[ Updated in December 2019 ]
Types of companies in various jurisdictions of the UAE and their features
Before we move on to the question of registering a company in the United Arab Emirates (UAE), let us look at the opportunities available for a foreign investor. First, we should note that from the point of view of applicable laws and regulations, the territory of this country is very heterogeneous. The UAE is a federation consisting of seven Emirates (Dubai, Abu Dhabi, Sharjah, Fujairah, Ajman, Ras Al Khaimah, and Umm Al Quwain), each of which has its own rules; there are general federal laws that apply throughout the country. In addition, the UAE has more than 40 different free economic zones. Within these territories, there are special economic rules for registering a foreign business; here, a foreign investor has more freedom and opportunities for business development.
Here are several available options for registering a company in the Emirates for a foreigner:
A company in the free economic zones of the Emirates (onshore company).Such a legal entity may be 100% owned by a foreigner, and its activities are regulated by the rules of its jurisdiction. An appropriate license (service license for the provision of services, trade license for trade, etc.) is required for the operation of such a company; this document is issued by the authorized body of a free zone during the registration process. A company in a free zone can conduct its activities both in the territory of its jurisdiction in the UAE and in the international arena. There is everything necessary for normal operation here – offices and other premises for rent, access to the banking system, transport, and energy resources, the ability to hire staff. True, there are some restrictions on working in the domestic market of the UAE. Thus, an onshore company cannot work directly with local customers in the Emirates, for this one needs either to find a local representative in Dubai or register a legal entity outside the free zone. An onshore company gives the investor and his family members the right to obtain a resident visa in the Emirates.
Offshore company (International business company) in the UAE.Three free zones (JAFZA in Dubai, RAK FTZ in Ras Al Khaimah, and Ajman Free Zone in the Emirate of Ajman) register offshore companies in the UAE. Such a legal entity, unlike a company in a free zone, is not a tax resident of the UAE; therefore, it has restrictions on working in the country, but there are no obstacles to conducting international operations. It can open an account with a local bank in Dubai (not all), there are also no restrictions on the withdrawal of capital for this company and is not taxed at all (for example, it does not pay 5% VAT). Such a legal entity does not require a license, and the costs of its registration and maintenance are even lower than for onshore, while the requirements for authorized capital are purely symbolic (from 1 to 1000 AED). An offshore company cannot rent an office in the Emirates and does not give the right to obtain a residence visa to its owners and employees.
Local company (outside a free zone) in the UAE.Registration of such a company is required for conducting commercial activities directly throughout the UAE; besides, such a legal entity can apply for contracts with state customers. For companies registered outside free economic zones, there is a legislative requirement according to which a foreign citizen can own no more than 49% of a legal entity; the remaining 51% must belong to a citizen of the Emirates. In practice, most of the activities can be carried out from the free economic zones of the Emirates, and only for certain types of activities, such a company will be indispensable.
Branch of a foreign company.Branches are not separate entities but are considered as an extension of a foreign legal entity that remains responsible for their activities. A branch can participate in commercial activities in the UAE and make a profit. After registration, a branch receives a license, which indicates the types of its activities (they must fully comply with the activities carried out by a parent foreign company in home jurisdiction). Branches operate based on commercial registration and a license in the name of a foreign legal entity, and they must appoint a local service agent who must be a citizen of Dubai or a company wholly owned by UAE citizens. A local service agent is required to represent the interests of a legal entity in state institutions; it does not interfere in the activities of a branch. Unlike other forms of business registration, there is no requirement for authorized capital for branches. Therefore, opening a branch in Dubai can be a good alternative to registering a new legal entity to ensure a regional presence.
