Company formation in dubai- Business start up in RAK -
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We often get asked
about how to set up or open a business in Dubai at our events or on the forum-
here we take a closer look at how you can set up a business in Dubai- whether
you are looking at a public, LLC or a Freezone option.
Business Set Up Overview
In the UAE, economic activity is regulated by individual emirates as well as
the Federal Government. In Dubai, the authorities have deliberately sought to
create an environment which is well ordered without being unduly restrictive.
As a result, Dubai offers businessmen operating conditions that are among the
most liberal and attractive in the region.
There are many options open to international
companies seeking to establish a business relationship with Dubai. Apart from
forming a trading relationship, many companies find that there are distinct
advantages in having an on-the-spot presence in order to research market
prospects, make contacts, liaise with customers, and see through the details of
any transactions and orders secured.Having such a presence can provide
considerable business advantages in the Middle East.
Businessmen in the region prefer to deal with someone they know and trust and
personal relationships are much more important in doing business in the Arab
world than they are in western Europe or America. Also, the buying patterns of
some countries served by Dubai tend to be unpredictable, creating a need for
first class market intelligence and information. Dubai offers foreign companies
a wide choice of business options, including:
- Direct trade - selling directly to established dealers
and distributors
- Commercial agency arrangements - appointee must be a
UAE national or company; agreement to be registered with Ministry of
Economy and Commerce
- Branch or representative office - 100% foreign
ownership permitted; local agent (sponsor) must be appointed; Economic
Development Department licence required
- Limited liability company - foreign ownership
restricted to 49%; Economic Development Department licence required
- Special free zone investment incentives.
Licensing
The basic requirement for all business activity in Dubai is one of the
following three categories of licences:
Commercial licences covering all kinds of trading activity;
Professional licences covering professions, services, craftsmen and artisans;
Industrial licences for establishing industrial or manufacturing activity.
These licences are issued by the Dubai Economic Development Department (with
the exception of licences for hotels and other tourism-related businesses which
are issued by the Department of Tourism and Commerce Marketing.) Also, licences
for some categories of business require approval from certain ministries and
other authorities: for example, banks and financial institutions from the
Central Bank of the UAE; insurance companies and related agencies from the
Ministry of Economy and Commerce; manufacturing from the Ministry of Finance
and Industry; and pharmaceutical and medical products from the Ministry of
Health. More detailed procedures apply to businesses engaged in oil or gas
production and related industries.In general, all commercial and industrial
businesses in Dubai should be registered with the Dubai Chamber of Commerce and
Industry.
Ownership Requirements
Fifty-one per cent participation by UAE nationals is the general requirement
for all UAE established companies except:
- Where the law requires 100% local ownership
- In the Jebel Ali and Airport Free Zones
- In activities open to 100% AGCC ownership
- Where wholly owned AGCC companies enter into
partnership with UAE nationals
- In respect of foreign companies registering branches or
a representative office in Dubai
- In professional or artisan companies where 100% foreign
ownership is permitted.
Legal structures of
Business
Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 - the
Commercial Companies Law - and its by-laws govern the operations of foreign
business. In broad terms the provisions of these regulations are as follows:The
Federal Law stipulates a total local equity of not less than 51% in any
commercial company and defines seven categories of business organisation which
can be established in the UAE. It sets out the requirements in terms of
shareholders, directors, minimum capital levels and incorporation procedures.
It further lays down provisions governing conversion, merger and dissolution of
companies. The seven categories of business organisation defined by the Law
are:
- General partnership company
- Partnership-en-commendam
- Joint venture company
- Public shareholding company
- Private shareholding company
- Limited liability company
- Share partnership company
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General partnership companies are limited to UAE nationals only. The Dubai
government does not presently encourage the establishment of
partnership-en-commendam and share partnership companies.
Joint Venture Companies
A joint venture is a contractual agreement between a foreign party and a local
party licensed to engage in the desired activity. The local equity
participation in the joint venture must be at least 51%, but the profit and
loss distribution can be prescribed. There is no need to license the joint
venture or publish the agreement. The foreign partner deals with third parties
under the name of the local partner who (unless the agreement is publicised)
bears all liability. In practice, joint ventures are seen as offering a
suitable structure for companies working together on specific projects.
