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UAE – Rules

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.
Some categories of businesses require approval from ministries also: for example, banks and financial institutions from the Central Bank of the UAE; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health; branch of foreign company from the ministry of Economy and Commerce. More detailed procedures apply to businesses engaged in oil or gas production and related industries.

Ownership Requirements

51% participation by UAE nationals is the general requirement for all UAE 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, however, Dubai company formation procedures are similar to the general system other emirates follow, whereby foreign owned offshore companies 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. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 – the “Commercial Companies Law” – and its by-laws have been issued. In broad terms the provisions of the Law are as follows: The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organization which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and offshore company incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.

Legal Structures for Business

Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 – the Commercial Companies Law – and its by-laws govern the operations of foreign business. In broad terms the provisions of these regulations are as follows:
The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organization, which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. The seven categories of business organization defined by the Law are:
• General partnership company
• Partnership-en-commendams
• Joint venture company
• Public shareholding company
• Private shareholding company
• Limited liability company
• Share partnership company

Partnerships

General partnership companies are limited to UAE nationals only. The Dubai government does not presently
encourage the establishment of partnership-en-commendam and share partnership companies.

Joint Venture

A joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be mutually agreed. Joint ventures are suitable for companies working together on specific projects.

Public and Private Shareholding Companies

The Law stipulates that companies engaging in banking, insurance, or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, however, can establish a presence in Dubai by opening a branch or representative office.
Shareholding companies are suitable primarily for large projects or operations, since the minimum capital required is Dh. 10 million (US$ 2.725 million) for a public company, and Dh. 2 million (US$ 0.545 million) for a private shareholding company. The chairman and 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.

Limited Liability Companies

A limited liability company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the company’s capital. Most companies with expatriate partners have opted for this form of company.
In Dubai, the minimum capital is currently Dh. 300,000 (US$ 82,000), contributed in cash. While foreign equity in the company may not exceed 49%, profit and loss distribution can be mutually agreed. Responsibility for the management of a limited liability company can be vested in the foreign or national partners or a third party.

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 and are paid a lump sum and/or a percentage of profits or turnover. In general, branches and offices of foreign commercial companies are not licensed to engage in importing activity except for re-export or in the case of products of a highly technical nature. 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. A UAE national must be appointed as local service agent, but he has no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover. The role of the local service agent is to assist in obtaining licenses, visas, labour cards, etc…

FREE ZONE COMPANIES

Background

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.

Free Zone Incentives

• 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

Licenses

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. Operations within the UAE can be undertaken by appointing a commercial agent.

Setting Up a Branch of a Foreign Company

A foreign company can set up a 100% owned branch in the Free Zone. A questionnaire and license application form with necessary documents are required to set up a project by a foreign company. Thereafter, a lease agreement and a personnel secondment agreement will be signed.
If the company’s project involves the erection of a structure, a building permit will be issued after detailed plans are submitted and agreed. Administrative work, such as importing equipment or engaging labour for installation of equipment, may proceed in parallel with construction work.

OFF SHORE COMPANIES

An offshore company is a company which does not carry out any substantial business activities in its country of formation and is framed in a law of no tax jurisdiction for the purposes of legally reducing any kind of tax payment and enhancing one’s wealth management.
Mostly one would open an offshore company to secure confidentiality over their financial matters and increase wealth without interruption. Offshore companies can eliminate or cut down many types of tax payments such as: Capital gains, V.A.T, Death duty, profits on business earnings and property sales. An offshore company legitimately helps one in gaining confidentiality over one’s financial affairs and growing one’s wealth.