The legal procedure for business incorporation in Uae can be found under the Federal Commercial Company Law No. 8 of 1984 . The law was promulgated in 1984 and implemented in full in early 1993.
Under the Commercial Companies Law, Federal Law No. 8 of 1984, UAE nationals must own a minimum of 51% of all public and private shareholding companies and limited liability companies. In practice, many public and private shareholding companies, especially those engaged in insurance and banking, are expected to be wholly owned by UAE nationals, and defines seven categories of business organisation, which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.
The various categories of business organisation defined by the law are:
The Commercial Agencies Law restricts commercial agencies to UAE nationals or companies owned wholly by UAE nationals.
The law stipulates that companies engaging in banking, insurance or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, however, can establish a presence in Dubai by opening a branch or representative office.
Shareholding companies are suitable primarily for large projects or operations, since the minimum capital required is AED 10 million (US$ 2.725 million) for a public company, and AED 2 million (US$ 0.545 million) for a private shareholding company. The chairman and a majority of directors must be UAE nationals and there is less flexibility of profit distribution than is permissible in the case of limited liability companies.
A popular, and frequently, the most appropriate method of establishing a business in the UAE by foreign investors is to form a Limited Liability Company (LLC).
A Limited Liability Company can be formed by a minimum of two and a maximum of fifty persons whose liability is limited to their shares in the company’s capital. Such companies are recognised as offering a suitable structure for organizations interested in developing a long-term relationship in the local market.
The legal minimum share capital is AED 150,000. However, in Dubai, the minimum capital is currently AED 300,000 contributed in cash or in kind. While foreign equity in the company may not exceed 49%, profit and loss distribution can be prescribed. Responsibility for the management of a Limited Liability Company can be vested in the foreign or national partners or a third party.
No LLC may engage in insurance or banking or investment of money on behalf of others. The names and holdings of all shareholders are a matter of public record.
A General Partnership is formed by two or more UAE nationals who are jointly and severally liable for the partnership’s debts. No names other than those of the actual partners may be included in a partnership’s name.
A partnership interest may be transferred only with the approval of all partners or in accordance with conditions stated in the partnership agreement. The management of the partnership must rest with one or more managers who must be natural persons and who may or may not be partners.
A partnership is dissolved on the death, insanity, bankruptcy or withdrawal of one of its partners, unless the remaining partners decide unanimously to continue the partnership and their decision is registered in the commercial register.
A limited partnership comprises one or more general partners who are jointly and severally liable for the partnership’s debts and one or more limited partners whose liability for the partnership’s debts is limited to their contribution to the partnership’s capital. No minimum capital contribution is required by the law. All general partners must be UAE nationals. A limited partner may not participate in the management or act in the name of the partnership. The death, insanity, bankruptcy, withdrawal or dismissal of a limited partner does not result in the dissolution of the partnership unless otherwise provided in the partnership agreement.
A partnership limited by shares is a company that has both general partners with unlimited liability and partners whose liability is limited by the value of the share capital for which they have subscribed. The company must have a minimum capital of AED 500,000. General partners in partnerships limited by shares must be UAE nationals. An annual audit is required.
A joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be prescribed. There is no need to license the joint venture or publish the agreement. The foreign partner deals with third parties under the name of the local partner who - unless the agreement is publicised - bears all liability. In practice, joint ventures are seen as offering a suitable structure for companies working together on specific projects.
A very popular way for foreign companies to benefit from 100% foreign ownership is to open a branch office of the parent company. A branch office is legally regarded as part of its parent company and does not have a separate legal identity from that of its parent company. Therefore, the name of the branch office will be the same as that of the parent company.
Branch offices are nevertheless required to have a UAE national as a service agent. Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local service agents (which should not be confused with the term “commercial agent”). Local agents are not involved in the operations of the company but assist in obtaining visas, labour cards, etc and are paid a lump sum and/or a percentage of profits or turnover.
One of the conditions for establishing a branch office in the UAE is that it may only be engaged in activities similar to those of the parent company. It is important to note that a branch office is permitted to carry on the business of importing products of its parent company, provided that the parent company is involved in the manufacture of such products.
A representative office of a foreign company is legally distinct from the branch office in that the former is only allowed to promote its parent company’s activities. Therefore, if a parent company deals in the sale and / or production of certain products, if it opens a representative office in the UAE, the office will only be able to promote the sale or production of such products and facilitate contacts in the UAE, as distinct from a branch office, which can conduct their sale or production itself.
In addition to the above limitations, representative offices have other restrictions in that they are not allowed to obtain credit facilities or put forward offers.