As practice shows, the optimal solution in terms of the ratio of costs and opportunities is to open a company in the free zone (onshore) of the UAE. Doing business from this territory solves most of the tasks – you get access to the local infrastructure, almost complete absence of taxes, full control over your business, limited access to the local market, simple, fast and cheap registration process, resident visas and all this for a relatively a small amount. Even when opening a specialized business, such as a university, it is possible to register it in the Dubai Economic Village Free Economic Zone, where 100% foreign ownership is possible. The same applies, for example, to the hospital, which can be opened in the Dubai Free Zone (Dubai Health Care City).
Why use the company in the Emirates?
Here we consider the most common cases when registering a business in the UAE can be a very effective solution.
Business development in the Emirates (and in the region).This is logical and obvious because the UAE is a very fast-growing and promising market (just in 50 years the population has grown from 100,000 to almost 10 million), which, combined with a simplified procedure for registering a company in Dubai, the absence of taxes and simplified bureaucratic procedures, makes business opening here very promising. The scope of such a company in the Emirates can be any: production and assembly, processing, storage, logistics, trade, all types of services, etc. The advantage of such a company, compared with a local company in the UAE outside the free zones, is that you are a 100% owner of the company, and therefore all assets are completely under your control. Reasonable costs for attracting labor, the availability of all necessary logistics facilities, as well as ideal banking services and the possibility of registration within a few days, are at your service.
Obtaining a residence visa in the UAE.If you and your family need Dubai resident visas, opening a company in the UAE's free zone is a quick and profitable solution. If you register such a company, you will receive the right to get a resident visa for yourself, your family members, and the people you hire. Whether you will use this company to conduct business after registration is completed or not, this is solely your decision, since there are no such requirements for a further visa extension. Therefore, a legal entity can both conduct active activities in the Emirates, and abroad, and not carry it out at all.
Tax optimization and asset protection.Corporate tax at 0% for foreign entrepreneurs. Sounds tempting, right? Transferring even part of your business to this jurisdiction will significantly reduce the tax burden. Besides, it should be noted that the UAE has signed a number of double tax treaties with nearly 80 countries (a full list of countries with which the UAE has a double tax treaty is available on the official website of the UAE Ministry of Finance). After completion of the registration process and a year of work in the market, an onshore company can obtain a certificate of a tax resident of the UAE. There is no corruption, such phenomena as raiding, illegal business seizure, etc. are absent here, besides local banks are not worse than Swiss banks in terms of reliability. In a word, – your business is safe in Dubai.
Company registration for holding and management activities in the UAE.Another very useful feature of companies in the free zones of the Emirates is the possibility of holding activities. Large holdings should consider this option since such activities can be carried out by a company in a free zone. Compared to an offshore company, a holding company registered in the main territory of the UAE can have a physical office and hire employees. It can also get a tax resident certificate.
Consulting or any other type of service.Just like offshore legal entities, companies registered in the territory of free economic zones can provide various consulting and other services. The difference from an offshore company, in this case, lies in the possibility of carrying out such activities directly on the territory of Dubai, being a 100% owner of the company.
Whatever your goal in registering a company in Dubai, UAE is, in any case, it gives you lots of different opportunities and advantages.
The process of registering a company in the UAE – key points
Now let's look at the process of registering companies of various types in the UAE.
Step 1. Develop a clear business plan for a company in the UAE.
It is important to clearly define the type of activity and geography of interests (with potential expansion) at the very beginning. The process of registering a business in the Emirates has certain features from the point of view of licensing and the territory allowed for carrying out activities – a company must choose what activities it plans to carry out in order to obtain an appropriate license. If, at this stage, you do not take into account your prospects in the future, redomicilation in the future will be quite a troublesome task for you, and in some cases, completely impossible. We advise you to take the help of our professional consultants to help you make the right choice.
Stage 2. Choose jurisdiction to open your company in the Emirates.
Clearly understanding the future field of activity, we can proceed to the choice of jurisdiction for registration in the UAE. This may be a free zone (one of), or the main territory of the Emirate. In any case, there are pros and cons in terms of location, infrastructure, available licenses, special requirements, registration procedures, and the cost of opening a company in the Emirates. Here you also need to consider the visas that you will need to transfer your family and hired employees to the UAE. IMPORTANT! Offshore companies do not give the right to obtain resident visas.
