Few things you need to know about Company
incorporation in Dubai, legal structure with different type of license details
below will guide you.
An introduction to setting up a business in Dubai
Summary
1. Introduction
2. The main requirements
3. The seven business entities
4. The free zones 5
Operating outside a free zone
5. Setting up business in a free zone
6. Free zone business entities
7. Rights of FZEs
and FZCs
8. TECOM
Introduction
1.1 This guide provides
an overview of the
legal issues for those
considering setting up business in Dubai. The guide
examines the numerous
commercial entities that can be used and provides an overview of
the most popular methods used by foreign companies to operate
in Dubai. The guide also provides information on the ‘free
zones’ established to facilitate foreign investment.
1.1 This guide provides
an overview of the
legal issues for those
considering setting up business in Dubai. The guide
examines the numerous
commercial entities that can be used and provides an overview of
the most popular methods used by foreign companies to operate in Dubai.
The guide also provides information
on the ‘free
zones’ established to facilitate foreign investment.
2. The Main Requirements
2.1 In order to set up a business
within Dubai, the business entity
used must fall within one of the
seven business categories stipulated in Federal Law no 8 of 1984
Concerning Commercial
Companies (as amended by the
Federal Law no 15 of 1998) (the Companies Law).
2.2 In addition, a trade license must be obtained from the Dubai Department of Economic
Development (the DED) prior to
the entity commencing
commercial activities. Certain business sectors may also require
further approval from various ministries and/or other authorities1.
Certain commercial activities are restricted to UAE nationals or companies fully
owned by UAE nationals.
3. The Seven Business Entities
3.1 The seven business entities permitted by the Companies
Law are: a limited liability company; b public joint‐stock company; c private joint‐stock company;
d joint liability company (general partnership); e simple
commandite company (simple liability partnership); f private unlimited company; and g share
commandite company.
3.2 The
majority of the entities
(outside the specified ‘free zones’ referred
to in paragraph 4)
require participation by a
UAE national (usually in the
form of holding an equity
interest).
3.3 It is
also permissible in the
UAE to establish a branch of
a foreign company or a representative office.
4. The Free Zones
4.1 Businesses
wishing to operate in Dubai should be aware that several
zones, known as ‘free zones’, have been established
with the specific purpose
of facilitating foreign investment
into Dubai. However, businesses operating within a free zone
are restricted as to the type of dealings that they may conduct
outside of the designated free zones. Businesses wishing to
conduct local business in Dubai should comply
with the requirements of
the Companies Law and other relevant laws
applicable to the respective industry.
4.2 Below is
an overview of the
most popular methods used by
foreign companies to operate
in
Dubai outside and within a
free zone.
5. Operating outside
of a Free Zone
5.1 The limited liability company (LLC) is the most
widely used commercial entity for companies with a non UAE national element wishing to conduct commercial activities in Dubai.
An LLC is a private company and shares in it cannot be offered to the public.
5.2 Article
22 of the Companies Law requires that no less
than
51 per cent of the
shares in an LLC must be held by UAE nationals. However, Article 227(2) of the
Companies Law permits profits
(and losses) of the LLC
to be distributed disproportionately
to the UAE national/non UAE national shareholding ratio. This ratio should be set out in the LLC’s
memorandum of association.
5.3 Article 218 of the Companies Law regulates the composition of an LLC. An LLC requires a minimum of two shareholders, with a maximum of 50 shareholders permitted.
5.4 There are no nationality restrictions regarding the management of
an LLC. The minimum number of directors is one, with a
maximum of five directors permitted by the Companies
Law.
5.5 While Article 227 of the Companies Law
(which applies throughout the UAE) stipulates that the minimum share capital
of the company is AED150,000; the Dubai
authorities require a
minimum share capital of
AED300,000 for Dubai incorporated LLCs. Individual shares should have a minimum
face value of AED1,000. The shares cannot be other than
‘equal shares’.
5.6 An LLC may
not conduct the business of insurance, banking or the investment of money on behalf
of third parties.
5.7 Several
administrative steps must be completed before the LLC’s incorporation is effected. These include the approval of the
LLC’s name and memorandum of
association by the DED. Article 219 of
the Companies Law sets out various
requirements that must be followed when naming an LLC: these include a requirement to derive the LLC’s name from either its purpose
or from the name of
one or more or its
shareholders. The DED also provides a standard form of memorandum of association and will review an LLC’s memorandum to ensure compliance with local requirements. The DED
must also be satisfied that the
minimum share capital of
the LLC has been deposited with a bank operating in Dubai
before it will allow the LLC to
be incorporated.