Public and Private
Shareholding Companies
The Law stipulates that companies engaging in banking, insurance, or financial
activities should be run as public shareholding companies. Foreign banks, insurance
and financial companies, however, can establish a presence in Dubai by opening
a branch or representative office.
Shareholding companies are suitable primarily for large projects or operations,
since the minimum capital required is Dh. 10 million (US$ 2.725 million) for a
public company, and Dh. 2 million (US$ 0.545 million) for a private
shareholding company. The chairman and majority of directors must be UAE
nationals and there is less flexibility of profit distribution than is
permissible in the case of limited liability companies.
Limited Liability Companies
A limited liability company can be formed by a minimum of two and a maximum of
50 persons whose liability is limited to their shares in the company's capital.
Such companies are recognised as offering a suitable structure for
organisations interested in developing a long term relationship in the local
market.
In Dubai, the minimum capital is currently Dh. 300,000 (US$ 82,000),
contributed in cash or in kind. While foreign equity in the company may not
exceed 49%, profit and loss distribution can be prescribed. Responsibility for
the management of a limited liability company can be vested in the foreor
national partners or a third party. The following steps are required in
establishing a limited liability company in Dubai.
- Select a commercial name for the company and have it
approved by the Licensing Department of the Economic Development
Department
- Draw up the company's Memorandum of Association and
have it notarised by a Notary Public in the Dubai Court
- Seek approval from the Economic Development Department
and apply for entry in the Commercial Register
- Once approval is granted, the company will be entered
in the Commercial Register and have its Memorandum of Association
published in the Ministry of Economy and Commerce's Bulletin. The licence
will then be issued by the Economic Development Department
- The company should then be registered with the Dubai
Chamber of Commerce and Industry.
Branches and
Representative Offices of Foreign Companies
The Commercial Companies Law covers the formation and regulation of branches
and representative offices of foreign companies in the UAE and stipulates that
they may be 100% foreign owned, provided a local agent is appointed.Only UAE
nationals or companies 100% owned by UAE nationals may be appointed as local
agents (which should not be confused with the term commercial agent). Local
agents - also often referred to as sponsors - are not involved in the
operations of the company but assist in obtaining visas, labour cards, etc and
are paid a lump sum and/or a percentage of profits or turnover. To establish a
branch or representative office in Dubai, a foreign company should proceed as
follows:
- Apply for a licence from the Ministry of Economy and
Commerce, submitting an agency agreement with a UAE national or 100% UAE
owned company. Before issuing the licence, the Ministry will:
- forward the application to the Economic Development
Department to obtain the approval of the Dubai government;
- forward the application specifying the activity that
the office or branch will be authorised to undertake in the UAE, to the
Federal Foreign Companies Committee for approval;
- Once this has been done, the Ministry of Economy and
Commerce will issue the required Ministerial licence specifying the
activity to be practised by the foreign company;
- The branch or office should be entered in the Economic
Development Department's Commercial Register, and the required licence
will be issued;
- The branch or office should also be entered in the
Foreign Companies Register of the Ministry of Economy and Commerce;
- Finally, the branch or office should be registered with
the Dubai Chamber of Commerce and Industry.
Professional Firms
In setting up a professional firm, 100% foreign ownership, sole proprietorships
or civil companies are permitted. Such firms may engage in professional or
artisan activities but the number of staff members that may be employed is
limited. A UAE national must be appointed as local service agent, 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 to assist in
obtaining licences, visas, labour cards, etc.
The Jebel Ali Free Zone and Dubai Airport Free Zone have been set up with the
specific purpose of facilitating investment. Accordingly, the procedures for
investing in the zones are relatively simple.While the free zones are designed
to complement and contribute to Dubai's growth and development, their legal
status is quite distinct.
Companies operating there are treated as being offshore, or outside the UAE for
legal purposes.The option of setting up in the free zones is therefore most
suitable for companies intending to use Dubai as a regional manufacturing or
distribution base and where most or all of their turnover is going to be
outside the UAE.
Free Zone Incentives
- 100% foreign ownership
- Exemption from all import duties
- 100% repatriation of capital and profits
- Freedom from corporate taxation, as applied throughout
Dubai, with the added bonus of a renewable 15 year guarantee in the free
zone
- Abundant inexpensive energy
- Simple and efficient recruitment procedures ensuring
the availability of a competitive skilled and experienced workforce
- A high level of administrative support from the free
zone authorities.
