Legal Guides

We use plain and simple English to give you an overview of the most common areas of law.

Doing business in the UAE

The United Arab Emirates (UAE) is a constitutional Federation of seven emirates; Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Qaiwain, Ras Al Khaimah and Fujairah. The Federation was formally established in December of 1971.

The UAE has continued to grow in the past 15 years to become one of the largest economies in the Middle East. The country offers good investment opportunities to local and international investors and attracts trade due to a number of free zones located throughout the Emirate, which offer interesting incentives to the investors. Currently, there are over 30 free zones in the UAE.

Investing in the UAE

There are many options open to international companies and individuals seeking to establish a business in the UAE. Apart from forming a trading relationship through commercial agencies, having a local presence is very important in the context of the commercial culture of the Middle East. Business owners and people in the region prefer to deal with someone they know and trust by building personal relationships. For these reasons, we always advise our clients who would like to develop and expand their businesses in the Middle East, to set up an office in the UAE. Furthermore, from the UAE a lot of other interesting markets can be easily reached.

Direct trade

International companies wanting to trade directly with the UAE by supplying goods and services from abroad should appoint a commercial agent who is already established in the UAE. The agent must be a UAE National, or a company solely owned by a UAE National. The foreign principal and the agent in the UAE are required to enter into a commercial agency agreement specifying the products and the territories to be covered by the contract. They should also comply with the relevant provisions of the Federal Commercial Agency Law. The list of the agents is in the Commercial Agency Register maintained at the Ministry of Economy and Commerce.

Setting up a local (on-shore) company in the UAE

One of the important aspects of doing business in the UAE is the legal structure. In 1984, the Companies Law applicable throughout the UAE was adopted. The Federal Law No. 8 of 1984 was amended by Federal Law No.13 of 1988 – the “Commercial Companies Law”.

The Commercial Companies Law defines several categories of legal entities, which can be established in the UAE. It sets out the requirements for companies in terms of shareholders, directors, minimum capital levels and incorporation procedures.

A good legal consultant can guide the foreign investor in choosing the right legal structure which corresponds to the client’s needs.

Licenses

The basic requirement for all business activities in the UAE is to secure one of the following three categories of licenses:

  • Commercial licenses covering all kinds of trading activity
  • Industrial licenses for establishing industrial or manufacturing activities
  • Professional licenses covering professions, services, craftsmen and artisans.

These licenses are issued by the Department of Economic Development, with the exception of licenses for hotels and other tourism related businesses, which are issued by the Department of Tourism and Commerce Marketing.

However, licenses for some categories of business require prior approval from certain ministries and other authorities, such as:

  • Banks, financial institutions and financial service providers – from the Central Bank of the UAE
  • Manufacturing companies – from 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. In general, all commercial and industrial businesses in the UAE should be registered with the Chamber of Commerce and Industry.

Limited Liability Company (LLC)

The most common structure used to carry out business in the UAE is the LLC.

An LLC can be formed by a minimum of two and a maximum of 50 shareholders whose liability is limited to their shares in the company’s capital. UAE National(s) should own at least 51% of the share capital of the company.

An amendment to the Companies Law has eliminated the minimum share capital requirement of LLCs. Founders of LLCs are now given the flexibility to determine the capital required for the establishment and sustainability of such companies. Although the maximum foreign equity participation in an LLC is 49%, profits can be distributed in different proportions as agreed by the shareholders of the company. With the approval of the UAE National Shareholder(s), the entire business operations of the company may be entrusted to the foreign shareholder(s). The foreign shareholder(s) can therefore obtain a higher share of profit in case such shareholder(s) provides exclusive management and/or any special services or facilities to the company.

As far as the protection of the minority shareholder(s) interest is concerned, this can be done by way of shareholders resolutions and certain agreements drafted by a by a competent lawyer.

Public joint-stock company

A public joint-stock company (PJSC) is very similar to a UK public limited company or German Aktiengesesallschaft (AG). It requires a minimum share capital of AED10M and, unless founded by the State or by one of the Emirates, a minimum of 10 founders, who are responsible for the incorporation of the company.

