The UAE is a prospering Country with a high standard of living which makes it an ideal location for starting and growing a business. Located in a strategic trade gateway linking Companies to the fast-growing markets of the Middle East and beyond, the UAE is a dynamic and diverse economy with easy access to the rest of the world.
With a population of 9.4 million, approximatley 12% are considered Emirati Citizens with the remaining 88% expatriates one can see that the UAE is home to many foreigners who reside and do business within this region. Although not the capital of the UAE, Dubai is certainly well-known as the business capital of the Middle East and has become the most popular city for foreign visitors, entrepreneurs and investors alike.
Among the many reasons to make a base in the UAE and invest in this economy are as follows:-
• The UAE is strategically located between Europe, Asia and Africa and attracts approximately 5 million investors and tourists on an annual basis.
• The UAE connects two-thirds of the World's population and you can access 65% of the global GDP within an 8-hour flight radius.
• More than 200 nationalities and cultures call the UAE home, creating natural vibrancy and globalization.
• The UAE is well serviced by international and local financing and banking institutions.
• The UAE is home to some of the World's leading brands such as Pepsi, Duracell, Bulgari, Electrolux, Daewoo and hundreds more.
• There is an advanced educational system in place suited to the full spectrum of cultures and languages, including an array of public and private schools serving Emiratis and expatriates alike.
• The UAE has a World class integrated healthcare system that ensures excellent standards of treatment, resulting in a globally recognized destination for medical care.
A Free Zone is a geographical area in which business can be conducted without the taxes or restrictions normally applied to foreign businesses. It is an area where goods can be cleared, handled, manufactured or reconfigured, and re-exported without payment of customs duties and import and export taxes- thus, being located in a Free Zone provides vast advantages for trade.
A Free Zone entity can be owned 100% by a foreign individual or Company without the need for Emirati presence (with certain restrictions to this rule, such as if your business is a real estate agency or pharamacy, as examples). In these instances for example, we will need to Dubai Health Authority and Real Estate Regulatory Authority will require the presence of a 100% UAE National (Emirati) Shareholder in order to issue the required approvals. For many trading and service-related companies however, the process is straight-forward and the vast majority of these can set-up in a Free Zone across Dubai and the UAE without any restrictions.
As a Company operating in a Free Zone you also have the benefit of 100% repatriation of revenue and profits back to your home Country which is of most importance to foreign investors and business owners in the region.
The UAE has approximately 50 Free Zones across it’s seven Emirates (Abu Dhabi, Dubai, Sharjah, Fujairah, Ajman, Ras al-Khaimah and Umm al-Quwain)- each able to provide you with a business license and a legal address, and other benefits dependent on the package that you choose.
Free Zone’s were designed to encourage foreign investment to the UAE providing an easier start-up process as well as labour and immigration procedures with most importantly, 100% ownership for any nationality. Each Free Zone has its own Authority which governs that particular and thus, comes with its own and Rules & Regulations however, fundamentally all Free Zone’s operate via the same core regulations and values.
As a Company operating in a Free Zone you also have the benefit of 100% repatriation of revenue and profits, back to your home Country which is of most importance to foreign investors and business owners in the region.
In terms of trading, Free Zone companies have the freedom to trade with other companies licensed in the same Free Zone, and anywhere overseas. In terms of the physical trade of products within Dubai and the wider UAE however, it is important to note that Free Zone Companies are not permitted to trade directly and therefore must appoint a local distributor to sell products on their behalf into the local market. If selling products into the local UAE market is of interest to you, then it would be advisable to open a LLC Company via Dubai’s Economic Department in order to have the freedom to trade as required.
Companies licensed by Dubai’s Economic Department are commonly referred to as “mainland” companies. Mainland, because they fall outside the geographical area of the many Free-Zones around us in Dubai. Companies licensed by DED have full flexibility in terms of trade, and it is for this reason that setting up a mainland company has stricter requirements than the Free Zone Authorities enforce- most commonly that an LLC Company must be 51% owned by a local Emirati individual, with the remaining 49% owned by the corporate or individual ex-patriate(s).
A Professional License on the other hand is a Civil Company catering to professionals in recognized fields such as Doctors, Lawyers, Engineers and Accountants. This type of Company can only practice professional business activities and is 100% owned by it’s professional partners. Although professional licenses do not require 51% Emirati ownership of the business- they do require Emirati representation in the form of a “local Emirati sponsor”- often referred to in the UAE as a NSA, short for "National Service Agent". The local Emirati sponsor however will have no equity participation or liability to the business whatsoever, nor can he or she represent the Company or participate in its management and decision making.
Branch of a Foreign Entity
Similarly, setting up a Branch office is also an attractive prospect for foreign companies as these remain 100% foreign owned, on the basis that a local sponsor is appointed as outlined above. Local sponsors are paid an annual fee for their contribution to your business and are also commonly referred to as NSA’s (National Service Agents) here in the UAE.
A Branch office in Dubai is an extension of a foreign parent company registered outside of the UAE and is classed as a fully-fledged business, permitted to perform contracts or conduct other activities as specified on its license. A foreign Branch office may only be engaged in activities similar to those of its parent as under Commercial Companies Act No 8 of 1984 and Ministerial Decision Number 69 of 1989, a Branch office of a foreign company does not have a separate entity. It clearly represents the parent company and carries on business under its name. The purpose of the Branch office is to promote and market the products of the parent company, enter into transactions and conclude agreements in the name of the parent company, and offer services to its customers. A Branch Company is not allowed to partake any activities in which its parent company is not already licensed to perform.
Note that a foreign Branch is required to deposit a refundable bank guarantee of AED 50,000 for the duration of your license’s lifetime which cannot be withdrawn or used as working capital.
On the other hand, if you are a trading Company and the idea of 51% of your business being owned by a local Emirati does not appeal to you, you have the option to incorporate a “trade representative office”. This type of representation simply permits exposure in the UAE market which is useful for foreign companies to introduce it’s products to UAE companies. This type of set-up cannot export, import or sell products in the UAE and may only practice only promotional business for the products and services provided by it's parent company.
In either case, the revenue of the Branch will be taxable in the country where the relevant foreign parent is resident, and profits classed as the income of the foreign parent. Thus, in order to benefit from the tax restrictions here in the UAE, it would be advisable to set up as a subsidiary, perhaps even in a Free Zone where 100% ownership of your business is permitted.
We are happy to provide you with a free consultation to go over any questions you may have in relation to DED company set-up services.
Please contact one of our specialised Business Set-Up Consultants to learn more via email at email@example.com.
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