When starting a business in the UAE it is crucial to have the correct corporate structure that is suitable for your business purposes.
Dubai law sets out strict criteria for the ownership of a business in the country. Generally speaking, 51% of the equity must be owned by UAE nationals, though there are exceptions including branches of foreign companies, so-called ‘professional’ or ‘artisan’ companies, and those located in the Dubai International Financial Centre (DIFC) or Jebel Ali Free Zone. Otherwise, there must at least be a local sponsor (or agent, depending on whether the activity being undertaken is commercial or professional), prepared to act on behalf of the business in question in certain circumstances.
A Dubai Sole Establishment is a very common form of business structure in Dubai. It is a widely recognized form of business and is relatively straightforward to establish, once a local sponsor/agent has been found. This structure is ideal for individual traders or entrepreneurs.
In addition to the sole establishment, there are several commercial structures best suited for larger businesses; all forms of business must be approved by the Dubai government, however, and laws are governing the use of company names and the location of offices.
A General Partnership is restricted to citizens of the United Arab Emirates (UAE) only, as is a Limited Partnership. However, a Partnership Limited by Shares may be a mix of UAE nationals and foreigners, with the latter permitted to have an active role in the business. Minimum capital of AED500,000 is required to start such a partnership.
A Dubai Limited Liability Company can be formed by between two and 50 individuals and the liability of each person will be restricted to the extent of their shareholding in the company’s capital. The requirement for a minimum capital level at a start-up has been removed. There is, however, a condition that there generally must be at least 51% equity ownership by local persons or entities. This applies to any business form. However, there are no such conditions applicable to the distribution of company profits.
Dubai law requires that any company involved in banking, insurance, or financial services must be run as a Public Shareholding Company, though it may be possible for businesses operating in these sectors to do so via a branch office or a representative office. Such business structures are more suited for larger-scale operations, with minimum start-up capital set at AED10m (GBP1.8m), placing them firmly out of the reach of the small business person in the vast majority of cases; there may also be restrictions on the nationalities that may establish such operations.
A Private Shareholding Company may be set up with AED2m (GBP363,000). Directors of this type of business must predominantly be UAE nationals.
It is possible to establish a Joint Venture Company, where a local person or persons are licensed by a foreign entity or individual to conduct business on their behalf. The local ‘partner’ assumes complete liability for the business and this structure is not suited for companies wishing to operate in general business sectors but may be suitable for specific projects.
Foreign companies may establish a Branch Office or Representative Office in Dubai, though they must appoint a local agent. 100% foreign ownership of a branch or local office is permitted. Local agents, though, can only be full UAE nationals, or business entities 100% owned by UAE nationals.
The Terms 'Freelance', 'Sole-Trader' and 'Self-Employed': Anyone who wishes to be self-employed in Dubai must first find a local sponsor. The sponsor may be an individual or a local business entity.
A self-employed person can operate as a sole establishment (sole trader) or a sub-contractor. A sole trader would usually find his or her customers or clients, whereas a sub-contractor would carry out work for (usually) one company or other individuals. A person working as a freelancer, for example, as a computer programmer would normally work under a contract.
Dubai’s Department of Economic Development (DED) is the department in charge of licensing and registration of corporate entities in mainland Dubai. The DED’s licensing and registration procedure is streamlined to offer ease of registration based on specific business activities of the corporate entity.
The Commercial Companies Law (CCL) is the federal law that regulates all entities set up in the UAE mainland, and governs corporate entities set up in mainland Dubai.
Free zones act as a one-stop shop to facilitate the establishment of corporate entities and aiming to satisfy all their needs, from licensing and registration to labour and immigration, providing a business-friendly environment as well as access to required services.
Across the UAE there are designated territorial areas that are considered distinct legal jurisdictions from the UAE government, allowing free zone jurisdictions to regulate, license and register corporate entities independently. Dubai boasts more than 30 free zone jurisdictions.
The key advantage to foreign investors is that free zones generally offer the option of 100% foreign ownership of entities without the need of a UAE national acting as an agent or otherwise. Additionally, free zone laws generally prescribe a guaranteed tax-free period of 50 years, customs duties do not apply where the imported goods are for the use of the company, and there are no restrictions on repatriation of capital and profits.
The main restriction for a free zone entity is that it cannot conduct trading activity outside of the territorial limits of the free zone without appointing a Dubai mainland based commercial agent, and upon entry of goods into mainland Dubai, a customs duty will be applied.
