How To Set Up A Business

In The UAE: A Guide

Index

1. An Overview of the UAE ............................................................................................ 4 5.2 Free Zones - An Abundance of Choice

1.1 Introduction 5.3 Establishing Offshore and International Business Companies
1.2 Seven Emirates 5.4 Joint Ventures
1.3 About the UAE Federal Constitution 5.5 Mergers and Acquisitions
5.6 Key Considerations
2. The Legal System Explained .................................................................................. 5
2.1 Legal and Regulatory Framework 6. Taxation Essentials ................................................................................... 21
2.2 Company Law 6.1 Corporate Tax
6.2 VAT
3. The Local Economy .................................................................................................... 7 6.3 Custom Duties
3.1 Physical Infrastructure 6.4 Municipal or Property Tax
3.2 Labour Force 6.5 Personal Taxes
3.3 Access to Financing 6.6 Obtaining a Tax Domicile Certificate for Companies
3.4 Corruption and Bureaucracy
3.5 The UAE’s Promising Future 7. Legal Information: Corporate and Commercial Key Points...... 23
7.1 Dispute Resolution
4. How to Establish a Business in the UAE from Overseas ............................. 10 7.2 DIFC Courts
4.1 UAE Company Advantages 7.3 Arbitration
4.2 What legal entity should you choose and where should you register? 7.4 Immigration
4.3 Trading through an Agent or Distributor 7.5 Real Estate

5. Setting up a Local Entity and Establishment ................................................... 13 8. About Europe Emirates Group ............................................................. 26
5.1 Mainland
a) Split Ownership
- Professional (Civil Companies)
- Commercial Companies
- One-Person LLC for Real Estate Brokerage Activities
- Local Branches and Representative Offices
b) National Agent Requirements
c) Procedure
Welcome To Europe Emirates
Group’s Guide To Doing
Business In The UAE
Positioned at the centre of the world,
the UAE is one of the globe’s most
connected countries.
The UAE has thrived on its East-West links over its nearly 50-year
history and lies at the heart of the Asia, Africa and India triangle.
Historically, its geographic location has facilitated secure con-
nections, business networking and access to trade. Today it
remains one of the world’s top places to do business.

In recent years, the government has introduced new corporate

law reforms to make the country even more business-friendly.
The changes include the formal recognition of holding compa-
nies and the simplification of the company registration process.

In this essential guide, Europe Emirates Group offers necessary

advice on all aspects of setting up a business, including company
laws, employment visas, accounting requirements and taxation
issues. These fundamental business aspects serve as the pillars
of setting up and developing your business hub in the UAE.

How To Set Up A Business In The UAE: A Guide 3

1. An Overview Of The UAE

1.1 Introduction 1.2 Seven Emirates

As thousands of new businesses are discovering each year, The UAE was formed in 1971 as a federation of seven emirates:
the UAE is the perfect gateway between East and West. It also Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and
happens to be the preferred hub for the region’s imports and Umm Al Quwain. Bestowed with a rich history of trading, this
exports market, and in turn, one of the world’s most lucrative. vibrant and multicultural country has continued its tradition
There are no profit repatriation restrictions, offering you by growing its international industries in areas such as tourism,
outstanding opportunities for your professional success aviation, shipping, energy and retail. The UAE has an estimated
and personal finances. population of 8.6 million, of which almost 80 per cent are ex-
patriates. In just over four decades, the country has successful-
The UAE is a participant in many free trade agreements that ly diversified its economy from hydrocarbon while focusing on
ensures that goods produced in the UAE are exportable without becoming a regional and global centre for business, trade and
customs fees. These include partnerships with fellow members finance. Arabic is the official language of the UAE, while English
of the Gulf Cooperation Council (GCC) and those agreements is widely spoken and used in business.
between the GCC and other countries such as the U.S.-GCC
Framework Agreement for Trade, Economic, Investment and
Technical Cooperation. Other noteworthy free trade agreements 1.3 About the UAE Federal Constitution
include the GAFTA with a group of fellow Arab nations and bi-
lateral accords with countries such as South Korea, the Nether- The UAE federal constitution provides the framework for the fed-
lands and India. They are exploring other agreements, including eration and is the basis of all legislation enacted at the federal and
with the European Union. The UAE also has signed avoidance of emirate level. The Emirati constitution dictates that the federal
double taxation treaties with more than 60 countries. government has exclusive jurisdiction in various substantive mat-
ters, including foreign policy, defence and security. However, the
Other benefits in regards to trade include mutual investment local government of each emirate is permitted to regulate any lo-
protection treaties and customs benefits for imports and re-ex- cal issues that are not subject to federal legislation. The respective
ports. For goods coming from any country in the GCC, the im- Emirati governments each retain considerable powers to control
porter only pays customs fees once, and when re-exporting their commercial activities, issue trade licenses and implement
products, you do not pay customs fees when storing goods the incorporation of corporate entities. Every Free Zone in the UAE
within the confines of a Free Zone. has its own set of regulations regarding these parameters.

