The United Arab Emirates (UAE) has a rather complex business structure. Unlike the simple four business structures in Australia, the UAE has eleven in total. Apart from the 11 legal forms of business in UAE, there are three more jurisdiction-based company structures.
In this article, we will discuss all the 11 business structures and the three jurisdiction-based company formations in the UAE. We will also discuss the tax rates and how the companies can operate.
So let’s get started!
What Is A Company Formation?
Company formation refers to the process of legally creating a new company or business entity. It involves registering the company with the appropriate government authorities, defining its structure, and fulfilling any necessary legal requirements.
This typically includes choosing a business name, specifying the company’s purpose, outlining its ownership structure, and often filing important documents like articles of incorporation.
For example, let’s say you and a friend want to start a small tech company called “TechSavvy Innovations.” The process of company formation would involve selecting a suitable business structure, such as a limited liability company (LLC) or a corporation.
You’d then register the company with the relevant government agency, choose a unique name, outline how ownership and profits will be divided, and complete any required paperwork.
Once these steps are completed, “TechSavvy Innovations” will officially exist as a legal business entity, ready to conduct operations and transactions in compliance with the law.
Types of Business Licenses In UAE For Company Formations
In the UAE, they hand out different kinds of business licenses, which give you the green light to do specific types of business activities. There are four main types: professional, commercial, industrial, and tourism.
The professional license is for people like doctors, artists, or craftsmen offering their specialized services.
The commercial license is all about businesses that want to make money through trading and buying/selling stuff.
The industrial license is for companies that make things, like factories and manufacturers.
Lastly, the tourism license covers anything in the hospitality and tourism industry.
Which license you need depends on what your business does. So, it’s kind of like picking the right outfit for the occasion, but for your business!
Jurisdiction-Based Company Formations & Types In The UAE
In the UAE, you can set up a company in one of three areas: Mainland, Free Zone, or Offshore.
Each place has its authority responsible for giving you the necessary licenses. In the Mainland, it’s the Department of Economic Development in the specific emirate. In Free Zones, it’s the Free Zone Authority for that area. And for Offshore companies, it’s the Offshore Authority that handles the licenses. So, depending on where you want to start your business, you’ll deal with the appropriate authority to get the legal permissions you need.
Mainland Company
A mainland company in the UAE is an onshore business, and you get official permission to set it up from the Department of Economic Development (DED) in the specific emirate where you want to operate. The cool thing about mainland companies is that they can do business not only locally within the UAE but also internationally without any restrictions.
To decide if this is the right move for you as an entrepreneur, it’s important to understand what “Mainland” means according to DED.
Now, when it comes to mainland companies, there are various types of licenses you can get:
- Professional license
- Commercial license
- Industrial license
- Tourism license
What’s neat is that expats can own 100% of the shares in these companies. This is a recent change and a result of a new decree.
Here are some important things to know about mainland companies in the UAE:
- They’re governed by Federal Law No. 2 of 2015, which became effective on July 1, 2015.
- Expats can now fully own shares in commercial limited liability companies (LLCs) on the mainland.
- GCC nationals can also own 100% of the shares in any company.
- GCC companies or individual GCC nationals can partner with UAE nationals.
- Some specific business activities require UAE nationals to own 100% of the shares, as per the law.
- For certain professional activities, expats can own 100% of the shares, but they need UAE nationals as service agents.
In a nutshell, mainland companies are like the onshore version of businesses in the UAE.
Freezone Company
Starting a business in one of the UAE’s Free Trade Zones (FTZs) can be a great choice for foreign investors.
The UAE has more than 35 FTZs, with over 20 in Dubai. One of the main perks of setting up shop in a free zone is that you don’t need a UAE national to hold shares in your company. All UAE free zones offer some pretty cool benefits:
- You can own your business 100% as a foreigner.
- No taxes on imports or exports.
- You can take all your profits home.
- No pesky currency restrictions.
- You get a 15-year break from corporate taxes, which can be extended for another 15 years.
- No personal income taxes.
But, here’s the catch: Free Zone companies are usually limited to operating within the free zone and only doing the stuff allowed by their licenses. You also need to rent some office space in the Free Zone, either a small one for a few employees or a larger dedicated space.
And hey, you can get UAE residence visas for you, your company’s shareholders, and employees through the Free Zone where you’re registered.
Offshore Company
Setting up an offshore company in the UAE is a highly favored way to do business in the Middle East. The UAE provides three offshore options in Dubai; Jebel Ali Offshore Company, Ras Al Khaimah, and Ajman.
Each of these options offers similar services but caters to distinct strategic objectives for offshore company registration. The Jebel Ali Offshore Company is recognized as an International Business Crown and is the sole offshore entity permitted to own real estate in Dubai, operating within the JAFZA Free Zone.
On the other hand, the RAK Offshore and RAK International Company (RAKICC) are International Business Companies. They present a flexible and trustworthy choice for foreign investors looking to register an offshore company in the UAE without needing a physical presence. Notably, RAKICC is also allowed to own freehold property in Dubai.
Benefits of registering an offshore business:
- No Corporate tax
- Full foreign ownership
- Complete capital and profit repatriation
- Access to a UAE bank account
- International invoicing capabilities
- Limited liability structure
- Absence of TIEAs (Tax Information Exchange Agreements)
- Total privacy and confidentiality
- Ability to maintain multi-currency bank accounts in the UAE
- Availability of virtual office facilities in the UAE
The 11 Business Structures or Company Formations In UAE
In the UAE, all the technicalities are very similar to international trade, however, we do have to talk about the technicalities in the LLC, civil, and branch offices areas.
