You can Start Conversation on WhatsApp +971528678740
Foreign investors can carry out any activities in the UAE only after being registered and licensed by the relevant authorities in the UAE. In general, a foreign investor can successfully setup business in UAE mainland (also commonly known as ‘onshore’) or a business presence ‘offshore’. An ‘offshore’ business presence typically refers to a registration in one of the UAE free trade zones.
This type of registration of business inside the free trade zone is not to be confused with the regulatory system for offshore companies (also referred to as ‘International Business Companies’) which exist in certain freezones. However, owing to certain restrictions, the choices commonly adopted by foreign companies are generally limited to a Limited Liability Company (‘LLC’) or a branch. The other options e.g. partnerships and joint venture etc. are usually not favoured by foreign investors.
Limited Liability Company (‘LLC’) As per the UAE Commercial Companies Law, the foreign ownership of a may not exceed 49%, with the balance of 51% to be held by a UAE national.
A LLC can be formed by a minimum of two and a maximum of fifty persons and the minimum capital requirement vary from Emirate to Emirate. It takes around 8 to 12 weeks to incorporate a LLC.
A branch is an extension of the foreign company. As such, it is wholly owned by its parent company and there is no requirement for UAE nationals to take equity interest in the business of the branch. It takes around 8 to 12 weeks to incorporate a branch.
Investors also have a choice to set up operations in one of the free trade zones in the UAE. A free trade zone is a geographical area within the UAE that has been established by the UAE government to generally encourage direct foreign investment into the UAE. The foreign investors can set up 100% fully owned entities in the free trade zones.
The principal drawback of a free trade zone is that entities registered in the free trade zone are not permitted to conduct commercial activities in the UAE, outside of the free trade zone. It normally takes up to four to six weeks to complete a registration, though this may vary for each free trade zone
The major advantages in operating in a free zone are:
• 100 per cent foreign ownership of the enterprise
• 100 per cent import and export tax exemptions
• 100 per cent repatriation of capital and profits
• No corporate taxes for 15 years, renewable for an additional 15 years
• No personal income taxes
• Less burdensome documentation, mostly in English
• Assistance with labour recruitment and additional support services such as sponsorship and housing
Foreign companies face similar challenges and make comparable mistakes when trying to do business setup in UAE
Common mistakes that foreign companies make include:
• Underestimating time: Business setup in UAE takes more time than in most western countries
• Miscalculating the expense needed to launch properly
• Hiring experts based in the ‘US’, ‘UK’ or their respective country but it is often recommended to hire UAE business development consulting firms.
• Assuming free zones are by default the best option but depending upon the company’s ambitions, a joint partnership might be a better option.
• Launching with too big an overhead, instead in phases
• Mispricing products/services