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About UAE

Legal Structure of Business Entities

The Department of Economic Development of each Emirate is the responsible licenses for corporate entities or individuals who desire to carry out business in the mainland of that emirate, the territory in Emirate that falls outside the Emirate’s free zones. There are a great range of Free Zones in the UAE, the majority of which are in the Emirate of Dubai. Foreign companies are permitted to establish wholly-owned branches in each of these Free Zones, and such branches are exempt from the requirement to appoint a local service agent. Each of the Free Zones has its own set of laws, rules, regulations and requirements that do not fall within the ambit of the Federal Companies Law and therefore do not require the involvement of a UAE national shareholder. The establishment of a Free Zone branch or a corporate entity is dealt with by the relevant Free Zone Authority and each Free Zone prescribes its own minimum share capital requirements.

Legal Structures

  • Commercial Companies
  • Civil Companies
  • Free Zone Entities

Regardless of the type of business to be set-up, it is necessary to obtain a license. The 3 types of Licenses available in mainland are:

Commercial License All types of trading
Industrial License Manufacturing or Industrial
Professional License Professions, Services and Craftsmen

Additionally, rather than setting up a business organization to provide services or sell goods, it is possible to appoint a local commercial agent for the purpose of selling directly to importers and traders in the UAE, which is very commonly used by foreign companies to offer their goods and services to consumers in the UAE. UAE Federal Law No. 18 of 1981 Concerning Commercial Agencies, as amended, governs the relationship between foreign manufacturers and local agents and distributors and grants protections to the local party subject to the registration of the agency with the Ministry of Economy. Agency Agreements need to be registered pursuant to the Commercial Agencies Law, while there exist unregistered agents, which are subject to the Civil Law and the Commercial Law instead of the Commercial Agencies Law. In order to register, the agent/distributor must be a UAE national or a company wholly-owned by UAE nationals. The statutory protections afforded by registration include, inter alia, restrictions on the foreign party’s right to terminate or withhold renewal of the relationship, exclusivity and the right to receive compensation on termination or non-renewal of the relationship.

Legal Forms of Businesses

Among the following, limited liability companies are the most popular for foreign companies to operate businesses in the UAE.

1. Commercial companies:

a) Sole Proprietorship

A professional business sole proprietorship covers a range of professions from owning a restaurant to a consultancy firm. Sole proprietorships providing services require a Local Service Agent (LSA) if they are owned by a National of a country other than the UAE or GCC countries. The local service agent is a UAE National who manages licensing requirements and other government-related matters for your business, in exchange for an annual fee. A sole proprietorship can only be owned by an individual, not a company. 100% ownership of this business, control all of its operations and 100% of any profits remains with the owner. Likewise, in case of any financial obligation or business debt the 100% onus remains on the owner to fulfill the same. A professional type sole proprietorship may be owned by an individual of any nationality for providing services that are lawfully permitted. A sole proprietorship that is industrial or commercial can be owned only by UAE Nationals or GCC Nationals.

b) General Partnership

A general partnership is formed by two or more UAE nationals who are jointly and severally liable for the partnership’s debts. A general partnership can be formed between UAE Nationals and expatriates. Only the actual names of the partners are permissible to be included in a partnership’s name. A partnership interest may be transferred only with the approval of all partners or in accordance with conditions stated in the partnership agreement. The management of the partnership must be with one or more managers who must be natural persons and who may or may not be partners. A partnership is dissolved on the death, insanity, bankruptcy or withdrawal of one of its partners, unless the remaining partners decide mutually to continue the partnership and their decision is registered in the commercial register.

c) Limited Liability Company

An LLC can have up to 50 shareholders, each of whom is liable only to the extent of his or her share in the capital of the company. LLCs are authorised to conduct any industrial or commercial business, but not professional (to practice law, auditing, accountancy or any other type of consulting service). – except banking, insurance or investment. An LLC must be 51% owned by UAE Nationals, although the Memorandum of Association can distribute profits in a different ratio. In the interests of an open, honest and transparent economy, the LLC must appoint a UAE accredited auditor. In case of the death of any partner, his or her shares are transferred to the heirs mentioned in the will. Shares of an LLC cannot be offered to the public. The company may not resort to public subscription to establish or increase its capital, or to secure loans, and it may not issue any negotiable stocks or shares. Between one and five managers must be appointed for the business. The managers may be selected from the partners or may be any other parties. Managers must be appointed by a Memorandum of Association or by a management contract, for a fixed term or an unlimited term. Managers can also be appointed by the General Assembly of the partners. Unless the Memorandum of Association states otherwise, the manager has full powers of administration. Within the scope of his or her powers, the manager’s actions and commitments are binding on the business.

d) Foreign Company Branch or Representative Office (Outside of Free Zone)

