There are several ways through which a foreign enterprise can establish itself in the United Arab Emirates. They can do business by either building a permanent presence in the United Arab Emirates or through a commercial agent. The three methods through which a foreign company can get license to do business in UAE are:
1. Establishing a Limited Liability Company
2. Setting up a Branch Office or Representative Office
3. Setting up a wholly-owned business entity in Free Trade Zones of U.A.E
A Foreign Entity can, therefore, select any of the three licensing methods in order to establish its permanent presence in the U.A.E. They can engage in all the activities that have been permitted under the license. However, for different methods, there also exist several regulations and restrictions which are discussed in detail below.
ESTABLISHING A LIMITED LIABILITY COMPANY
Incorporating a limited liability company is one of the most common methods of establishing a permanent presence in the United Arab Emirates. Under this method, foreign entities are required to select a local sponsor which holds 51% of equity. A Limited Liability Company can have a minimum of two members and a maximum of Fifty members with a must condition that a UAE national has a minimum of 51% business ownership. The reason why foreign enterprises prefer this type of business set up is the highest level of flexibility it offers besides protecting minority shareholders.
SETTING UP A BRANCH OR REPRESENTATIVE OFFICE
To conduct business, a foreign company can open a branch or representative office at UAE under UAE Commercial Company Law (13) of 1988. Although foreign companies are allowed to establish fully owned branches but they will have significantly less U.A.E participation than a Limited Liability Company. A branch office is permitted to exercise the business activities on behalf of its parent entity. However, there is a difference between a representative office and a branch office.
A representative office performs limited activities on behalf of its parent entity and merely serves as an administrative or marketing unit for the foreign entity. A branch office, in contrast, can perform contracts or conduct different activities as permitted by its license. A representative office is limited to gathering information and projects that the foreign company’s head office performs. Therefore, the number of employees, in this case, is also limited.
In both cases, a foreign company needs to appoint a service agent who must be UAE national or a company owned by one or more UAE nationals. A service agent provides assistance in dealing with the procedures and communications with different government authorities. A service agent is not permitted to own equity in the foreign company and only assists the companies in government and administrative matters. However, the appointed service agent should have an approval from Ministry of the Economy.
SETTING UP AN ENTERPRISE IN A FREE TRADE ZONE
There are more than 37 free zones in the United Arab Emirates and more are expected to come up. Most of them are fully established zones and leading business hubs. There are many benefits of opening a branch office in a Free trade Zone, most considerable among them is 0%tax and 100% ownership.
• 100% foreign ownership;
• 100% tax exemptions (import and export);
• 100% repatriation of capital and profits;
• Free Transfer of funds
• Low operational cost
• No income tax
• No corporate tax for 15 years
• Pre-built offices and factories
• State of the art infrastructure
And there are obviously more.
However there is a limitation too, foreign entities cannot conduct business in UAE market as it is prohibited. Free zones are developed in a unique way as to benefit a specific business category. For example, Dubai healthcare city is developed in a way to conduct all healthcare related businesses. Different free zones have different rules and regulations and, therefore, each is governed by an independent Free Zone Authority. The respective authorities are responsible for issuing business licenses besides assisting companies in establishing their business in Free zones.
GETTING A PROFESSIONAL ADVICE
If you are planning to set up a company branch in any of the free zones in Dubai, getting a professional advice is important. We as one of the most trusted business set up consultancies in Dubai offer professional advice and assistance in establishing your presence in the wonderful emirates.