As in the case of a branch office, it is necessary when establishing a representative office to appoint a local service agent.
In setting up a professional firm, 100% foreign ownership, sole proprietorships or civil companies are permitted. Such firms may engage in professional or artisan activities but the number of staff members that may be employed is limited. A UAE national must be appointed as local service agent but he has no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover. The role of the local service agent is to assist in obtaining licenses, visas, labour cards, etc.
A business must be registered with the municipality or the relevant Economic Department and the Chamber of Commerce of each Emirate in which activities of the business are conducted, and with the ministry of Economy and Commerce. In addition, the following businesses require approval from the specified federal ministries and agencies:
Special procedures apply in each Emirate regarding registration of businesses engaged in oil and gas production and related industries.
The requirements for registering a company, including the time required, fees payable, number of shareholders and minimum capital depend on the particular type of business entity being established.
All companies must renew their registration with the Ministry of Economy, Municipality or Economic Department and the Chamber of Commerce annually. Registration fees are levied and vary according to the type of entity being registered and the government authority concerned.
Companies engaged in the oil, gas and petrochemical sector and banks are the only entities required to file tax returns. However, the following businesses must have their accounts audited annually:
The basic requirement to conduct business activity in the UAE is to obtain one of the following three categories of licenses:
Are the licenses under which the natural or juridical person is licensed to practice any trade activity for the purpose of profit making through buying and selling of goods and services. These licenses are given to (for example) wholesale or retail trade enterprises, financial consulting offices, banks, insurance companies, contractors, hotels, transport and storing establishments.
Are the licenses under which the natural or juridical person is licensed to practice any investment activity the object of which is to discover natural resources or to transform raw materials in terms of its structure or appearance into manufactured or semi- manufactured products, or to transform the semi-manufactured products into fully manufactured products by using mechanical power, and segregate the products, filling, assembling or packing them.
Are the licenses under which the natural or juridical person is licensed to practice any profession in which he depends on his physical or mental efforts rather than depending on a cash capital. This license is given to practice some professions such as auditing, consultancy services and studies, business, medical and educational services as well as other personal services.
These licenses are all issued by the Economic Department or similar nominated Department of the respective Emirate. However, licenses for some categories of business require approval from certain ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; pharmaceutical and medical products from the Ministry of Health.
More detailed procedures apply to businesses engaged in oil or gas production and related industries.
Practising some trade activities (e.g. jewellery and insurance) requires the submission of a financial guarantee issued by a bank operating in the UAE.
Licensing procedures for business projects involve the following:
Suitable for the business project as per the type of business activity, which will be practiced, the amount of invested capital and other important considerations already referred to in this section in the light of which the firm’s deed is prepared, signed by the concerned parties and attested by the Notary Public.
This applies to certain activities, which require obtaining special approvals from some competent authorities. If the required activity is conducting ordinary business, procedure of licensing may be started without the need for obtaining any such special approval.
The applicant, whether an individual or representative of a company under incorporation, shall submit to the Department of Economic Development the application duly filled in with all the particulars indicated in the required forms. The necessary documents should also be attached to the application as per the legal form to be assumed by the firm. The procedure in the Department involves a lot of measures, which may be summarized as follows:
Receipt of the application, checking of the same, initial approval, preparation of business site, technical inspection, checking and fees payment. The applicant shall then be given two sealed copies of the license, one to be used for inscription in the Commercial Register and the other for registration with the Dubai Chamber of Commerce & Industry.
Articles 2 & 5 of Federal Law No. 5 of 1975 concerning the Commercial Register stipulate that every merchant, branch manager, managers of commercial companies and the agents of foreign companies must inscribe their companies in the Commercial Register in accordance with the terms and conditions determined by the law.
Here is a statement of the types of activities, which must be inscribed in the Register and those, which are not subject to this inscription.
These are the companies which practice business activities such as agricultural works, fishing, discovery of natural resources, industry related activities, activities related to electricity production, gas and water, construction, building and contracting activities, wholesale and retail traders, supermarkets, department stores, trade related services, machines and equipment hiring, hotels, showrooms, transport, storage and communication, finance, insurance and real estate.
These are the firms which practice professional activities such as services, legal consultants, accountants, engineering, architectural and technical consultants, administrative and economic services and consultations, other services such as photocopying, translation, shorthand, advertising, companies management, secretarial, exhibition organizers, public cleaning services, social services, education and social welfare, medical and health services, veterinary services, cultural and recreational services as well as personal and domestic services.