Stage 3. Prepare the packet of documents for starting a business and filing an application.
The set of documents that must be prepared for opening a company in Dubai depends on the place of registration and the type of legal entity.
When deciding on a company name, as a rule, it is worth choosing a name associated with the company’s activities. During the registration of a company, the UAE authorities check whether the name you have chosen is free and does not contradict the current rules for company names.
Having collected all the necessary documents for starting a business in the Emirates, contact the registration service in the jurisdiction where you plan to register your company. You can deal with all registration issues by yourself, or you can entrust this process to our consultants who are well versed in all the features of local legislation. In the case of an offshore company, you definitely need a trusted partner in the UAE through which your interaction with local authorities is carried out.
Stage 4. Rent of office and other premises.
Each individual UAE jurisdiction has a specific set of rules regarding premises that companies can and/or must use in their activities. Some offer virtual office services; others require physical space for registration, indicating the required minimum sizes. As for an offshore company in the Emirates, only a virtual office option is possible – Smart-desk.
Stage 5. Obtaining a license.
All types of companies in the UAE, except offshore, require a license. The license is issued in the registration process for a period of one year with the possibility of renewal, and it indicates those types of activities that are allowed for a company. The cheapest and easiest option is a free zone trade license for 5 types of goods. A service or industrial license is more expensive.
Step 6. Opening a bank account.
Some types of companies in the free economic zones of the Emirates require payment of share capital as a part of the registration procedure; others do not. In the first case, an account for the company should be opened already during the process of establishing a company in the UAE, and the necessary amount has to be paid in advance. In the second case, when the share capital is not required, a company can apply for opening a bank account after completion of the procedure for registering a company. IMPORTANT! Not all banks work with offshore companies; there are no restrictions on other types of legal entities.
How can I register a company in the UAE?
When you consider starting a business in Dubai (or any other UAE Emirate), you have two possible ways – to collect all the necessary information and documents by yourself, apply and contact the administration of the free zone, or entrust all this to consultants from an accredited consulting company. In the first case, you can save on the cost of consulting services (starting from $2,500, depending on the type of company and jurisdiction), but most likely spend much more time, and what is even worse, you may make mistakes. In the second case, you will receive a guaranteed solution for a fixed fee.
How can I establish a company in a free zone in the Emirates?
In order to register a business here, you must collect and submit a package of documents, obtain an appropriate license, open a bank account, rent an office or other premises, and obtain a residence visa. Throughout the process, you are in contact with the administration of a free zone, or with your consultant.
What is the best free zone in the UAE?
There is no single answer to this question. It depends on your tasks and interests. There are free zones focused on the development of a certain area; for example, Dubai Knowledge Village, others do not have a specific specialization. In Dubai, your company will cost you more, but the opportunities are better. In any case, the choice of jurisdiction for registration is an individual matter.
What is a virtual office in the UAE?
Any company in the UAE must have its own address, but offshore legal entities cannot rent offices, so they rent a smart desk (virtual office). All communication of an administration of a free zone and an offshore company owner goes through such office.
How much does a virtual office in the Emirates cost?
As a rule, the cost of renting such an office in the Emirates starts at $2,500 per year and is included in the cost of registering a company in a free zone.
How can I open a business in Abu Dhabi, UAE?
To do this, select the appropriate jurisdiction (free zone, or the main territory) and either collect and submit all the necessary documents and solve organizational issues, or entrust this to a business consulting company
Which business is better to register in Dubai, UAE?
There is no definite answer about what is best for registration. The authorities of the Emirate make every possible effort to develop all the sectors of the economy without exception – industry and trade, agriculture and IT, medicine, tourism, etc. Here you will find excellent conditions for any business.
If you have any questions about registering a company in the UAE, you can contact our consultants; we will help you find the best solution for you.