How To Set Up A Business In The UAE: A Guide — 1. An Overview Of The UAE 4

2. The Legal System Explained

2.1 Legal and Regulatory Framework

The UAE has developed a robust and dynamic legal and regulato-
ry framework over a relatively short period of time to give interna-
tional businesses and investors significant comfort when decid-
ing to invest or conduct business in the UAE. The framework also
encourages local Emirati businesses to flourish in a well-regulat-
ed environment. Investment laws, regulations and incentives are
continuously improving to encourage further foreign investment.
This includes the introduction of foreign ownership of land and
stocks. Dubai became the first emirate within the UAE to open its
property market to foreign ownership, followed by Abu Dhabi.

The sources of UAE law for civil matters include: One area that we see Sharia law applied is in estate law
• The Constitution; upon a person’s sudden death if there is no will. If you are
• Federal laws and regulations; not a Muslim and do not have a will in place, your assets
• Emirate laws and regulations; would go into probate upon your passing and your assets
• Islamic Sharia Law could be distributed under Sharia tenants even if you are not
a Muslim. This is why legacy planning for non-Muslim expa-
triates in the United Arab Emirates is necessary. If you live in
When would Sharia Law apply in the UAE? Sharia Law applies Dubai or Ras Al Khaimah, you can plan for this by using the
in the following contexts in the Emirati legal system: array of services at the DIFC Wills Service Centre.
a) Religious, morality and personal law matters, particularly
involving Muslims. The federal government recognises and permits the con-
b) Being used by courts as an interpretative aid where there cept of freedom of contract except when these provisions
is no express legislation governing a particular question. may not fit under Emirati law (including Sharia law and pub-
c) Transactions that are intentionally expressed to be lic policy). This allows contractual counterparts to regulate
Sharia-compliant, such as banking transactions. their relationship as they choose.

How To Set Up A Business In The UAE: A Guide — 2. The Legal System Explained 5
2.2 Company Law Some of the main features of the new company law
include the following:
On December 4, 2011, the UAE Federal Cabinet approved a Company
Law that paved the way for more relaxed foreign ownership above the 1. The existing 49 per cent foreign ownership threshold
existing ceiling of 49 per cent in the future. In addition, the new law will remain; however, the new law permits the Cabinet
allows for a simplified process of starting a business in the UAE and to issue a separate resolution specifying the types of
strengthens the protection of shareholders. The new FDI law (Federal businesses that may be majority-owned by foreigners.
Decree-Law No. 19 of 2018 on Foreign Direct Investment) enacted
in 2018, has made the investment environment of the UAE more at- 2. It is expected that those enterprises that have majority
tractive as it establishes a framework and pathway towards enabling foreign ownership will initially be permitted only in busi-
100% foreign ownership of UAE Limited Liability Companies outside ness sectors in which the government seeks to increase
of the various UAE designated Free Zones. foreign direct investment.

3. The new law reportedly exempts from its application

public joint-stock companies wholly owned by a federal
or local government, and will likely focus on private
joint-stock companies and limited liability companies.

4. With respect to minimum capital requirements, the cur-

rent position remains unchanged as the new law will not
require new companies to have a minimum required
share capital and this has been the position under the
existing law since 2009.

5. One of the many aims of the new legislation is to re-

duce the length of time required to establish a company.
The new law is likely to increase stock subscription
amounts for raising capital for newly-established public
joint-stock companies.

How To Set Up A Business In The UAE: A Guide — 2. The Legal System Explained 6
3. The Local Economy

3.1 Physical Infrastructure for foreign workers. If your enterprise operates in the main-
land, however, there is a wage protection system (WPS) to
The UAE’s highly developed network of roads links all seven ensure the timely payment of wages.
emirates and is the primary means of business and leisure
transport. Each emirate also has thriving port facilities. Dubai
dominates the cargo and re-export markets owing to the size
and sophistication of its two ports, Port Rashid and Jebel Ali
Port. Despite being the second port in Dubai, Port Rashid
remains the busiest in the Gulf region with 35 berths.
The massive Jebel Ali facility has 63 berths and includes
an economic free zone.

Dubai government-owned Emirates is the Arab world’s largest

airline with more than 150 destinations and 271 aircraft in 2020,
with nine more planned. Abu Dhabi-owned carrier Etihad
Airways is expanding at a rapid pace and is currently among
the world’s fastest-growing airlines.