Establishing a business entity in one of the UAE’s Free Trade Zones (FTZs) can be an attractive option for foreign investors. To date the free zones have been successful in attracting a large number of companies and foreign direct investment, as well as expanding net non-oil exports.
The UAE free zones have been among the strong pillars of the country’s economic performance attracting much foreign investments, creating thousands of jobs, and facilitating the needed technology transfer of technology into the country. Together, the free zones account for more than half of the country’s non-oil exports and underpin the UAE’s ranking as the third most important re-export centre in the world.
The major advantages in setting up in a free zone include:
100% foreign ownership
100% tax exemption
Quick approval procedures
Full repatriation of capital & profits
Abundant & inexpensive energy.
An independent Free Zone Authority (FZA) governs each free zone, and is the agency responsible for issuing FTZ operating licenses and assisting companies with establishing their business in the FTZ.
Investors can either register a new company in the form of a Free Zone Establishment (FZE) / Free Zone Company (FZCO) or simply establish a branch or representative office of their existing or parent company based within the UAE or abroad. An FZE is a limited liability establishment, incorporated in a Free Zone, owned by one natural or juridical person, whereas an FZCO is a limited liability company incorporated in a Free Zone by more than one shareholder, generally up to five. FZE/FZCOs are governed by the rules and regulations of the Free Zone in which they are established. There is a minimum capital requirement for an FZE/FZCO ranging from AED 150,000 to AED 1,000,000 depending upon the selected Free Zone. Under Federal Law No. 15 of 1998, except for acquiring nationality in the UAE, the provisions of the Commercial Company Law do not apply to FZEs / FZCOs, provided that the Free Zones have special provisions regulating such companies.
Once a legal presence has been established in the Free Zone, the business will need to lease premises or land and acquire an operating license from the FZA. Different types of licenses apply in the different types of free zones, however, in general companies with trade and industrial licenses can only conduct business within the Free Zone or abroad. To sell their products in the UAE, a UAE official agent is required. Services and products can be obtained from and within the UAE without an agent.
Other types of license available are service licenses (e.g. banking, insurance, air shipment etc) and national industrial licenses. For the former the services offered must be the same as those stipulated in the parent company’s license in the UAE or abroad. The share capital of a company applying for a national industrial license must be at least 51% GCC and 40 % of the sale value of the product must be value-added in the UAE.
These licenses can be renewed annually as long as a lease agreement is in force with the FTZ.
The procedures for establishing a business in any Free Trade Zone are a specialized process. An investor is required to fill out a questionnaire from the relevant Free Zone Authority, which will assist in assessing the company’s requirements.
Having submitted the questionnaire, the authorities will give a license application, planning documents, and a consumer request for electricity. Provisional approval is given along with a specimen lease agreement. After the company representative and the authority have met and finalized details of the project, the actual documents, which will include company or personal details, are speedily processed.
Given hereunder is a synopsis of some of the Free Zones in the UAE along with their unique characteristics:
Given hereunder are the various Free Zones established in the Emirate of DubaEmirate of Dubai:
1. Jebel Ali Free Zone
2. Dubai Cars & Automotive Zone
3. Gold & Diamond Park
4. Techno Park
5. Dubai Internet City - Tecom
6. Dubai Media City - Tecom
7. Dubai Studio City - Tecom
8. Int’l Media Production Zone - Tecom
9. Knowledge Village - Tecom
10. Dubai International Academic City - Tecom
11. Dubai Outsource Zone - Tecom
12. Energy & Environment Park - Tecom
13. Dubai Biotechnology & Research Park - Tecom
14. Dubai Multi Commodities Center
15. Jumeirah Lake Towers
16. Dubai Flower City
17. Dubai Airport Free Zone
18. Dubai Healthcare City
19. Dubai Silicon Oasis
20. Dubai International Financial Center
21. International Humanitarian City
22. Dubai Logistics City
23. Dubai Maritime City
24. Dubai Textile City
25. Heavy Equipment & Trucks City
26. Dubai Auto Parts City
Given hereunder are the various Free Zones established in the Emirate of Sharjah and the Northern Emirates:-
1. Sharjah Airport Free Zone
2. Hamriyah Free Zone
3. Ajman Free Zone
4. Fujairah Free Zone
5. Fujairah Media Zone / Creative City
6. Ahmed Bin Rashid Free Zone (UAQ)
7. Ras Al Khaimah Free Zone
8. Rak Media City (RAKIA)
Given hereunder are the various Free Zones established in the Emirate of Abu Dhabi:-
1. Abu Dhabi Airport Free Zone
2. Free Trade and Logistics Zone (Taweelah)
3.Two Four 54
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