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Key issues in setting up a branch office or a subsidiary company in the UAE

Key issues in setting up a branch office or a subsidiary company in the UAE

The United Arab Emirates (UAE) are of particular interest for foreign companies due to the number of reasons. Here are the most significant of them: new market opportunities for entrepreneurs, favorable taxation, geographical advantages, convenient and reliable tax system, low administrative costs, etc.

When setting up a branch office in the UAE, you face a number of questions. This is mainly because of the specifics of the corporate law in UAE, stipulating the opportunity of registering different types of companies in different Emirates, often having distinct statuses and possibilities for permitted commercial activity.

Today, there are a huge number of companies present in the UAE from different countries each and every with its own specialization. A significant number of those companies are branch offices, daughter companies of foreign companies, and their number continues to grow year by year.

Often, there is a misconception about the requirement of a local partner with 51% shares involved in a local company in the UAE that is registered as a legal entity. That is not true in some cases since enterprises of some specific type can be registered with a full 100% participation by foreign shareholders. The local partner is required only in narrowly specialized areas. These areas are mostly regulated companies in such areas as tourism or real estate sector of the UAE.

Tasks of a branch subsidiary office in Dubai

By setting up a local office or a branch subsidiary in the UAE, a foreign company can solve several different tasks. They define the structure and type of registered company, which starts its activities in the UAE.

  • Representative. The UAE is one of the largest commercial centers in the GCC region, and if your interests are directed towards the Middle East, the Persian Gulf, and North Africa, the UAE offers the perfect combination of conditions and opportunities to promote your enterprise there.
  • Administrative. The developed infrastructure, good office space rental opportunities, and an abundance of qualified personnel make the UAE profitable to set up a local office for business administration.
  • Marketing. The UAE annually hosts hundreds of various international shows, conferences, forums, etc. There are very good opportunities for advertising and promotion of goods and services by foreign companies in the region.
  • Holding. A well-developed financial sector and ample opportunities for investment along with clear corporate legislation make the UAE a great place to set up holding companies.
  • Operating. As it was already noted, the UAE is a major commercial center in the region, they often organize various meetings, presentations, and other events here, so having an office that deals with such issues as negotiations and commercial promotion in the region is a great option.
  • Coordinating. The UAE has a very developed system of transport and traffic. This is primarily due to large ports and airports, which are located in all the Emirates. If you are involved in the logistics business or deliver goods to the Middle East or African countries, it’s very profitable to set up your office here; it can coordinate deliveries or carry out some other similar operations.
  • Functional. Not only offices and banks are located in the country, but production can also be developed (and this is encouraged by local authorities), large industrial sites, warehouses, and logistics hubs are within some of the free zones.
  • Financial. There are both local banks and offices of large international financial holdings in the country. The country provides excellent conditions for the development of the financial sector.
  • Other. Perhaps you have your own vision of functions which such an office can perform here. In any case, in the UAE, you will find everything you need – a tax-free environment, easy access to material and human resources, infrastructure and a simplified bureaucratic system.

Benefits of Opening Branch Offices of foreign companies in Dubai

Depending on your commercial model, there are several options on how to get your business to the UAE region. There are four main options: an onshore or offshore company in one of the free zones of the country, a local company outside the free zones, and a subsidiary of a foreign company in the UAE:

  • Local company (outside of free zones on a mainland);
  • Free Zone Company;
  • Offshore company (in a free zone);
  • Branch of a foreign company (both in a free zone and on the mainland).

Here are the main benefits of setting up a branch office of a foreign company in the UAE:

  1. Special tax regime. This is perhaps the most attractive feature of registering any form of enterprise, including a local office. The corporate tax rate for foreign companies in the UAE is 0%, income tax – 0%, capital gains tax – 0%. Besides, there are no restrictions on the repatriation of capital, no duties on the import and export of goods. All this makes the country a very attractive place for foreign business.
  2. Easy audit. When it comes to auditing of companies that operate internationally, the process is much more complicated. Creating such a form of a commercial structure will help to significantly simplify the tracking of all funds that pass between a head and a local office.
  3. No share capital requirements. Unlike individual legal entities (local companies and companies in free zones), subsidiaries are not required to have an authorized capital – this significantly reduces the amount of initial investment that has to be made to register a local office. So, the total cost of making a local office in the UAE, together with all associated costs and payment for the services of a consulting company, almost never exceeds 100,000 dirhams. (approximately $27,000).
  4. A cost-effective way to the UAE market. In case you incorporate a branch office there is no need for a separate financial structure in the company, it does not require audit reports on bank accounts, it does not require the presence of authorized capital, and all this will allow you to set up a regional presence in the market for relatively little money.
  5. Several shareholders. As a rule, the permissible number of shareholders in companies that register in the UAE does not exceed 50. A local office does not have such a restriction.

From the point of view of tax optimization and reporting of a parent company, a branch is a good solution for regional development and promotion in a foreign country. Having an office in another country is a simple and lawful solution in terms of taxation and tax optimization. And, once you have your completed office setting up process in the UAE, you do not pay any corporate taxes in the country.