5.8 A public
joint‐stock company
(PJSC) is very similar to a UK public
limited company or German
Aktiengesesallschaft (AG). It requires a minimum share capital of
AED10,000,000 and a minimum of 10 founders,
who are responsible for the incorporation of the company.
5.9 Shares
in a PJSC must be offered
for public subscription and
the subscription notices must be published
in two local daily Arabic newspapers. The founders are obliged to subscribe for a minimum of 20 per cent of the
share capital (but this cannot exceed 45 per cent of
the share capital). Article 153 of
the
Companies Law prevents shares being issued which have differing
rights.
5.10 A PJSC is required to have between
three and 15 directors, who are elected for
three year terms. The chairman and a majority of the board of directors must be UAE nationals.
5.11 A private joint‐stock company
(Private Company) is similar to a UK private limited
company. It requires a minimum share capital of
AED2,000,000 and a minimum of three
founder shareholders. Shares in a Private Company cannot be offered
for public subscription
but in all other respects
the regulations applicable to a PJSC apply equally to a Private Company.
5.12 Article
314 of the Companies Law regulates the operation of branch
and representative offices of foreign companies in the UAE. These may be wholly owned by a foreign entity,
provided that
a UAE national is appointed as local
agent. The role of the
local agent is further discussed below.
5.13 While a branch office may carry out activities similar to those of its parent company, there are
certain activities which are restricted to UAE nationals
such as importing goods.
5.14 A representative office may only promote
its foreign parent company’s activities through, for example, gathering
information and soliciting orders and projects to be performed by the company’s head office. It is
not permitted to carry out
the parent company’s activities. Representative offices are also restricted as
to the number of employees that they
can sponsor and, due to
these constraints, representative
offices tend to act as administrative and marketing centers for their foreign parent company’s
head office.
5.15 The role
of a local service agent for a branch/representative office is to assist generally with administrative matters such as
obtaining visas, licenses
and dealing with local authorities. The local service agent is generally
paid a fixed fee and
does not have a right to participate
in any profits from the branch
or representative office.
5.16 Provided
that approval is received from the Ministry of Economy and the DED,
and the appropriate trade license
is obtained, a company may establish
a branch/representative office in the UAE. The branch/representative office must be registered on the
Registry of Foreign Companies at the Ministry of Economy before it commences trading.
5.17 In setting
up a professional firm, 100 per cent foreign
ownership is generally permitted,
however certain sectors and activities are restricted to either
UAE nationals or have a UAE
national shareholding requirement. Professional firms may
be in the form of
a sole proprietorship or a civil company. Such firms may engage
in professional or artisan activities but the number of persons that may be employed
by such firms is limited. A UAE national must be appointed as local
service agent for sole proprietorship, but he has no
direct involvement in the business and is paid a lump sum and/or
percentage of profits or turnover. The
role of the local service agent is, among
other things, to assist in obtaining licenses, visas and labor cards.
6. Setting up a business
in a Free Zone
6.1 A number
of free zones exist within
Dubai and, as such, have a distinct legal status within the UAE. Companies
incorporated and operating
within the free zones are not subject to many of the restrictions imposed by the Companies Law and other UAE laws
and regulations. Entities operating
within the free zone may
be 100 per cent foreign owned and benefit from a
guarantee that tax
will not be applied for a certain period
of time, notwithstanding any subsequent change to federal or local laws.
6.2 The free zones include the Jebel Ali
Free Zone (the JAFZ), the Dubai International Airport Free Zone (DAFZA), the Dubai Technology and Media Free Zone (TECOM), the Dubai Cars &
Automotive Zone, the Dubai Health Care City, the Dubai Multi Commodities Centre and
the Gold and Diamond Park. We understand
that additional free zones will be established in the
coming years.
6.3 The type of
business that is to be set
up dictates which free zone should be used. For example, the DAFZA is intended for businesses that
import and export goods and the business activities permitted in TECOM include
‘design, development, use and maintenance of everything
relevant to Information Technology, E‐commerce and
Media’.
6.4 The largest
free zone in Dubai is JAFZ. It was established in 1985 and was the first
zone to be set up in the UAE.