3.2 Labour Force Abu Dhabi is home to the Khalifa Port,

It is relatively easy and cost-effective to employ both Emirati
which has a Phase 1 capacity of 2.5
nationals and expatriates in the UAE. The country offers ex- million TEU containers and 12 million
cellent access to a skilled, experienced and cosmopolitan tonnes of general cargo a year. Khalifa
workforce. The governments from across the seven emirates Port is projected to have the capacity for
continue to invest heavily in training the national workforce
15 million TEU containers and 35 million
to play a more significant role as competitive members of the
Emirati economy. A corporation does not have to make any
tonnes of general cargo.
social security/pension payments because there are no taxes

How To Set Up A Business In The UAE: A Guide — 3. The Local Economy 7

3.3 Access to Financing run through blockchain. The move is estimated to result in in-
creased cost savings and other optimisations throughout the
Emirati banks are more active in lending to private enterprises process of working with government entities.
than their regional counterparts and offer a greater variety of
financial products and services. The cost of borrowing in the The UAE has also undertaken measures to reduce red tape
UAE is relatively low for companies looking to begin or expand surrounding foreign investment approval processes. Foreign
their operations in the Middle East. In the current climate of entities with proven experience even have access to govern-
weakened oil prices, the governments of the individual emirates ment tenders on the same conditions as Emirati-owned entities
are recognising the importance of supporting small and medi- when registering their branch in the UAE.
um-sized enterprises (SMEs) to help boost its non-oil economy.
Several ongoing financing and non-financing programmes have
been designed and implemented by Dubai SME, an agency un- 3.5 The UAE’s Promising Future
der the Dubai Department of Economic Development, tasked
with improving SME access to bank lending. One of Dubai The UAE’s favourable business environment, transparent
SME’s initiatives was establishing a rating system in 2017 that regulatory system and central geographic location give it
allows SMEs to receive loans more easily through a better qual- a competitive edge as a business destination on both a re-
ification of those enterprises. Private entities are also joining gional and global level. Dubai, in particular, has emerged as
efforts, such as the Emirates Development Bank (EDB) Credit a significant access point for foreign investments, with many
Guarantee Scheme, announced in February 2019, that offered companies using the emirate as a platform to enter the wider
$27.2 million worth of guarantees for these entities. region. The surrounding Middle East and North Africa (MENA)
region is home to around 1.7 billion consumers. The majority
of the region’s population is under 25 years old, which bodes
3.4 Corruption and Bureaucracy well for future purchasing power.

Corruption is not part of the UAE’s business culture, and the The UAE’s location at the fulcrum of a booming India, Africa
country was ranked number 16 on the World Bank’s Ease of and Asia trade triangle also affords the country access to
Doing Business rankings, the highest among its regional peers. high-growth emerging markets. Also, the UAE has an excellent
The government is also embracing new technologies to im- international transport infrastructure and a globalised, highly
prove its efficiency further and cut down on bureaucracy. It’s skilled talent pool.
projected that as a result of the Emirates Blockchain Strategy
2021 initiative, 50 per cent of all government procedures will

How To Set Up A Business In The UAE: A Guide — 3. The Local Economy 8

 The UAE government offers a broad range of foreign
investment incentives, such as low corporate taxes
and 100 per cent foreign ownership for the entities
carrying out professional activities or for any entities
registered within any of the 45 free economic zones.

The UAE has a relatively sophisticated banking sys-

tem. It is home to a vast network of investment com-
panies, private equity firms and brokerages – these
allow for consumer and institutional investment into
stocks and bonds. The UAE has two well-liquidated
stock markets open to foreign investors, the Dubai
Financial Market and Abu Dhabi Securities Exchange.
As the government continues with its ambitious eco-
nomic diversification plans, foreign direct investment
(FDI) opportunities will open up in transformational
and other heavy industries, including aluminium
and petrochemicals, as well as other sectors such as
tourism and aviation.

The UAE’s favourable business environment,

transparent regulatory system and central
geographic location give it a competitive
edge as a business destination on both
a regional and global level.

How To Set Up A Business In The UAE: A Guide — 1. An Overview Of The UAE 9

4. How To Establish A Business
In The UAE From Overseas

Starting a business in the UAE can take several different forms. • Banking confidentiality guaranteed by law;
The process of company formation differs according to which • Ability to open residential bank accounts in the UAE;
emirate you choose to set up in. • No public registry;
• 100 per cent exemption from corporate and income taxes;
The advantages of setting up in the UAE are numerous. Most • Zero foreign currency restrictions;
businesses do not pay direct taxes on corporate profits, or • Full repatriation of company profits and capital;
personal income and custom duties stand at five per cent, • Possibilities of registering using a legal address, desk or
with many exemptions. separate office unit;
• No share capital requirement for most entity structures;
There are no foreign exchange controls and trade quotas. Plus, the • Ability to hold shares in foreign and local entities;
value of the national currency, the Emirati dirham (AED), is pegged • Ability to issue tax domicile certificate for residential companies;
to the United States dollar. Costs in other vital areas such as import • Huge choice of business activities to be included in the license
duties, labour, energy, and financing are also highly competitive.
The UAE is privy to an extensive foreign trade network, giving The Emirati federal government oversees business incorporation
investors access to global marketing outlets for their goods and for the entire country. Still, each of the seven individual emirates
services. Dubai is also a major re-export hub for the region. also has company incorporation and financial oversight legisla-
tion in place.

