applied for. A discussion with the relevant FZA regarding the type of license required and any applicable fees should be held at the outset.

 

Offshore company

An offshore company is flexible enough to have a mixture of features. Although offshore registrars are structured under free zone and it enjoys the benefits that a free zone company does in terms of ownership, it cannot be used as a direct substitute for a free zone company. The license can be owned by individuals or corporate bodies and is a business entity which does not carry out any substantial business activity in its country of origin. Also known as a non-resident company, an offshore company cannot occupy an office space in the UAE.

 

Identify Business Activity

Business activity is the basis for selecting the legal form and type of licence, whether commercial, industrial or professional, etc. There are six types of licences. They are: industrial, commercial, professional, tourism, agricultural and occupational.

Notes:

• An investment/business can have more than one business activity.
• There are more than 2,000 business activities to choose from in the UAE. The detailed list is available in the “Activity List Mainland , Meydan , IFZA.xlsx” file in the knowledge base

 

Apply for Additional Government Approvals

In some cases, additional approvals from government entities governing certain business activities are required.

 

Ministry of Interior

General transport – driving schools, fire equipment, alarm and safety systems, used-car dealers, used auto-parts, car rental.

 

Ministry of justice

Legal activities and legal consultancy

 

Local Municipal department

Architectural and engineering affairs

 

Telecommunications and Digital Government Regulatory Authority (TDRA)

Telecommunication activities

 

Executive Council

Travel and tourism, general services, charter trading, ship and maritime agencies, car clubs, charter air transport and foreign company branches

 

Ministry of Economy

Insurance activities and insurance consultancy

 

Local health departments

Health-related activities

 

Supreme Petroleum Council

Onshore and offshore gas and oil-field services and onshore and offshore oil drilling operations

 

Select the Legal Form

The legal form depends mainly on the business requirements. Moreover, the legal form is the basis for identifying applicable laws and regulations. In the UAE, an investor can select from many legal forms, however the most common are the below:

Sole Establishment

A business owned by an individual, not a company. This person will own 100% of the business, control all of its operations and keep 100% of any profits and will also be 100% responsible for business debts and any other financial obligations.

One Person Limited Liability

Company or business owned by one natural or one corporate body, it consists of one person only. It is similar to the sole-establishment but they differ in some provisions, the most important of which is that its liability is limited to the single partner's share whereas in the sole-proprietorship the liability is unlimited.

Limited Liability Company (LLC)

A flexible form of enterprise that blends elements of partnership and corporate structures. An LLC must have between 2-50 shareholders, each of whom is liable only to the extent of his or her share in the capital of the company. With the exception of public shareholding company, an LLC can be changed to any other legal form.​

Civil Company

A business partnership for professionals in recognized fields such as doctors, lawyers, engineers and accountants.

Public Share Holding Company

A company whose capital is divided into transferable shares of equal value.

Partnership Company

A single business where two or more people share ownership. Each partner contributes to all aspects of the business and must manage the company unless a contract assigns administration to one partner or to another party.

SME License

A businesses owned 100% by UAE Nationals and can take any legal form. The SME license allows the owners to sponsor employees.

 

Select the Trade Name

A trade name distinguishes one business from another. It also reflects the nature and the form of the business. An investor can apply for the trade name through the economic department in each emirate, through its website or mobile application. 

The trade name must:

• be followed by the business structure acronym (legal form of the company) such as: LLC, EST, PJSC, PrJSC.
• not violate the public morals or the public order of the country.
• be compatible with the required type of activity and the legal status of the company or business entity.
• do not contain names of any religion, or governing authority, nor names or logos of any external bodies.
• not have been registered previously.

During the application process, you will be issued a payment voucher or a transaction number, which you will need to use as a reference when you pay.

Notes:

• The local department of economic development registers the trade name. Click here to check Trade Name Availability.
• Trade name certificates are renewable.

 

Trade Mark

According to  Federal Law No. 37 of 1992 on Trademarks  as amended (Arabic), a trademark is any distinguished form of names, words, signatures, letters, figures, graphics, logos, titles, hallmarks, seals, pictures, patterns, announcements, packs or any other marks or group of marks, if they were used or intended to be used either to distinguish goods, products or services from whatever sources, or to indicate that certain services, goods or products belong to the owner of the trademark, because of their provision, manufacturing, selection or trading. The voice accompanying a trademark is considered a part of it.

Ministry of Economy is the competent authority to register trademarks in the UAE. To register a trademark, customer can  submit an online application  via the ministry's website.

 

MoA & LSA

Depending on the legal form of a business, a completed and signed Memorandum of Association (MoA) or a local service agent agreement (LSA) of the business is required. The memorandum of association is required for the following business legal forms:

• Limited liability company (LLC)
• Public joint stock company (PJSC)
• Private joint stock company (PrJSC)

Notes:

• UAE-based law firms, courts and notary public prepare and attest MoAs and agreements.
• Businesses owned completely by non-GCC residents require a local service agent from the UAE. Appointing the local service agent will be under an agreement attested by the notary public or the court.

