Doing Business in the United Arab Emirates
Are you interested in establishing a company in the United Arab Emirates or reorganising an existing business structure? We gladly support you in the following areas:
- Developing and revising market entry strategies
- Advising on the formation, restructuring and dissolution of companies located in the territory or in free zones of the United Arab Emirates
- Drafting memoranda and articles of association, resolutions and powers of attorney
- Assisting with the preparation and holding of general assemblies
Doing Business in the United Arab Emirates
The United Arab Emirates ("UAE") provides an attractive business environment for investors. Some of the numerous incentives offered are a liberal economic policy, political stability, the exemption from personal income tax and corporate tax for most fields of business, the existence of diversified free zones and offshore jurisdictions, unrestricted repatriation of capital and profit, the tying of the UAE Dirham ("AED") to the US Dollar and the existence of treaties for the avoidance of double taxation with various countries.
Business in the UAE can successfully be done by exporting products to the UAE, by taking advantage of appointing a commercial agent or distributor or by establishing a company in one of the seven Emirates.
When considering a company set-up, three areas have to be distinguished: (a) the territory of the UAE itself, (b) the free zones and (c) the offshore jurisdictions. Each location is governed by its own laws and regulations and offers various opportunities to the investor.
Establishing a Company in the Territory of the UAE
A representation can be established in each of the seven Emirates.
The Commercial Companies Law governs commercial legal entities established in the territory of the UAE, i.e. outside of free zones. The most common legal form amongst foreign investors is the limited liability company. According to the Commercial Companies Law, at least 51% of the shares have to be held by a local citizen or a company wholly owned by Emirati nationals. This requirement was yet again confirmed in principle by the new Commercial Companies Law (Federal Law No. 2 of 2015 as amended). However, the Foreign Direct Investment Law (Federal Decree-Law No. 19 of 2018) provides for exemptions. The so-called Positive List includes 122 economic activities across 13 sectors that allow for up to 100% foreign shareholding, provided certain increased requirements are met.
The shareholders of a limited liability company are generally free to determine its share capital provided the amount is adequate to achieve the purpose of the company's incorporation.
On the condition that no trading activities will be conducted, another option is establishing a branch, which is a dependent subsidiary of a foreign mother company. A branch does not have to meet any capital requirements. However, a bank guarantee amounting to AED 50,000 needs to be submitted to the competent authority.
Establishing a Company in a Free Zone
Setting up a business in one of the free zones continues to be an attractive alternative to establishing a representation within the UAE.
Dubai, for example, offers a wide range of specialised free zones, which provide the investor with a tailor-made business environment. Some of the most prominent free zones are the Jebel Ali Free Zone, the Dubai Airport Freezone, the Dubai International Financial Centre, the Dubai Internet City, the Dubai Multi Commodities Centre, the Dubai Healthcare City as well as the Dubai Design District.
Free zones are geographically defined areas in the UAE in which the laws of the UAE only partially apply. The main incentive for foreign investors to set up a company in a free zone is the fact that free zone regulations – in contrast to the laws prevailing outside free zones – allow complete foreign ownership of a limited liability company. This consideration remains valid even after the Foreign Direct Investment Law has come into effect because strict requirements have to be met in order to get a company licensed based on said law.
Should goods be brought into a free zone for temporary storage or permanent use, no import duty has to be paid. Upon import into the UAE of goods stored or produced in a free zone, an import duty of generally 5% will be imposed. In such cases, the free zone company is considered a foreign entity.
Establishing an Offshore Company
The formation of an offshore company is one of the most cost-effective alternatives in the UAE because no office rent has to be paid. However, offshore companies are generally not allowed to conduct business with contractual partners located in the UAE.
Choosing the Right Set-Up
Location and legal form of a new company are influenced by a number of factors, such as the kind of activity to be conducted, the location of important business partners and the available budget.
In order to make best use of the various advantages in each of the different locations, a thorough analysis that takes both economic and legal implications into account should be made before deciding on one of the alternatives.
In any case, however, it must be ensured that the future company will meet the requirements of the so-called Economic Substance Regulations.