4.1 UAE Company Advantages There are various options available to foreign investors who
are looking to undertake business and commercial activities
What makes incorporating your enterprise in the United Arab in the UAE. They are:
Emirates so appealing? Here are some of the benefits you can enjoy
from choosing the UAE as the location for your corporate domicile: • Conduct business through an agent/distributor;
• Establish a local entity;
• In most cases, incorporation requires minimal paperwork, • Set up a branch or representative office;
and you can carry out the process remotely; • Joint Venture;
• 100 per cent foreign ownership; • Merger and Acquisition;

How To Set Up A Business In The UAE: A Guide — 4. How To Establish A Business In The UAE From Overseas 10
4.2 What legal entity should you choose and where 4. How are you planning to commercialise your services
should you register? or products?
The legal form and place of registration might differ for
The main points to consider when choosing the right place of registra- the companies planning to participate in tenders, sell
tion and legal structure are: goods online, work with retails customers, re-export
goods or build the sales process through distributors.
1. What is the ultimate purpose of establishing the entity?
Examples include: 5. What commercial space you might need for
• Marketing to represent the parent entity’s products/services your activities?
that are abroad; The commercial space should be in the same place
• Optimising your group of companies’ expenses using the tax where the entity is registered. So, if your company
treaties between the UAE and other countries; wants to have an office in Dubai, then your place of
• Entering the UAE/GCC market with a new entity; registration should be the Dubai Mainland or one of
• Establishing a global presence from the UAE Dubai’s Free Zones. Note that not all free zones have
offices or warehouses. Therefore, you should have a full
2. What activities are you planning to carry out? picture of your future business from the very beginning
Some activities may only have authorisation in special because you usually are not allowed to transfer your
economic zones. company from one free zone to another in the UAE.

3. Where are you planning to carry out your activities?

Since every place of registration has separate territorial access,
you will have different needs if you are planning to only carry
out operations abroad rather than entering the local market.

How To Set Up A Business In The UAE: A Guide — 4. How To Establish A Business In The UAE From Overseas 11
4.3 Trading through Registered Commercial Agency
an Agent or Distributor
You appoint registered commercial agents under an agreement registered with the
If you intend to export goods or services to the Ministry of Economy. Agents should be either UAE nationals or 100% owned UAE
UAE, you may want to appoint an agent, dis- companies, and they have the exclusive right to market and sell a particular product
tributor or franchisee, which must be either a in one or more Emirates. The agent is also entitled to commissions payable on any
UAE national or a company entirely owned by product sales even if the registered agent did not contribute towards those sales.
UAE nationals. A registered agent is ordinarily able to prevent parallel imports of the same prod-
uct into their territory. While this can be a useful tool for foreign principals wanting
While you can import goods into the Emirati to limit sales of competing products in the emirates, it can also prevent a principal
market without registering an entity, you would from appointing another agent or from directly selling its products on the market.
need to find a local agent or distributor to rep-
resent you. This arrangement would typically
require the distributor to independently certify
goods and lead to granting the local agent or Unregistered Commercial Agency
distributor the exclusive right to distribute your
products, which could limit other opportuni- Unregistered Commercial Agency agreements do not benefit from the protections
ties. Another caveat is that the importer would offered by the Commercial Agencies Law. The Commercial and Civil Code (CCL)
have to sell their products at a meagre rate governs these agreements. According to a strict reading of the Commercial Agen-
compared to the price they could charge when cies Law, a foreign principal that supplies products to its agent under an unregis-
independently commercialising those products. tered agency agreement may not have the right to sue the agent for payment of
their products through the court system. However, the UAE Civil Code makes pro-
There are two types of relationships with visions for hearing claims. It is therefore advisable to insist on guaranteed methods
commercial agencies in the UAE: of payment in the agency agreement. A prospective UAE agent will likely encourage
you to establish a registered agency agreement rather than an unregistered one. In
all cases, you must carefully draft all commercial agency agreements, and foreign
companies should seek legal advice before entering into any agency agreement.
Terminating registered agency/distribution agreements can be difficult and costly
because strict rules and restrictions apply.

How To Set Up A Business In The UAE: A Guide — 4. How To Establish A Business In The UAE From Overseas 12
5. Setting Up A Local Entity
And Establishing A Business

In general, there are two main options available to nies. These details include the company name, commercial reg-
a foreign investor: istration number, company address, contact details and com-
mercial activities. The name of your shareholders and directors
• Establishing in local Emirati territory, known as “mainland.” do not appear in these records. The purpose of this registrar is
• Establishing an entity in one of the many free economic zones. to allow counterparties to ensure if your potential holds the
It is also possible to set up a business presence offshore, but required licence and other permissions to carry out activities.
this comes with limitations.
As a general requirement, locally-incorporated entities must
It might sound like there is a considerable difference between UAE obtain a commercial licence from the Department of Economic
mainland versus Free Zones when it comes to ownership rights. Development in the emirate you’re looking to incorporate and,
However, business ownership and operational control are two sep- if necessary, authorisation from the relevant ministry or govern-
arate matters. In reality, UAE nationals and their overseas partners ment entity in the relevant emirate. Locally-incorporated bodies
can agree on profit sharing and business decision-making amongst may be formed as Civil Companies or incorporate under Feder-
themselves. Essentially, this means that even if non-Emirati business al Law No. 2 of 2015 Concerning Commercial Companies (the
owners set up their businesses in UAE mainland, they will still have Companies Law). The Department of Economic Development
full control of their business operations. defines the available legal format. Companies with profession-
al/service activities generally fall under the civil category and
companies with trade/industrial activities fall under the com-
5.1 Mainland mercial category.

