UAE in general and Dubai in particular offers the business sector all the advantages of a highly developed economy. The infrastructure and services of Dubai tend to match the highest international standards, and some of the benefits of its economic system are:
- Free enterprise system.
- Highly developed transportation infrastructure.
- State-of-the-art telecommunications.
- Top international exhibitions and conference venues.
- High quality offices and residential accommodation.
- Inexpensive Workforce and Easy Recruitment Procedures
- Reliable power, utilities etc.
This economic development strategy has been successful and the political and social stability has created an excellent business climate for investments.
Doing business in the UAE is very attractive due to the following reasons:
- No personal income and capital taxes
- No corporate taxation
- 100% repatriation of capital and profits
- No currency restrictions
- Competitive import duties (5% with many exemptions).
- Modern efficient communication facilities
- Abundant and inexpensive energy supply
- Simple staff recruitment procedures
- Competitive freight charges
- Competitive real estate costs.
- Easy access to both sea and airports.
The golden rule regarding companies being established in UAE is that they must have one or more national partners whose share in the company capital must not be less than 51% of the company’s capital. Therefore, foreign investors wishing to establish business operations in Dubai engaged in most of the commercial business activities must do so with a partner who is a UAE national. The minimum capital for starting a business is currently Dh. 300,000 (US$ 82,000), contributed in cash. Those intending to establish service companies where 100% foreign ownership is permitted are restricted to non-commercial activities.
Generally, all licenses are issued by the Dubai Economic Department (DED). However, licenses for some categories of business require approval from certain ministries and other authorities such as:
- 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;
- Pharmaceutical and Medical Products from the Ministry of Health.
More detailed procedures apply to businesses engaged in Oil or Gas Production and related industries. Practicing some trade activities (e.g. Jewellery and Insurance) requires the submission of a financial guarantee issued by a bank operating in Dubai. In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.
Licensing The basic requirement for all business activity in UAE is one of the following three categories of licenses:
- Commercial licenses covering all kinds of trading activity;
- Professional licenses covering professions, services, craftsmen and artisans;
- Industrial licenses for establishing industrial or manufacturing activity.
Ownership Requirements: As discussed earlier, fifty-one per cent participation by UAE nationals is the general requirement for all UAE offshore company formations except:
- Where the law requires 100% local ownership;
- In the Free Trade Zones where 100% foreign ownership is permitted;
- 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.
Procedures governing the operations of foreign business interests: In practice, foreign owned offshore companies are operated in one of three ways: with a local sponsor, through a partnership with a UAE national or company, or through a private limited company or public shareholding company incorporated by Ruler's decree. Since 1984, steps have been taken to introduce a codified company law applicable throughout the UAE. The seven categories of business organisation defined by the Law are:
- General Partnership Company: Partnership companies apply only to UAE citizens.
- Partnership-en-commendam: Currently, the Dubai government does not encourage the partnership-en-commendam and share partnership companies to be established.
- Joint venture company: Joint venture is an agreement between a foreign company/person and a local company to engage in a business. But the local equity participation in the joint venture should be at least 51%. The profit and loss sharing is decided earlier. No license is required for the joint venture. While the foreign partner deals with third parties in the name of the local partner, the local partner has to bear all liabilities until the agreement is formalized.
- Public shareholding company: A Public shareholding company is one that is engaged in banking, insurance, or financial sectors. Insurance and financial services firms and foreign banks can open their branch or representative offices to establish their presence in Dubai.
- Private shareholding company
- Limited liability company: This is the most commonly used company establishment by foreign investors. A limited liability company can be launched by as less as two members and as much as 50 members whose liability is limited to their shares in the firm’s capital. Responsibility for the management of such company is handled by the foreign or local partners or a third party.
- Share partnership company
Apart from these seven categories, FDIs are encouraged through Branches and Representative Offices of foreign companies and 100% foreign owned Professional Firms.
Branches and Representative Offices of Foreign Commercial Companies The Commercial Companies Law also 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 service agents. Local agents – also sometimes referred to as sponsors – are not involved in the operations of the company but assist in obtaining visas, labour cards, etc. To establish a branch or representative office in Dubai, the following documents are required:
- Company registration certificate
- Board of directors’ resolution for establishing a branch
- True copy of company’s memorandum / articles of association
- Power of Attorney to the representative
- Financial statements for the last two years
- Local service agency agreement
- Details of local service agent
- Company profile
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.
UAE Free Zones
UAE is the only country in the Middle East where a big number of Free Trade Zones and Free Industrial Zones are available for investors who wish to gain more from their investment. The first Free Zone formed was Jebel Ali, Dubai, in 1985 which witnessed a tremendous growth in the years to come by way of increased number of investors.
