Doing Business in the UAE

Under United Arab Emirates (UAE) law, there are five types of business establishments applicable to foreign entities interested in establishing a formal presence in the UAE. A company can create a permanent establishment, establish a branch office, create an entity in a UAE free zone, create a civil company (currently limited to Sharjah and Dubai), or enter into a commercial agency agreement.

The UAE Commercial Companies Law requires that each company established in the UAE have one or more UAE national partner(s) who hold at least 51% of the company’s capital. Companies that undertake certain activities are exempt from the 51% requirement, including oil companies with concession agreements, companies involved in the oil and gas industry, companies that produce electricity and gas, companies involved in treatment of water and transmission and distribution. Foreign banks are exempt from having to appoint a sponsor. Companies established in free zones are exempt from the 51% requirement, if the relevant free zone has special provisions regulating the company.

Permanent Establishments
There are seven different methods by which this can be achieved:

This entity may only be established between UAE nationals. A general partnership may be established between two or more general partners who are jointly and unlimitedly, to the extent of their personal assets, responsible for the company’s liabilities.

This entity is comprised of at least one jointly associated partner liable for the partnership’s obligations to the full extent of their assets, along with at least one inactive partner liable for the partnership’s obligations limited to this partner’s capital contributions. This entity usually has one active partner who manages the company and a silent partner who does not participate in day-to-day management.

This entity is an association between at least two partners who will share the profit and loss in one or more commercial businesses conducted by one of the partners in his or her own name.

This entity comprises any company whose capital is split into publicly subscribed negotiable shares of equal value or any company in which a UAE public body holds any share capital. There is a minimum capital requirement of AED 10 million and that capital must adequately achieve the objectives of the company. This entity requires a minimum of 10 founding members. It is important for foreign companies to understand that anyone who signs the initial memorandum and articles of association will be regarded as a founding member and therefore liable. UAE businesses involving banking, insurance or investment of funds on behalf of third parties must take the form of a public joint stock company.

This entity requires a minimum of three founding members who, between them, fully subscribe to a minimum capital of AED 2 million. The shares of private joint stock companies may not be offered for public subscription. Private joint stock companies may be converted into public joint stock companies if (i) the company has operated for two or more financial years, (ii) the shares are fully paid up, (iii) the company has achieved net profits distributable to shareholders of an average of at least 10% of its capital during the two years preceding the application to convert, and (iv) a majority of the shareholders holding at least 75% of the company’s shares adopt a resolution of the extraordinary general assembly to convert.

This entity is defined as an association with a maximum of 50 partners and a minimum number of two partners. Each partner’s liability is limited to the extent of its share participation in the capital of the company. LLCs are no longer required to meet the minimum capital requirements of AED 300,000 (in Dubai) and AED 150,000 (in Abu Dhabi and the other Emirates). A new test of “sufficient capital” is to be adjudged by the Department of Economic Development of the relevant Emirate (including consideration of the size and planned activities of the company). Foreign companies wishing to establish an LLC in the UAE should seek guidance on the current practice of the relevant Emirate regarding minimum share capital.

This entity is formed by general partners who are jointly liable to the extent of their personal assets and participating partners who are liable to the extent of their share participation in the company. General partners must be UAE nationals. The minimum capital required to form a partnership limited with shares is AED 500,000, and participating partners are prohibited from being involved with the day-to-day management of the partnership. They may, however, participate in its internal administrative affairs.

Branch Offices vs. Representative/Liaison Offices
A branch office has the same legal identity as its parent company and conducts business under the name of its parent company. While each Emirate has its own licensing rules for branch offices, this type of entity can carry out a variety of activities (as approved by the Department of Economic Development of the relevant Emirate). Branch offices are regarded as fully-fledged businesses permitted to perform contracts or conduct other activities as specified in its license.

Free Zones
In contrast, the UAE allows foreign businesses to operate within “free zones.” Free zones allow for up to 100% foreign ownership and are subject to reduced or different trade barriers, tariffs, and quotas. However, free zone companies may only operate within the free zone boundaries and are generally limited to performing solely those activities listed in their license(s). If a free zone company chooses to operate outside these boundaries, it must adhere to the requirements of the UAE Commercial Companies Law in compliance with the licensing procedure in the applicable Emirate. Generally, free zones are designated by the government to a specific commercial sector. For a non-exhaustive list of free zones in the UAE, see below.

Civil Company
It is currently possible in Dubai and Sharjah to create a civil company. These entities are establishments which are sole traders operating under a license. Civil companies are usually not intended to trade (e.g., engage in the purchase and sale of goods, contracting, transport, banking and finance, and other similar transactions) and are typically used by the professions. Civil companies may not be formed within the Emirate of Abu Dhabi.

Commercial Agency Agreement
Foreign companies may engage in a commercial agency arrangement which is defined as any arrangement whereby a foreign company is represented by a UAE agent to distribute, sell, offer, or provide goods or services within the UAE for a commission or profit. The agent must either be a person holding UAE nationality or a company that is 100% owned by UAE nationals. The agent must be registered with the Ministry of Economy. Unless otherwise agreed in writing between a foreign company and its commercial agent, an agent is entitled to receive a commission on the sale of products in his or her designated Emirate, irrespective of whether such sales are made by or through the agent.

Other Business Opportunities

Following the introduction in 2003 of the Regulations for Jebel Ali Free Zone (JAFZ) Offshore Companies, international companies can establish JAFZ offshore companies, with benefits similar to other international offshore jurisdictions.  Ras Al Khaimah has, since 2006, allowed for the establishment of offshore companies.

Each Emirate has specific provisions regulating government procurement activities. Public sector work is generally awarded on the basis of the Public Tenders Law, which prescribes minimum standards in relation to government procurement across the UAE. Public defense contracts have their own set of industry-specific rules.

The UAE has specialized economic zones, such as those established by ZonesCorp in Abu Dhabi, which offer investment incentives such as certain reductions on infrastructure costs, administrative support, simplified approvals processes and residential cities for workers. Companies situated in specialized economic zones are subject to the requirements of the UAE Commercial Companies Law (including the 51% UAE participation requirement described above).

The Emirate of Dubai Department of Economic Development (DED) is offering a fast-track trade license that will be valid for 120 days, giving businesses time to not only complete official licensing paperwork and registration but also allow them to hire employees, test products, and establish new ventures. A valid rental contract and business owner’s work history are prerequisites for the license. To learn more, contact the Dubai Department of Economic Development.

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