While you can buy shelf companies in the UAE, we do not recom-
mend this practice as there is no way to check whether the entity A) Split Ownership
is entirely clean. When establishing a local company or other commercial
entity, foreign ownership is generally limited to 49%, with
While there is no central public platform in the UAE that compiles the remaining 51% to be held by a UAE national. Under the
company information, the Department of Economic Development Commercial Companies Law (CCL), there are seven forms
does disclose certain necessary information on registered compa- of recognised commercial entities.

How To Set Up A Business In The UAE: A Guide — 5. Setting Up A Local Entity And Establishing A Business 13
 1. Professional (Civil) Companies
This entity type is a local company that can be wholly owned by
foreign investors. This class of corporate structure is permitted
for those enterprises comprising an individual shareholder and
can take the following forms:

• Sole Establishment;
• Civil Company

A Sole Establishment/Civil Company only requires that you ap-

point a Local Service Agent (LSA) to assist in representing the firm
in front of the Immigration and Labour departments. They do not
play any role in the management or operations of your enterprise.
Of the entities listed previously, most foreign investors choose
2. Commercial Companies to establish a limited liability company (LLC) given that foreign-
The Companies Law requires companies to adopt one of the ers can exert significant control over such legal entities and
following legal forms: there are no minimum capital requirements to establish a
limited liability company. According to Article 76 of the
• Limited Liability Company; Companies Law, the shareholders of a limited liability company
• Private Joint-Stock Company; have the right to determine the share capital of the company
• Public Joint-Stock Company; provided that such a company has sufficient capital to con-
• Limited Partnership (or Simple Commandite Company); duct its corporate objects.
• General Partnership (or Joint Liability Company)
However, the Companies Law prohibits limited liability compa-
3. One-Person LLC for Real Estate Brokerage Activities nies from conducting certain commercial activities. For exam-
This new legal format has been available since 2018 and ple, only public joint-stock companies can carry out banking,
allows entities to issue a Memorandum Of Association that insurance or investment activities on behalf of third parties.
only has the local sponsor on the board with full owner-
ship. This structure gives the foreign client, as the entity Additionally, limited liability companies may not offer their
manager, all independent representation rights for their shares for public subscription, a right reserved only for public
enterprises through the MOA. joint-stock companies. Nevertheless, a company can change

How To Set Up A Business In The UAE: A Guide — 5. Setting Up A Local Entity And Establishing A Business 14
its legal form to qualify for public subscription. The critical consider- There is debate about the enforceability of such contractu-
ation concerning entities incorporated under the Companies Law is al side agreements that aim to confer beneficial ownership
that an Emirati national or a company under full Emirati national own- and profits to a foreign shareholder when constitutional
ership must hold 51 per cent of the capital of a company. The one ex- documents require the 49/51 split. Our reliable, high-profile
ception to this rule is if citizens from countries in the Gulf Cooperation local team crafts quality documents that seek to protect
Council (GCC) hold 100 per cent of the enterprise’s capital. foreign investors’ rights.

In addition, certain services and investment activities are reserved for

UAE nationals only. For example, only UAE nationals and companies
wholly owned by UAE nationals may supply real estate services, the Important points to note include:
supply of personnel and some engineering activities; however, there
are ways to manage those restrictions. • The day-to-day management of the company may be
vested in a manager who in practice is usually appointed
The constitutional documents of a limited liability company can allo- by the foreign shareholder.
cate up to 80 per cent of the profits of the company to the foreign • It is possible to designate the profit and loss share in a
shareholder in Dubai and up to 90 per cent in Abu Dhabi. ratio that is different from the share capital ratios in the
Memorandum of Association.
The constitutional documents may also incorporate the following • Although no such ownership restrictions are respecting
provisions designed to protect the interests of a foreign shareholder: onshore branches, you must appoint a Local Service
Agent (LSA) that is an Emirati national. A local agent must
• The foreign shareholder may appoint all of the company’s directors; be an individual. The LSA is not entitled to the profits or
• The foreign shareholder may nominate the company’s general revenues generated by the branch and only provides
manager; certain limited governmental and administrative services,
• The foreign shareholder may have a veto over major decisions as agreed in the Local Service Agent Agreement. Such
of the company; services typically include assistance in communication
• The foreign shareholder may be entitled to all of the assets of the with Immigration and the Ministry of Labour.
company on liquidation • Some entity types require a local sponsor, and in this
case, a corporation can serve as a local sponsor.
Concerning the remaining 10 to 20 per cent of profits of the company,
additional contractual arrangements can be put in place to give the
foreign shareholder the right to receive 100 per cent of the profits.