Licenses
Companies approved for operation in Jebel Ali Free Zone or Dubai Airport Free
Zone, are granted one of the following types of licences: Trading; Industrial;
Service; or National Industrial. These licences are renewable annually for as
long as the company holds a valid lease from either of the Free Zones.Trading
licences will be granted to companies holding a valid licence issued by the
Dubai Economic Development Department or an equivalent authority in the UAE,
and to companies incorporated outside the UAE. In each case, the permitted
activities on the Free Zone licence must conform to those on the existing
licence. Trading licences are also issued to Free Zone Establishments (FZE)
Industrial licences are issued to companies incorporated outside the UAE and to
Free Zone Establishments
Service licences are only granted to companies holding a valid UAE licence
National Industrial licences are issued to industrial companies registered
within or outside the UAE, provided they meet the conditions of having at least
51% AGCC equity and their local production accounting for at least 40% value
added. Such companies must obtain provisional approval from the UAE Ministry of
Finance and Industry. A National Industrial licence grants its holder the same
rights as those of national and other AGCC companies, and products exported to
AGCC states will be exempted from custom duties.
If a company wishes to practise more than one of the above mentioned
activities, it must obtain a separate licence for each category of
activity.Companies holding a Free Zone licence are permitted to operate in the
Jebel Ali or Dubai Airport Free Zones and outside the UAE. Operation within the
UAE can be undertaken either by a commercial agent, representative,
distributor, or the mother company licensed by the relevant UAE authority. Any
company holding a Free Zone licence can itself purchase goods or services
within the UAE.
Setting up a branch of a foreign company
www.dubaibusinesskey.com
Any company wishing to set up a project in the Free Zones must first complete a
simple questionnaire. From the information provided, the Jebel Ali Free Zone
Authority or Department of Civil Aviation can make a first assessment of
whether the company's needs can be met.After consideration of this
questionnaire, the company will be provided with:
- a licence application including an appendix with
details of the documents required concerning the company's legal status
- a proforma of information required for planning, and
- a consumer request for electricity supply.
On receipt of these
documents, the Free Zone authorities will consider the proposal. If provisional
approval is given, the company will be asked to prepare and submit the
documents called for in the appendix to the licence application.After the
checking of these documents, a meeting will be called to discuss and finalise
the project details. If everything is satisfactory, the Free Zone authorities
will issue conditional approval for the project. Thereafter, a lease agreement
and, if required, a personnel secondment agreement will be prepared by the Free
Zone authorities for signature by the company.
At the time of signing, the applicant will be required to provide the insurance
policies called for in the agreements and should pay the agreed rental and
licence fees prior to collection of the licence.If the company wishes the Free
Zone authorities to sponsor employees on its behalf, applications for entry
permits may be submitted once the licence has been issued. The bank guarantee
called for in the personnel secondment agreement will be required at this stage
together with visa charges.If the company's project involves the erection of a
structure, detailed plans must be submitted after the lease has been signed.
When the plans have been agreed, a building permit will be issued.
Administrative work, such as importing equipment or engaging labour for
installation of equipment, may proceed in parallel with construction work. But
application for entry permits for operatives to be sponsored by the Free Zone
authorities will not normally be accepted until a completion certificate for
the construction has been issued.
Setting up a free zone
Establishment UK & European can call+44 777 4715600
A Free Zone Establishment - or FZE - is an establishment formed and registered
within the Free Zones and regulated solely by the Free Zone authorities.Such
establishments must have a capital of at least Dh.1 million and liability will
be limited to the amount of paid-up capital. A FZE need only have a single
shareholder and is an independent legal entity.Any company, organisation or
individual wishing to form a Free Zone Establishment must submit a completed
application to the Free Zone authorities. A decision on whether permission has
been granted will be given within 30 days of receipt of the application and any
other information and documentation required.If permission is granted, the
authorities will record all relevant details in the FZE Register and issue a
Certificate of Formation. This will specify the date of registration after
which the FZE will be free to conduct any such business as is permitted in its
licence.
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