United Arab Emirates
Company formation in brief
The United Arab Emirates (UAE) legislation allows you to establish a business there in various organisational and legal forms, which, based on their fundamental differences and the practical interest of a potential foreign investor, can be summarised as follows:
- Ordinary local onshore companies operating in the domestic UAE market
- Companies operating in free economic zones (FEZ)
- Offshore companies
Until the end of 2018, a fundamental distinguishing factor for all companies in the UAE was that foreigners were not allowed to own more than 49% of the capital in local onshore enterprises operating in the domestic market, and some types of economic activities for foreign investors were generally prohibited here.
Since the beginning of 2019, foreign investors have obtained ownership rights of up to 100% in some types of local business activities which could vary by decision of the UAE Cabinet of Ministers.
As from 2021, the legislation of the United Arab Emirates allows foreign investors to own any local business without the need to share it with UAE citizens. However, in the list of activities where at least 51% must belong to a local partner in UAE, the following still remain:
- wholesale and retail trading
- real estate business
- financial and insurance services
- mining and quarrying
The UAE onshore companies are distinguished as follows:
Private limited liability company
Public (open joint stock) company
A limited liability company has the right to engage in any business in the UAE, except for banking, insurance and investment activities. It is established by at least two shareholders and is featured as follows:
- the maximum number of shareholders - 50;
- the minimum number of directors - 1;
⁃ the authorized capital is fully paid at the time of registration;
⁃ the company's shares cannot be offered for public;
An open joint stock company has the right to engage in any business in the UAE. it needs at least 10 shareholders for incorporation (maximum number is not limited). If the local or federal UAE government takes part in the joint stock company, then the number of founders can be reduced. At least 55% of the company's shares must be offered for public. The joint stock company is managed by a Board of Directors with 3 to 15 individuals.
Without exception, all enterprises in the UAE are required to keep accounting records and submit annual financial statements duly certified by a licensed auditor in UAE.
There are more than 30 free economic zones in the United Arab Emirates, of which the following are widely known:
Ahmed Bin Rashed Free Zone
Ajamn free zone
Dubai Airport Free Zone
Dubai Gold and Diamond Park
Dubai Internet City
Dubai media city
Fujairah Free Zone
Hamriyah free zone
Jebel Ali Free Zone
Ras Al-Khaimah Free Zone
Sharjah Airport International Free Zone
Each free economic zone is regulated by a separate state body, which registers enterprises and issues licenses to them.
Some free economic zones specialise in a certain business, while others provide the possibility of registering companies for almost all types of activities. It is fundamentally important that in the FEZ it is possible to register a company with 100% foreign ownership. Shareholders can be both individuals and legal entities.
In short, offshore companies are only allowed to use an address in the UAE, but are required to conduct their business (including meetings of directors and shareholders, as well as management and control) entirely outside of not only FEZs, but all of the UAE. Also, offshore companies are considered non-resident and are not subject to double taxation treaties.
In comparison, SEZ companies are considered resident and take advantage of existing double taxation treaties. At the same time, foreign shareholders, directors and other employees of the SEZ company, as well as their family members, are entitled to obtain visas to reside in the UAE. The number of visas issued by law is tied to the size of the office (the larger the office, the more it is allowed to request visas). There is no need to permanently stay in the UAE, and the only condition for maintaining a resident visa after receiving it is to stay in the UAE for at least 1-2 days every 180 days a year.
Free economic zones offer incorporation of legal entities of various types, but in general, a potential investor should bear in mind that:
- the authorized capital of the enterprise varies widely depending on a free zone;
-depending on a free zone, the number of shareholders (individuals or legal entities) to set up a business varies from 1 to 5;
- the minimum number of directors (individuals or legal entities) varies in different FEZs;
- administrative formalities may require the appointment of a secretary (natural or legal person);
- an enterprise is obliged to maintain an office (so-called Shared Office, Flexi Desk or Serviced Desk), which, in some FEZs, is allowed to be occupied by several companies at the same time. Flexi Desk or Serviced Desk arrangement means secretarial services provided by the free zone administration. The conditions and scope of these services are negotiated on the spot. For example, Flexi Desk - it can be 4 hours a week, maximum visits - 4, etc. In comparison, the Serviced Desk is an office of 30 sq. m. with 24/7 access.
Without exception, all enterprises established in free economic zones are required to obtain a business license before starting their economic activity. The license fee in different free economic zones may differ significantly.
All FEZ enterprises are also required to keep accounting records and submit financial statements annually.
The UAE Cabinet of Ministers adopted a resolution on economic presence, according to which all companies, regardless of whether they are residents of free economic zones or not, that carry out some specific activities, must comply with the new requirements for economic substance in the UAE.
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