How To Set Up A Business In The UAE: A Guide — 5. Setting Up A Local Entity And Establishing A Business 15
 4. Local Branches and Representative Offices as assisting in communications with government depart-
The foreign parent company wholly owns a local branch of an ments (e.g. facilitating visas for foreign company personnel)
international company or Free Zone company, but you must or undertaking other administrative matters. The annual fee
appoint a local agent. A branch in the UAE may freely carry payable to a national agent is a matter of negotiation.
out the activities for which it has authorisation through licenc-
es. An entity seeking to operate as a foreign branch in Dubai
must obtain a licence from the Ministry of Economy before
receiving its permit from the Department of Economic Devel- C) Procedure
opment (DED). Professional and service firms may open their Both branch and representative offices must obtain an op-
Dubai branches without registering with the Ministry of Econ- erating licence from the relevant Emirate’s Department of
omy, while those acting as a Representative Office must regis- Economic Development. Once initial approval has been re-
ter with the Ministry of Economy. ceived, you must apply with the Ministry of Economy. The
fees charged by each department will vary between the emir-
If the parent company trades, you must also receive special ates, and if your activity is regulated, you may also need addi-
permission to carry out trade activities. tional approval from other ministries. For example, insurance
activities require the approval of the UAE Insurance Authori-
Representative Offices are also wholly owned by the foreign ty. You must submit various corporate documents including
parent company and require you appoint a local agent. A rep- the parent company’s memorandum of association, audited
resentative office may only carry out promotional activities for accounts, certificate of incorporation and board resolutions
the products and services that the parent company provides. of the establishment of the representative or branch office
It may not engage in trade or any professional activity, nor to the relevant licensing authority and Ministry of Economy.
sign any contracts with customers on its own. Powers of Attorney granted by the parent company to the
managers or other employees of the branch or representative
office will also be required along with the deposit of a bank
guarantee with the Ministry of Economy of AED 50,000.
B) UAE National Agent Requirements
You usually have to enter a national agency agreement with an
Emirati national or 100% Emirati national-owned entity. The nation-
al agent does not have to possess equity or actively participate in
managing the representative or branch office. In practice, the na-
tional agent’s role is confined to providing specific services such

How To Set Up A Business In The UAE: A Guide —5. Setting Up A Local Entity And Establishing A Business 16
5.2 Free Zones

A vital feature of a free zone entity is that it is not subject to the for-
eign ownership restrictions imposed by the Companies Law in the
UAE mainland. However, issues of foreign ownership may still be rel-
evant if you are using the free zone entity as a holding company for
assets outside the corresponding free zone. Free zone entities are
also typically granted certain ancillary financial benefits.

A free zone entity will generally take one of the following three
forms, depending on the structure of ownership:

• A branch of a foreign company;

• Free Zone Company;
• Free Zone Establishment

There are no minimum capital requirements for branches, while each

Free Zone has different share capital and yearly audit requirements. free zone or internationally and is limited to performing solely
Free Zones in Dubai are known to have tighter regulations by requir- those activities specified in its licence.
ing potential business owners to deposit the share capital into ac-
count and imposing pre-approval and yearly audit requirements. In A Free Zone Entity must typically hold one or more of the
contrast, the Free Zones in the Northern Emirates tend to be more following licenses:
relaxed and do not have these types of conditions on entities reg-
istering in those zones. These requirements impact the prestige of • Trading license;
these Free Zones and have resulted in banks and counterparties be- • Service License and/or;
coming more loyal towards Free Zones in Dubai. • Manufacturing/ Industrial license

A Free Zone Establishment may be owned by a single individual or Should the entity want to engage in selling in the UAE outside
company, whereas a free zone company typically requires two or their relevant Free Zone, they must hire a commercial agent or
more shareholders. The critical limitation of a free zone entity is that distributor, or choose to establish an onshore entity.
it is generally only permitted to conduct business within the relevant

How To Set Up A Business In The UAE: A Guide — 5. Setting Up A Local Entity And Establishing A Business 17
 An Abundance of Choice
The UAE is home to more than 40 free zones, many of which
are industry-specific and contribute to the economy in dif-
ferent ways. UAE free zones are a magnet for foreign direct
investment, providing thousands of jobs, driving economic
diversification outside of traditional hydrocarbons and sup-
porting the transfer of knowledge, technology and expertise
to the emirates. Each Free Zone complies with the feder-
al regulations. Still, many of them have their own rules and
regulations that they received from the government to apply
to those entities registered in the Free Zone. Some of them,
such as DIFC and ADGM, even have their court based on
Common Law principles.

The licensing authority within each Free Zone is responsi-

Some of the most popular free zones are: ble for issuing free zone licenses and registering companies.
Free Zones can be General or tailored to specific industries,
DIFC – Dubai International Financial Centre and in the case of being tailored to particular sectors, will
only offer activity licences for those activity classes.
JAFZA – Jebel Ali Free Zone Authority Although there are a large number of free zones within the
DMCC – Dubai Multi Commodities Centre UAE, the majority are located in Dubai.