A very popular way for foreign companies to benefit from 100% foreign ownership is to open a branch office of the parent company. A branch office is lawfully regarded as part of its parent company and does not have a separate legal identity from that of its parent company. Thus, the name of the branch office will be the same as that of the parent company. Branch offices are required to have a UAE national as a local service agent. UAE nationals or companies 100% owned by UAE nationals may be appointed as local service agents. The local service agent manages licensing requirements and other government-related matters for your business, in exchange for an annual fee. A branch office in the UAE may only be engaged in activities service similar to those of the parent company. It is important to note that a branch office is not permitted to carry on the commercial business within the UAE. A Representative Office of a foreign company is legally distinct from the branch office. A representative office of a foreign company is only permitted to promote the sale of its products and facilitate contracts with its parent in the UAE. A Representative Office cannot conduct a sale or production by itself. In addition to the above limitations, representative offices have other restrictions in that they are not allowed to obtain credit facilities or put forward offers. As in the case of a branch office, it is necessary when establishing a representative office to appoint a local service agent.

e) Public Joint Stock Company

The law requires that companies engaging in banking, insurance, or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, have an option to establish a presence in Dubai by opening a branch or representative office. Shareholding companies are appropriate primarily for large projects or operations, since the minimum capital required is AED 10 million for a public company, AED 40 million for banks and AED 25 million for insurance and investment companies, and AED 2 million for a private shareholding company. The chairman and a majority of directors must be UAE nationals and there is less flexibility of profit distribution than is permissible in the case of limited liability companies. A minimum of 25% of the shares of a Public Shareholding Company must be offered to the general public. A PJSC must have at least 10 founder members and its management should be conferred in a board of directors consisting of a minimum of three to a maximum of fifteen persons whose term of office may not exceed three years. In addition, at least 51% of the shares of the PJSC should be held by UAE nationals. The founder members may only hold 45% of the share capital, as 65% is required to be offered to the public.

f) Private Shareholding Company

A Private Joint-Stock Company can be created for any commercial or industrial type of business. Professional activities are not allowed under this legal form. A Private Joint-Stock Company is subject to all rules and regulations that apply to Public Joint Stock Companies, except for the rules and regulations relating to public share subscription. A Private Joint-Stock Company can be established between three or more UAE Nationals or GCC Nationals. Nationals of other countries can establish a private shareholding company with at least one UAE National. If one or more of the partners is a National of a country outside the GCC, the UAE National partners must own at least 51% of the business shares. While the shares of a private shareholding company cannot be offered to the public, the business can be converted to a public company two years or more after its creation, if the following conditions are met:

  • The nominal value of the issued shares is fully paid up.
  • A period of not less than two financial years has expired.
  • During the two years preceding the application for conversion, the company achieved net profits distributable to the shareholders, the average value of which is not less than 10% of the capital.
  • A resolution of the extraordinary assembly for the conversion of the company is adopted by a majority of shareholders representing at least three quarters of the company’s capital.

The company must have an appointed manager.

2. Civil Companies

  • Service Companies
  • Speculative Venture Partnership
  • Mudaraba Companies

3. Free Zone Entities

There are a great range of Free Zones in the UAE, the majority of which are in the Emirate of Dubai. Foreign companies are permitted to establish wholly-owned branches in each of these Free Zones, and such branches are exempt from the requirement to appoint a local service agent. Each of the Free Zones has its own set of laws, rules, regulations and requirements that do not fall within the ambit of the Federal Companies Law and therefore do not require the involvement of a UAE national shareholder. However, a company set up in a Free Zone directly the Free Zone or internationally. The establishment of a Free Zone branch or a corporate entity is dealt with by the relevant Free Zone Authority and each Free Zone prescribes its own minimum share capital requirements.

  1. Free Zone Establishment (Single Shareholder)
  2. Free Zone Company (Multiple Shareholders)
  3. Branch of a foreign company

FREE ZONE LIMITED LIABILITY COMPANY BRANCH OFFICE REPRESENTATIVE OFFICE
Allowed to rent an office in Dubai Allowed Allowed Allowed Allowed
Allowed to buy UAE property Not Allowed Allowed Allowed Allowed
Allowed to conduct business within Dubai Not Allowed Allowed Allowed Not Allowed
Fully foreign owned entity Allowed Not Allowed* Allowed Allowed
UAE Bank Account permissible Allowed Allowed Allowed Allowed
Allowed to recruit staff in UAE Allowed Allowed Allowed Allowed
Allowed to apply for immigration visas Allowed Allowed Allowed Allowed
Permissible to sign contracts Allowed Allowed Allowed Not Allowed
Permissible to import goods Allowed Allowed Not Allowed Not Allowed
Permissible to export goods Allowed Allowed Allowed Not Allowed
Must appoint a local UAE agent Not Allowed Allowed Allowed Allowed
Minimum shareholder permissible 1 1 1 1
Maximum shareholder permissible 1 1 or 2 0 0
Minimum Paid Up Share Capital AED 0 N/A N/A
Bearer Shares permissible Allowed Allowed Not Allowed Not Allowed
Public Register of Company details Not Allowed Allowed Not Allowed Not Allowed
Directors Permissible Allowed Allowed Allowed Allowed
Local resident secretary permissible No No No No
Need to travel for engagement No No No No
Allowed own shares in other UAE companies Allowed Allowed Not Allowed Not Allowed
Government Security Deposit No No AED 50,000 AED 50,000
Annual License Renewal Yes Yes Yes Yes
Annual Accounting and Auditing Yes Yes Yes Yes
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