6.5 Each free zone is governed by an independent Free Zone Authority (FZA),
which among other things, is responsible for issuing to businesses the necessary operating licenses for operation within
the relevant free zone.
6.6 As an
illustration of the types of
operating licenses issued by the free zones, the following
is a description of the
operating licenses issued by the
JAFZ:
1. Trade license: This license is
available to companies who wish to import, export,
sell, distribute or store items identified on their license. Sales cannot
be made directly to the UAE. Any company
wishing to sell goods from the JAFZ into the UAE must appoint a distributor or agent in the
UAE.
2. Industrial license:
Industrial licenses are intended for
companies wishing to carry out manufacturing activities. Restrictions on selling products
into UAE also apply to industrial licensees and a distributor or agent must be
appointed in the UAE in order
to sell products into the UAE.
3. Service license: A service license
permits the licensee to provide
services within the free
zone. Services provided
by the free zone licensee must be the same as
those stipulated in the parent company’s license in the UAE or abroad.
4. National Industrial license: A national
industrial license permits the holder
to import raw materials, manufacture
specified products and export the finished
products. However, a minimum 51 per cent of
the shareholding must be owned
by Gulf Co‐operation Council (GCC) nationals. In addition to this restriction, a minimum 40 per cent of
the value of the final product must have
been added in the
free zone.
6.7 From
the
above description of the relevant licenses,
it should be noted that a
license holder cannot operate outside the free zone using
its free zone license. A distributor
or
agent must be appointed within
the UAE. However, potential
customers from the UAE may visit
the premises of the
license holder to view the goods.
7 Free Zone business
entities.
7.1 In general,
three options exist for those
wishing to set up in
a free zone. A business wishing
to operate from a free zone can either incorporate a free zone establishment (FZE), a
free zone company (FZC) or operate
through a branch office of a foreign or local company. Branch offices are designed to be opened with a limited amount of
administrative formality.
7.2 An
FZE in the JAFZ requires a minimum capital of AED1,000,000. The minimum
capital requirement represents one share and it can only have one shareholder.
7.3 The minimum
capital required to incorporate an FZC is AED500,000 and an FZC can have between two and five
shareholders. Each
share must have a minimum value of AED100,000 or multiples thereof and there can only be one class
of share.
7.4 The FZC must have a board of directors,
consisting of a minimum of three people
and having at least two
directors and one secretary (although a person may hold both the
offices of director and
secretary within a company
simultaneously). These individuals must be
resident in Dubai.
8. Rights of
FZE's and FZC's
8.1 One hundred
per cent foreign ownership and full repatriation of profits
and capital is permitted.
8.2 Exemption
from corporate and income taxes for a determined period, regardless of subsequent changes to local laws.
8.3 Goods may be imported into the free zone, free of
duty.
8.4 It is relatively straightforward to set
up a company in a free zone. The first step is to complete a questionnaire issued by the relevant FZA. Once the questionnaire has been considered by the
FZA the company
will be required to provide
the FZA with information on individual
and corporate shareholders.
8.5 Individual shareholders are required to provide
a personal profile which may include
a business background, specimen signatures, domicile and address.
8.6 Corporate shareholders are required to provide:
1. certificate of registration or good standing;
2. memorandum and
articles of association;
3. board resolution authorizing the
incorporation of the
FZE or FZC;
4. Powers of
attorney in favor of
the
FZE/FZC managers; and e audited
financial statements for the last two
financial years.
8.7 Companies operating within the free zone
are generally entitled to employ
who they wish. However, various administrative requirements must be
complied with such as
providing the FZA with certain details of
the license holder’s employees.
8.8 While rates of pay are not specifically regulated, a minimum salary is stipulated in the JAFZ. Overtime rates are regulated by the FZA and shift working must be
notified to the FZA.
8.9 Working hours are regulated and
these are shortened during the Holy
Month of Ramadan. The shortened hours
apply to all employees,
regardless of
religion.
8.10 Employee
numbers are restricted according
to various criteria, including
office area and machinery installation.
9. Tecom
The
TECOM requirements are slightly different as the
regulations only provide
for limited liability companies, composed of between
one and 50 shareholders. The current minimum
share capital for a TECOM limited
liability company is AED50,000 and the share
capital may, upon the appropriate
approvals being received from the authorities,
be divided into different
classes of shares. Each
TECOM limited liability company is
required to have at least
one director
and may have a maximum of four directors.
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