DAFZA – Dubai Airport Free Zone

DMC – Dubai Media City

KIZAD – Khalifa Industrial Zone Abu Dhabi

IFZA – International Free Zone Authority Fujairah

UAQ – Umm Al Quwain Free Trade Zone

RAKEZ – Ras Al Khaimah Economic Zone

How To Set Up A Business In The UAE: A Guide — 1. An Overview Of The UAE 18

5.3 Establishing Offshore and International porate structures. In the case of a mainland company, the re-
Business Companies quirement as mentioned earlier for 51 per cent ownership of the
share capital by a UAE national or a company wholly owned by
An offshore entity can be structured in several ways: as an international UAE nationals applies. There is no need to license a JV or pub-
business corporation (IBC); offshore limited liability company (offshore lish the JV agreement. As in all jurisdictions, choosing the right
LLC); trust or offshore foundation. Each entity comes with its legal JV partner(s) is key to ensuring that they will be able to contrib-
framework. You must execute the incorporation process through a reg- ute to the JV as intended.
istered agent based in the UAE. Europe Emirates Group is an expert in
offshore company formation and can guide you through the multi-step
process and provide pre and post-set-up support. Companies not in- 5.5 Mergers and Acquisitions
tending to engage in any business within the UAE (whether onshore
or within one of the free zones) can set up an entity under the offshore A final market entry strategy for foreign companies is to acquire
regulatory system. Typically, such companies act as holding compa- or invest in an existing UAE company or business. Both share
nies and do not carry out commercial activities. Under the offshore and asset purchases are possible in the UAE.
regulations of certain free zones, these companies act as a vehicle to
own freehold property onshore. The Jebel Ali Free Zone and the Ras Al Particular factors to bear in mind include:
Khaimah International Corporate Centre are the significant authorities
that offer offshore company formats in the UAE. • The minimal amount of publicly available information and,
as a result, the need for thorough due diligence;
• The absence of a provisional equivalent to the European
5.4 Joint Ventures transfer of undertaking regulations, and the resulting need
to deal with the transfer of employment contracts as part
Foreign companies wanting to enter the Emirati market or develop of any asset deal;
their existing operation beyond an agency or distribution arrange- • The impact of UAE end of service benefits in the case of
ment often favour a joint venture (JV). JVs enable the foreign investor asset transfers.
to take an equity stake and role in the operation and management of
their UAE entity while still benefiting from the participation of a local
partner. The local partner may contribute financially or by way of tech-
nical skills or local connections and reputation. While the CCL allows
for a particular type of entity to serve as a JV vehicle, in practice, most
JVs form using the mainland, or free zone limited liability company cor-

How To Set Up A Business In The UAE: A Guide — 5. Setting Up A Local Entity And Establishing A Business 19
5.6 Key Considerations

The decision to open a mainland enterprise versus establish-

ing in a Free Zone depends significantly on the location of
clients and customers and the nature of the business activi-
ty. If the customer base is across the Middle East rather than
only in the UAE, then it would make more sense to open in
the Free Zone. It is vital that the business licence obtained
accurately reflects the intended and actual business activi-
ties. This process differs from approaches in other jurisdic-
tions where you more often see “shelf companies” and other
companies that can carry out general business activities.

An example is that if a client set up a Free Zone entity for

planning to develop and own mobile applications and reg-
istered the activity under the Computer Software House
licence. However, upon applying for a bank account, the
application was rejected because the receipt of in-app pur-
chases from the Google Play and Apple App Stores are only
permitted under the Software Publishing licence. Since the
client set up in a Free Zone without that licence, they had to
liquidate their entity and set up a new one.
The decision to open a mainland
The costs for establishing an entity can be greater than in enterprise versus establishing in
other jurisdictions since you will have a residential entity a Free Zone depends significantly on
in the UAE instead of offshore that can only be available in the location of clients and customers
other countries on beneficial tax conditions. However, this
and the nature of the business activity.
residential entity will possess the same tax benefits as an
offshore company, making the UAE stand out from other
popular business formation jurisdictions.

How To Set Up A Business In The UAE: A Guide — 5. Setting Up A Local Entity And Establishing A Business 20
6. Taxation Essentials

6.1 Corporate Income Tax standard customs duty rate of five per cent of goods’ cost,
insurance and freight value, except for tobacco, alcohol and
The UAE currently has no system of federal income taxation. goods subject to a customs duty rate of zero per cent. Some
In practice, income tax legislation is only to foreign banks and categories of goods are exempt, e.g. certain agricultural prod-
oil and gas companies. Most emirates levy various municipal ucts, printed material and pharmaceuticals. There may be ex-
taxes. Indirect taxation through official fees is commonplace. emptions for goods imported for industrial or manufacturing
There is currently no taxation on capital gains. There have purposes. Customs duties are not payable for goods imported
been no public announcements from the UAE regarding the into a UAE free zone until you transfer the products to the local
potential introduction of corporate income tax, beyond refer- territory. You can only import goods into the UAE using a com-
ences from the International Monetary Fund to economic im- pany registered in the UAE, and the goods in question must be
pact studies carried out by the UAE government and general relevant to business’s licence activity. There are no duties or
statements from the UAE Government in the media. tariffs on exports.

