Offshore vs Onshore Company
The 3 primary jurisdictions available to a foreign investor looking to start a business in Dubai or other emirates in UAE are the establishment of an ‘Onshore’ setup (also known as ‘Mainland’ UAE), free zone company formation or offshore business setup. These options offer different solutions for different business needs. Onshore and offshore entities can be defined as follows.
Onshore: Foreign businesses looking to work in Mainland UAE can operate by setting up a Limited Liability Company (LLC) or through a branch or representative office. It is mandatory for an LLC company to have a local shareholder with 51% shares.
Offshore establishment: Companies that want to conduct business internationally, but do not wish to engage in any business within UAE can opt for an offshore setup. These generally act as holding companies and do not carry out any commercial business. Offshore regulations in Jebel Ali Freezone and Ajman Freezone also allow ownership of freehold property onshore in selected areas. Some of the other important differences between onshore and offshore entities are as given below.
An onshore establishment is required to either buy or lease an office/building in the territory of United Arab Emirates. Establishment of a physical office is an important requirement for setting up an onshore corporation. According to the industry and corporate activities, companies are expected to meet a minimum office space requirement. On the other hand, an offshore company is not obliged to possess an office space within the UAE.
Depending on the size of a business corporation and the physical space occupied by their office, the UAE government can issue a UAE residence visa for onshore companies under specific provisions. This allows companies to bring their own employees from abroad as they do not necessarily need to hire local personnel. However, offshore businesses are not permitted residence visas as they essentially do not possess an office or a physical presence in the UAE.
Offshore establishments have a significantly lower cost structure than onshore businesses as a result of certain terms and trade agreements offered exclusively to offshore business setups. Since there are no restrictions on foreign currency and all corporate taxes are exempted, setting up offshore companies becomes economically viable. Furthermore, offshore company formation in Dubai are not obligated to include an Emirati national as a business partner which means they are entitled to 100% foreign ownership.
One of the big advantages of having an open economy is it allows the formation of a tax-free business environment. Both onshore and offshore businesses in UAE are not subjected to any sort of taxation. However, only onshore companies can benefit from any tax agreements signed between UAE and other countries.
Onshore companies are required to submit fiscal reports and undergo financial audits on a periodic basis, whereas an offshore company is exempted from any such procedures administered by the UAE government. Offshore businesses are provided with special privileges when it comes to financial reports and bank transactions.
Since there is no permanent presence of offshore companies in the UAE jurisdiction, they do not need a license to conduct business. Onshore companies are required by default to register a license specifying their business operations in the UAE.
How can IBG help?
IBG consulting middle-east is one of the leading business set up companies in UAE and offers versatile company formation solutions to businesses all around the globe. We provide customized solutions for business setup in Dubai and in other emirates of UAE in any of the available jurisdictions, including Onshore and Offshore. IBG Consulting will provide the right guidance and high-quality service with in-depth planning based on years of consulting and company formation experience in UAE.