UAE’s continuous economic growth has turned it into a land of infinite business opportunities for foreign and local investors. Setting up a business in the UAE requires a great deal of planning, understanding and knowledge of its business structure, laws and regulations, targeted industry and the way business is conducted in the region. There are a number of different businesses and each business works differently, has its own set of pros and cons, and its own set of competitors. Before taking the plunge to setup business in UAE, it is imperative that knowledge is obtained beforehand to avoid any problems and conflicts later on.
If a foreign investor wants to setup business in UAE, there are five different kinds of businesses:
- Branch office
- Civil company
- Permanent company formation
- Company formation in UAE’s free zone
- Commercial agency agreement
According to UAE’s Commercial Companies Law, any new foreign entity in the UAE must have a minimum of one UAE national partner who will have a minimum of 51% of the entity’s capital. However, some companies like those working in the oil sector which have concession agreements, those working in the electricity and gas, oil and gas, transmission and distribution and water treatment sectors, and those operating in one of the free zones are exempt from this requirement.
A branch office is an independent business allowed to conduct a number of activities that are sanctioned by the Department of Economic Development of the relevant Emirate. It does business under its parent company’s name and enjoys the same legal identity.
A civil company conducts business as a sole trader under a license and can be setup in Sharjah and Dubai, but not in Abu Dhabi. A civil company typically does not participate in trade activities like buying and selling commodities, finance, banking, transport, contracting, etc., but is used by professions and
There are seven types of permanent establishments:
- General partnership: Only UAE nationals can enter into a general partnership, and they are both liable for any company accountabilities.
- Joint partnership: In this partnership, the business is in the name of one of the owners and the partners (two or more) share the profits and losses of the business.
- Limited partnership: This kind of partnership has an active and inactive partner. The active partner is accountable for the partnership’s liabilities which includes their assets and looks after the company, while the inactive partner is accountable only for his/her assets and is not part of the everyday company activities.
- Share limited partnership: This partnership requires a minimum of AED 500,000, comprises general partners (has to be a UAE national) and participating partners.
- Private joint stock Company: This partnership requires at least three partners and a capital requirement of, at least, AED 2 million, shares are not publicly subscribed. This partnership may become a public joint stock company if certain criteria is met.
- Public joint stock Company: This partnership requires at least 10 partners and a capital requirement of, at least, AED 10 million. The capital in this partnership is divided into equal value publicly subscribed negotiable shares or any company in which a UAE public body holds any share capital. Insurance, banking and investment companies are good examples.
- Limited liability Company: This company comprises 50 partners maximum and two partners minimum. All partners are accountable for his/her share participation in the company’s capital. Minimum share capital depends on an agreement by the relevant Emirates Department of Economic Development.
In a free zone business setup in the UAE, the owner has 100% company and capital ownership, enjoys different or decreased tariffs and quotas and does not need a sponsor. However, in the free zone, the entity will not directly be able to conduct business in the local UAE market, must stay within the free zone area and conduct only those undertakings registered in their business license.
The free zones provide licenses that include:
- General Trading License
- Trading License
- Industrial License
- Service License
- National Industrial License
Commercial Agency Agreement
In a commercial agency agreement, the foreign entity must be represented by an agent of the UAE and can undertake activities like selling, distributing, providing services or goods inside the UAE for profit/commission. The agent has to be a 100% UAE national owned company or a UAE national, has to be enlisted with the Ministry of Economy and will receive product sales commission in the chosen Emirati area, unless otherwise decided in writing amongst the agent and foreign entity.
Another business option is to setup business in UAE in the form of an onshore company formation. This type of business set up involves protecting the owner’s assets without any local trade.