Shares in a PJSC must be offered for public subscription and the subscription notices must be published in two local daily Arabic newspapers. The founders are obliged to subscribe for a minimum of 20 per cent of the share capital (but must not exceed 45%). The Companies Law does not permit a PJSC to issue different classes of shares or shares that carry different rights and entitlements.

A PJSC is required to have between three and 15 directors, who are elected for three years. The chairman and a majority of the board of directors must be UAE nationals.

Private joint-stock company

A private joint-stock company (private JSC) is similar to a UK private limited company. It requires a minimum share capital of AED2M and a minimum of three founding shareholders. Shares in a private JSC may not be offered for public subscription but in all other respects provisions applicable to a PJSC apply equally to a private JSC.

Professional/Service Companies

These companies may be 100% foreign owned although it will depend upon the nature of the business. Nevertheless, if such entity is wholly foreign owned, a UAE national will need to be appointed as local service agent and the number of non-national employees is restricted.

Branches and Representative Offices of Foreign Companies

Foreign Companies can also establish Branches and Representative Offices after obtaining the approval of the concerned UAE authorities.

The main difference between a Branch Office and a Representative Office is that a Branch Office may exercise freely the activities for which it is licensed whereas a Representative Office may practice only promotional business for the products and services provided by the parent company.

The Branch name and activity should be the same of the parent company in the country of origin. The Foreign Companies and its Branches shall have an independent budget, independent profit /loss accounts, and shall have an auditor.

UAE Free Zones

The other most common legal structure is the Free Zone Company. With the number of Free Zones increasing, their impact on the UAE economy has grown enormously. Many foreign investors chose this vehicle to expand their business in the region and internationally.

However, businesses operating within a free zone are restricted over the types of dealings they may conduct outside the designated free zones. Businesses wishing to conduct business in the mainland UAE must comply with the requirements of the Companies Law and other relevant laws applicable to the respective industry.

The advantage of creating a Free Zone Company is that such company will not be subject to many of the restrictions imposed by the Companies Law and other UAE laws and regulations. In fact, entities operating within the free zone may be 100% owned by foreigners, who also benefit from the exemption from any taxes during a certain period of time (usually 20 to 50 years), notwithstanding any subsequent change to federal or local laws.

The companies established in a Free Zone are treated as being offshore to the UAE and are subject to that particular Free Zone’s own laws and regulations. The Free Zones generally share these same financial Incentives:

  • 100% foreign ownership
  • A shareholder’s liability is limited to the amount of paid-up share capital
  • No currency restrictions
  • 100% import and export tax exemption
  • 100% repatriation of capital and profits allowed
  • No corporate profits tax
  • No personal income tax

There are around 30 Free Zones in the UAE. A competent lawyer will be able to assist the foreign investor in choosing the best one for his needs.

Offshore companies (IBC) – UAE

The establishment of UAE offshore companies is very attractive for foreign investors because of its extremely favourable taxation system and the privacy that it provides to offshore companies. UAE offshore companies are exempt from paying any corporate tax, whether on profit or any other form of capital gains.

Secondly, UAE offshore companies enjoy a level of privacy and security that is maintained by the fact that Dubai has not entered into any international agreement regarding exchange of information with other countries. Therefore establishing an offshore company provides foreign investors with the advantage of keeping their affairs very private and secure.

The Offshore Company can be used for:

  • International consulting
  • Receiving commissions
  • Holding intellectual property
  • Top-holding of a corporate structure
  • Acquiring local real estate
  • E-commerce business

There are a lot of advantages in setting up a business in the UAE, the first is enjoying the incredible growth that the country is living in these years. We need also to add another reason to establish a company in Dubai; a very favourable taxation regime both at corporate and personal levels.

As Dubai continues to successfully grow after winning the bid to host the Expo 2020 (according to the financial experts, the economic impact of the Expo 2020 in the Middle East and North Africa region is valued at around 25 billion USD), the UAE remains steadfast in developing its core selling points: infrastructure, logistics, tourism and trade.

Author: Francesca Greco

The ART Lawyers, Dubai

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to The ART Lawyers, Dubai directly.

Published on 18th November 2014
(Last updated 13th July 2023)