Difference between a branch, a representative office, and a subsidiary in the UAE

Typically, most foreign investors consider only onshore and offshore company setup, and they do not take into account the opportunity to set up a subsidiary office in the UAE at all, but that is totally wrong!

So, let us consider several types of local representative companies and the meanings of these terms. What are the advantages and disadvantages of a local company, what is the difference between them, what are the benefits of a branch setup in the UAE?

  1. A branch is a regional office of the parent company, the main function of which is to promote business in the country and a regional presence. It is not a separate company but performs the same actions as the head office. A regional manager is a director of this structure, responsible for the work of a branch office; this person reports and receives instructions from the head office.
  2. Representative office. Such a structure is typically used for organizational and marketing tasks in the commercial promotion. The cost of organization and maintaining of such an office is much lower than a separate full-fledged company, but the benefits of a regional presence can be really great.
  3. Subsidiary. Unlike a branch, it is a separate company, although it is owned/controlled by the parent company (holding company). It has much more freedom in its activities. Such a structure can be engaged not only in those types of activities of a holding company; that is, it has much wider commercial capabilities in the region.

In some cases, a branch office is a much simpler, more cost-effective, and rational solution than to set up a separate company, such as a local company.

How to set up a local office in Dubai? Process, documents, costs, and other details

So, you want your foreign company to set up a branch office or consider setting up a local office in the UAE. How to set it up here? Starting a local office in the UAE is similar to the process of registering a new company but there are some nuances. First, you need to decide which type of corporate structure your local office in the UAE would have and where it would be registered. Then you need to get the list of requirements on the documents that must be prepared by your main company in order to set its local office in the UAE. Such documents must be legalized and translated into the Arabic language.

In order to set up a new branch office in the country, foreign investors must select the type of commercial activity for a legal entity and company name and contact the local authority for approval. Your application for a new company formation has to contain information about your business activities. Also, you have to confirm that you have a resolution from the parent company to establish a local office (board resolution). For the incorporation of a branch, it is also necessary to attach documents such as a certificate of incorporation, a memorandum and the articles of the parent company. The cost of setting up a branch office in this country depends on the chosen field of activity and place of registration within the UAE. As for the taxation, your local office in the UAE will be exempt from the UAE corporate tax, similar to any other company type in the UAE.

Process of opening a branch company in Dubai

So let us consider such a process of setting up a foreign company in the country:

1. Choose a local service agent to set up a subsidiary in the UAE. There must be a local service agent. This agent has to be a citizen of the UAE. This requirement does not apply to subsidiaries of foreign companies that are registered in free economic zones. The agent is not responsible for this office, does not take part in any operations, in management or ownership. Technically, the role of an agent is limited to several administrative functions, such as obtaining licenses, permits, visas, etc. in return for an annual fee.

2. Reserve a trade name and get initial approval for a branch office in the UAE. An application for reservation of a trade name and initial approval for a proposed local office is submitted to the Department of Economic Development (DED) of the chosen Emirate.

3. Appeal to the Ministry of Economy of the UAE. After initial approval, an application for a new company is submitted to the Ministry of Economy of the UAE. The application form must contain a description of a parent company and the nature of the proposed activities in the UAE. Along with the application form, certain documents must be submitted, which include the following:

  • Director’s and manager’s passport copies;
  • Trade name reservation and initial approval forms;
  • Certificate of Incorporation, or Memorandum of Association of a parent company;
  • Board resolution. This document authorizes starting a branch office;
  • Certificate of good standing;
  • Power of attorney in favor of a General Manager;
  • Audited bank accounts for the last two years (of a parent company);
  • A statement that highlights the goal of a branch, and its main operational activities;
  • Notarized agreement with a local agent.

After that, the Ministry of Economy approves an application. However, you still have to obtain a license and perform some other organizational operations.

4. Obtain a license in DED. The Ministry of Economy will issue a formal approval for the Department of Economic Development. When the Department of Economic Development receives this approval, an applicant must then submit an application to the Department of Economic Development. This will require documents similar to those submitted to the Ministry of Economy. After all the necessary checks, the Department of Economic Development will then issue a commercial license usually valid for 1 year, annually renewable.

5. Performing other administrative tasks when registering a branch office in the UAE. After obtaining a commercial license, a foreign company can take advantage of the proposed lease for office space, get access to the local banking system, obtain visas and labor cards for its employees.

6. Becoming a member of the Chamber of Commerce. The final step for the branch is to become a member of a local Chamber of Commerce. It is necessary to submit an application, provide copies of the commercial license and office lease agreement along with copies of passports of persons authorized to sign on behalf of a branch office.

Conclusion

Unlike local companies, which, may be only partially owned by a foreign citizen in some cases, a branch office will be entirely under your ownership, and the opportunities that you receive from such a structure may be astonishing for your enterprise, including the use of the advantages of the UAE corporate taxation and the presence in this region.

If you have questions regarding a subsidiary in the UAE, please contact our consultants, we will help you to open your office in this country.

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