EER Business Start-Up Services
Starting a company in the U.A.E
The U.A.E prides itself on nurturing an entrepreneurial spirit, and offering one of the most business-friendly environments in the region. It has good infrastructure and has fast become the region’s main transport and logistics hub. The U.A.E is geographically well placed. It is the middle ground between Europe and Asia, and is seen as the gateway to Africa. The rapid growth of the national flag carriers of Emirates and Etihad Airlines has helped enhance the U.A.E’s position, connecting it to more than 500 cities around the world.
These are just a few of the reasons why it has become a top destination for many multinational companies and startups. The low tax environment and all-year-round sun are added bonuses!
Here’s what you need to know:
Each Emirate in the United Arab Emirates (U.A.E) has its own rules in terms of setting up a corporate entity. It all comes down to your business objectives and shareholding structure as to whether you setup in mainland U.A.E, or in one of the many Free Zones. If you opt for a mainland U.A.E company the Department of Economic Development, or DED for short, will register your firm and provide you with a license. A new law, the Commercial Companies Law (CCL), aimed at modernizing the private sector, governs the establishing of commercial companies in the U.A.E. It offers more transparency than ever before.
Setting up an LLC
The main hurdle for foreign investors in setting up an LLC (Limited Liability Company) in the mainland U.A.E is the foreign ownership restrictions. There is a lot of pressure for this to be relaxed to encourage more investors to the country, but for now, the CCL states that a minimum of 51% must be registered to a U.A.E national. One safeguard is for the foreign investor and the U.A.E national to enter into a side agreement. This contract facilitates a legally binding relationship between the parties involved to protect the foreign investor to the maximum extent possible. One of the biggest advantages of an LLC in the mainland U.A.E is that there are no territorial restrictions on business activity, and no minimum capital requirement.
Dispelling the myth:
There is a misconception outside of the U.A.E that the country is tax free, this is not true. There is a tax regime, but it is not in effect. However, it is important to note that there is a 5% custom duty on all imports.
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One option to consider is setting up a branch of a foreign company. The advantage here is that the branch can carry out all the activities of the parent firm in mainland U.A.E with the exception of trading.
To do this you simply appoint a Local Service Agent (LSA). The stipulation is that the LSA has to be a U.A.E national. However, the position is purely procedural, unlike the role he/she would play in an LLC. In this instance the LSA has no interest or right in the business whatsoever. The LSA acts as the middleman between the foreign investor and the government (sorting out the paperwork, visas etc.)
You would be expected to pay the LSA an annual fee.
Free Zones provide a business-friendly environment with access to all the necessary services and amenities you would expect. Think of them like a one-stop shop to facilitate the establishment of your entity. They are considered distinct legal jurisdictions from the U.A.E government, operating under their own jurisdiction.
The main advantage for foreign investors is that most Free Zones offer the option for 100% foreign ownership. They also offer a guaranteed tax-free period for 50 years, and custom duties are waived if imported goods are for the use of the company. The added benefit is that there are zero restrictions on the repatriation of capital and profits! However, there are drawbacks to operating within a Free Zone.
You cannot conduct business outside of the boundaries of the Free Zone unless you appoint a mainland commercial agent. If you do this, you would have to pay duty on any imports.
Some Free Zones offer the option to setup an offshore company, but the companies can only act as a holding company – not as an operational entity.
There are several benefits to an offshore company though, including the ability to own property (in designated areas), there are no foreign ownership limitations, and no minimum share capital requirement.
The drawback is that an offshore company cannot sponsor any employees.