You will notice that five branch offices are mentioned here, which we’ll discuss in a later part of this section.
Read up on the basics of each type of company formation and then let’s get into the explanations of the three business structures I mentioned above.
- Sole Proprietorship: A sole proprietorship in the UAE is a straightforward setup where a single individual owns and manages the entire business. It’s like a one-person show, and the owner assumes full responsibility for the business’s operations, profits, and liabilities. While it’s a simple way to start a business, it means that your assets are at risk if the business faces financial troubles.
- Civil Company: A civil company is a specialized form of partnership in the UAE. It’s primarily meant for professionals, like lawyers, engineers, or consultants, who want to join forces and offer their services together. This structure adheres to regulations specific to these professions, ensuring that professional standards are maintained.
- Limited Liability Company (LLC): An LLC in the UAE is a versatile choice for businesses. It’s a bit like having the best of both worlds. On one hand, it allows multiple owners to share in the business’s profits and management. On the other, it provides a critical benefit: limiting your liability. This means your assets are shielded from any financial issues the company might face.
- Partnership: A partnership in the UAE is when two or more individuals or entities come together to run a business. They share the profits, losses, and responsibilities. It’s a cooperative approach that can be ideal for businesses where collaboration is key. The specific rules and regulations can vary, depending on the type of partnership you choose.
- Private Share Holding Company: In this structure, a select group of people or entities can own shares in the company. It’s often used when you want to maintain a high level of control over who can invest in your business, keeping it relatively exclusive.
- Public Share Holding Company: A public shareholding company is a big player in the business world. It’s a publicly traded company with shares listed on a stock exchange. This means that anyone can buy and sell shares of the company. It’s a significant step that often involves more regulatory requirements and public reporting.
- Branch of Foreign Companies/Representative Office: Foreign companies can establish branches or representative offices in the UAE for various purposes, like market research or liaising with clients. They can’t usually engage in commercial activities directly from these branches but can explore business opportunities in the UAE market.
- Branch of GCC Companies: Companies from other Gulf Cooperation Council (GCC) countries can set up branches in the UAE. This allows for seamless expansion within the GCC region. It’s an option for businesses looking to take their services or products across borders.
- Branch of Free Zone Company: Free zone companies can spread their wings outside the free zone area by establishing branches within the broader UAE market. This offers the flexibility to tap into different markets while still enjoying the benefits and regulations of the free zone.
- Branch of Dubai-Based Companies: Businesses based in Dubai can extend their reach by creating branches in other emirates of the UAE. It’s a strategic move to grow and serve a wider customer base while retaining a strong Dubai connection.
- Branch of UAE-Based Companies: Companies operating within one emirate of the UAE can open branches in other emirates, becoming a larger, more geographically diverse organization. It’s a way to grow within the UAE’s national market while maintaining a unified legal structure.
What are the branch company formations?
A branch office in the UAE shares the same legal identity as its main company and operates using the parent company’s name. However, it can’t get involved in importing the parent company’s products, as that’s a job for local trade agents. Sometimes, foreign company branches need an extra license from the UAE Ministry of Economy.
On the flip side, a representative office has more limitations. It’s primarily here to promote the parent company’s activities by gathering information and seeking orders or projects to be handled by the parent company.
Both types of offices, whether it’s a branch or a representative office, must appoint a UAE national as a ‘service agent’ as part of the legal setup.
What are civil company formations?
A civil company is like a team-up for professionals such as doctors, lawyers, engineers, and accountants in the UAE. The professionals run the show, owning 100% of the company, except for engineering firms. Usually, you’d need a UAE National Local Service Agent in the mix. Surprisingly, even a foreign company can join the club, as long as they’re in the same line of work as the civil company. It’s all about professionals coming together, sharing ownership, and sometimes partnering with local expertise.
Technicalities of LLC company formations in the United Arab Emirates
A Limited Liability Company (LLC) is the go-to choice for setting up a business in the UAE, especially if you plan to do business within the country. It’s like the bread and butter of UAE business structures.
However, there’s a catch – you can’t have full foreign ownership. According to the UAE Commercial Companies Law, foreign investors can own up to 49% of the company, and at least 51% must belong to one or more UAE nationals.
Now, here’s the good news. You can form an LLC with as few as one shareholder (thanks to a 2015 law change), or up to a maximum of 50 shareholders.
The best part?
Your liability is limited to what you’ve invested in the company. And, you’re no longer tied to hefty minimum share capital requirements, which means you have more flexibility in deciding how much capital your LLC needs, allowing for a more tailored approach to your business.
Conclusion
In conclusion, navigating the company formations in the United Arab Emirates offers a range of possibilities and options. With a diverse array of business structures and company formations, entrepreneurs can tailor their endeavors to suit their unique goals and preferences.
The Emirates, with its Mainland, Free Zone, and Offshore opportunities, has positioned itself as a welcoming environment for both local and foreign investors.
The UAE’s dynamic business landscape is reflective of its commitment to welcoming entrepreneurs and fostering international trade. With updated laws and an ever-evolving economic environment, it presents an optimistic outlook for those looking to establish and grow their ventures in this vibrant and dynamic country.
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