 

Value Added Tax (VAT)

Value Added Tax was introduced in the UAE on 1 January 2018. The rate of VAT is 5 per cent. VAT will provide the UAE with a new source of income which will continue to be utilized to provide high-quality public services. It will also help the government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

Criteria for registering VAT

A business must register for VAT if its taxable supplies and imports exceed AED 375,000 per annum.

It is optional for businesses whose supplies and imports exceed AED 187,500 per annum.

A business house pays the government, the tax that it collects from its customers. At the same time, it receives a refund from the government on tax that it has paid to its suppliers.

VAT Registration

Businesses can register for VAT through the eServices section on the FTA website. However, they need to create an account first.

VAT Collection

VAT-registered businesses collect the amount on behalf of the government; Consumers bear the VAT in the form of a per cent increase in the cost of taxable goods and services they purchase in the UAE.

Value-Added Tax (VAT) was introduced in the UAE on 1 January 2018 at 5 percent on several goods and services. There are three categories for VAT in the UAE: the standard 5 percent VAT, zero-rated supplies, and exempt supplies.

The Federal Tax Authority is responsible for administering, collecting, and enforcing federal taxes. It also provides guidance and conducts audits.

Companies that have an annual turnover above AED375,000 are required to register for VAT. Those that have a turnover under AED375,000 but above AED187,500 can voluntarily register for VAT.

VAT applies equally on tax-registered businesses managed in mainland UAE and in the free zones. However, if the UAE Cabinet defines a certain free zone as a ‘designated zone’, such free zone is treated as outside the UAE for tax purposes. The transfer of goods between designated zones are tax-free.

 

Other Legislative Changes to Consider When Establishing a Business in Dubai

Data Privacy Protection Laws

The UAE does not have a comprehensive data protection law at its federal level. However, there are a number of laws in place that govern privacy and data security. In December 2019, the UAE Cabinet confirmed that it was planning to take steps to strengthen consumer protections across the UAE, particularly with respect to e-commerce transactions. In Dubai, the DIFC Authority and the Dubai Healthcare City Authority have passed comprehensive laws and regulations regarding data protection laws, the most recent being DIFC Law No. 5 of 2020 which provides an updated data protection regime and came into effect on 1 July 2020. Entities established in free zones are required to follow the laws and regulations of their respective free zones and other federal laws as applicable to the free zone entities.

The UAE Cabinet of Ministers Resolution No. 31 of 2019 Concerning Economics Substance Regulations (ESR) was issued on 30 April 2019 in response to an assessment by the European Union of the UAE’s tax framework in light of the European Union’s Code of Conduct Group on Business Taxation. The ESR specifies the requirement for all companies in the UAE (including those in all free zones) to have economic substance or a presence in the UAE. The ESR apply to companies that generate income by undertaking one or more of the “Relevant Activities” identified by the ESR, which include:

1. Banking business
2. Insurance business
3. Investment fund management business
4. Lease-finance business
5. Headquarters business
6. Shipping business
7. Holding company business
8. Intellectual property business
9. Distribution and service centre business

A Relevant Activities Guide was issued by the Ministry of Finance to provide more information on each Relevant Activity, the relevant Core Income-Generating Activities (CIGAs) and examples for each Relevant Activity. Companies that carry out one or more of the above activities must maintain actual economic substance and must submit an annual compliance report/notification to the relevant regulatory authority, which should include the information set out in the ESR and the published guidance demonstrating to the authority that the company maintains actual economic substance. One of the requirements to demonstrate economic substances (if a company carries out one or more Relevant Activity) under the ESR is that a company needs to undertake one or more CIGAs relevant to its Relevant Activity or Activities in the UAE. CIGAs are activities that are fundamental to a company for generating income from one or more Relevant Activity. Other ways that a company can demonstrate economic substance is by satisfying the requirements as to having an adequate number of employees, physical assets and expenditure in the UAE.

If a company determines that it did carry on a Relevant Activity, and if it received income from such activity during the latest financial year, it is expected to file an Economic Substance Return within twelve months from the end of the relevant period. This is a secondary submission to the ESR report/notification that must be made, which will need to demonstrate that, in generating that income from the Relevant Activity, the company did so with appropriate economic substance in the UAE. Failure to meet the economic substance test or to provide information (or provide inaccurate information) results in significant penalties.

 

Anti-Money Laundering Legislation

New Anti-Money Laundering Regulations were issued on 29 January 2019 pursuant to Cabinet Resolution No. 10 of 2019 (AML Regulations). The AML Regulations provide guidance on the operation of UAE Federal Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations (AML Law). The AML Regulations specify that only those entities that qualify as financial institutions or designated non-financial businesses and professions (DFNBP) will be subject to the obligations of the AML Law. Therefore, businesses operating in the UAE, which fall within the above categories, must consider the application of the AML Law and AML Regulations to their business and ensure that they have internal processes in place to identify, manage, and mitigate high-risk customers and activities.