The Free Trade Zones have been set up with the specific purpose of facilitating investment. The procedures for investing in the zones are relatively simple. The companies operating in the Free Zones are treated as being offshore companies or outside the UAE for legal purposes. The free zones are suitable for companies intending to use UAE as a regional manufacturing or distribution base, with the bulk of their business outside the UAE. Another example of a free zone, the Dubai Health Care Vision has the following four entities:
- Dubai Health Care City Free Zone (DHCC FZ)
- Center for Health Care Planning and Quality (CPQ)
- Harvard Medical School Dubai Center (HMSDC)
- Dubai Harvard Foundation for Medical Research (DHFMR)
The Dubai Biotechnology and Research Park (DuBiotech) is the world’s first Free Zone dedicated to Life Science Industry. Dubai Silicon Oasis Authority (DSOA) is wholly owned by the Government of Dubai and is considered the only technology park in the region that provides both a living and working integrated community. Silicon Oasis is a free zone authority and provides a full package of incentives and benefits to companies operating within the free zone.
The main benefits investors enjoy when starting a business in the UAE Free Zones are:
- 100% Foreign Ownership
- 100% Repatriation of Capital and Profits
- 0% Corporate, Personal Tax
- Exemption from all Import and Export Duties
- Free Zone Company Formation is Quicker than incorporation outside of the Free Zones
- Inexpensive Workforce and Easy Recruitment Procedures
- Typically, no restrictions on recruiting labour
- 'One-stop-shop' for Administration Services
- On-site Customs Inspection
Free Zone Limitations
A Free Zone Company is not allowed to trade directly with the UAE market. The Free Zone Company can undertake the local business only through locally appointed distributors. Custom Duty 5% is applicable for the local business.
Documents Required for Registering a Business in the UAE Free Zones
There are some similar formalities to be completed with regards to the documents which are submitted to each free zone depending upon the type of business an investor chooses. In general, the following are the main options of establishing a business in a free zone:
- Free Zone Establishment (FZE) (One individual share holder).
- Free Zone Company (FZCO) (More than one member).
- Branch Office
Descriptions of documents commonly needed are being listed below:
FREE ZONE ESTABLISHMENT (FZE) 1) Application form duly filled 2) Business profile of the owner 3) Passport copy of the owner 4) Original bankers reference
FREE ZONE COMPANY (FZC) 1) Business profile of individuals 2) Passport copy of owners 3) Original bankers reference 4) Board Resolution 5) Manager’s valid passport copy 6) Specimen signature of the manager 7) Original FZCO application
BRANCH 1) Certificate of Registration 2) Memorandum and Articles of Association 3) Board Resolution 4) Manager’s passport copy and his attested signature 5) Parent company‘s profile
Steps followed for a UAE Company Formation:
- Licensing: Companies approved for operation in Free Trade Zones, can apply for one of the following types of licenses: Trading; Industrial; Service; or National Industrial. These licenses are renewable annually. Trading licenses are granted to locally incorporated companies, and to companies incorporated outside the UAE. Trading licenses are also issued to Free Zone Establishments (FZE) and Free Zone Companies (FZCo’s).Industrial licenses are issued to companies incorporated outside the UAE, FZE’s and FZCo’s. Service licenses are only granted to companies holding a UAE license. National Industrial licenses 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 accounts for at least 40% value added. Products exported by such companies to AGCC states will be exempted from custom duties. Companies holding Free Zone license are also permitted to operate outside the UAE.
- Name & Activity Approval: Reserve a business name with the Department of Development (DED) by using the e-services page at the DED’s website. Once accepted, a letter of approval will be issued. Decide on the legal structure of the business and obtain licensing approval from the Licensing Section of the Dubai Department of Economic Development (DED).
- Company License Registration with Article of Association (notarized in the court): Notarize the Memorandum of Association (MOA) by taking the document to the notary public in the DED. The MOA should be drafted by the lawyer.
- Assistance with Funding of Paid Up Capital for the New Company
- Company Immigration / Labor Approval
- Arrangement of Local Sponsor / Partners
- Drafting of all Legal Documents for the Company Registration: Include the business on the Commercial Register by submitting the necessary documents to the Commercial Registry at the DED. Submit an application for entry of the business name along with the notarized MOA and a copy, the initial approval letter and the business name approval letter. Upon approval, the new business will be included on the Commercial Register and a Commercial Registration certificate will be issued. The business will also be automatically registered with the Ministry of Economy and Commerce.
- Assistance with Visas for Partners and Employees
- Assistance for Business Offices
- Assistance for new Bank Account
These are some of the guidelines for setting up a business in Dubai and to reap the benefits it offers. One can either do these steps by themselves or seek help from professionals who assist you with all the steps in starting a business.