The UAE grants duty-free imports to most goods originat-

6.2 Value Added Tax (VAT) ing from other GCC member states, member countries of the
Greater Arab Free Trade Agreement (“GAFTA”) and Singapore.
The UAE introduced a VAT levy in 2018. It applies to goods and They are hoping that most goods originating in the European
services sold locally at a standard rate of five per cent. A zero per Free Trade Association (“EFTA”) countries will also benefit from
cent rate will apply to those products or services sold abroad. customs duty exemption when imported into the UAE.
Also, certain goods and services are fully exempt from VAT.

6.4 Municipal or Property Tax

6.3 Customs Duties
Most emirates impose a municipality tax on properties, mostly
The UAE is part of the GCC Customs Union, which was estab- by reference to the annual rental value. It is generally the ten-
lished in 2003 to remove customs and trade barriers among ants’ obligation to pay the tax; however, the tenants’ employ-
the GCC member states. The implementation of the GCC Cus- er will typically pay the tax on behalf of the employee. In some
toms Union is still in progress. The GCC member states apply cases, separate fees are payable by both tenants and property
a Common Customs Law and a United Customs Tariff with a owners. For example, in Dubai, it is currently imposed at five per

How To Set Up A Business In The UAE: A Guide — 6. Taxation Essentials 21

cent of the annual rental value for tenants or five per cent of the Upon approval, you will have your TDC issued for one year
specified rental index for property owners. You may also have to for a specific tax treaty and you will receive the TDC via
pay a registration fee on the transfer of ownership of land or prop- email after payment processing.
erty. For example, Dubai levies a land registration fee at a rate of
four per cent of the sale value of the property (shared between the
buyer and seller), payable to the Dubai Land Department. These 6.6 Obtaining a Tax Domicile Certificate
levies are imposed and administered differently by each emirate. for Companies
You must submit the following documents to begin the
6.5 Personal Taxes process of filing for the Tax Domicile Certificate:

Income is currently not subject to personal income taxes in the • Copy of a valid trade licence;
UAE, and there is no requirement to file income tax returns. • Latest audited financial statements;
Employees who are GCC nationals are subject to a social security • Copy of a valid lease/rent agreement in the name
regime in the UAE. Generally, the social security payment is at a of the applicant;
rate of 17.5 per cent of the employee’s gross remuneration as stat- • Copy of the passport and resident/work visa of the
ed in an employee’s employment contract and applies regardless applicant’s director/authorised signatory;
of the Free Zone tax holidays: five per cent is payable by the em- • Copy of a bank statement for the last six months;
ployee, and the remaining 12.5 per cent is payable by the employer. • Application letter to the Ministry of Finance and
The rates can differ between emirates. The withholding obligation certificate application form
is on the employer. There are no social security payments for expa-
triates. For completeness, expatriates that work for an Emirati em- Fees are payable as part of the process. The UAE Ministry
ployee have the right to a gratuity payment (or an “end of service” of Finance guidelines suggest that companies may not be
benefit). End of service benefits do not apply for employees who able to obtain tax domicile certificates until the company
are Emirati nationals. has been in operation for at least three years. In practice,
however, a TDC is generally issued once a company has
As the UAE has double-taxation avoidance treaties with more than been in existence for at least one year.
60 countries, those expatriates looking to take advantage of those
benefits can apply for a Tax Domicile Certificate (TDC). You must
present documents certifying your residency records and your in-
come. It takes between three to four weeks for your TDC to be issued.

How To Set Up A Business In The UAE: A Guide — 6. Taxation Essentials 22

7. Legal Information: Corporate
and Commercial Key Points

7.1 Dispute Resolution All court proceedings are in Arabic, and only specific individ-
uals are allowed to attend court proceedings. They must be
The UAE allows freedom of contract, including the right for par- qualified local attorneys with special licences.
ties to mutually agree upon the laws governing contracts and
the forum for resolving disputes.
7.2 DIFC Courts
Foreign companies may choose one of these options for the
resolution of disputes as follows: The DIFC courts comprise of two levels:

• UAE “onshore” courts; • Court of First Instance

• DIFC courts; • Court of Appeal
• Arbitration;
• Courts of another jurisdiction The DIFC courts were established in 2004 to offer an independent
common law judiciary and have jurisdiction concerning various
The UAE Onshore Courts comprise of three levels: civil and commercial matters. The DIFC courts conduct proceed-
ings in English and are available to businesses incorporated inside
• Court of First Instance; or outside DIFC. The DIFC courts have signed several memoran-
• Court of Appeal; dums of understanding and treaties to facilitate the enforcement
• Court of Cassation of its judgments in the rest of the UAE, the GCC and abroad.

The UAE is a civil law country and, therefore, unlike common

law jurisdictions, case law does not act as binding precedent, 7.3 Arbitration
and the courts do not need to decide future cases based on a
previous court’s decision. However, in practice, a decision of Arbitration has long been a popular method of dispute reso-
the Court of Cassation is usually regarded as persuasive in lution in the UAE. Since it allows for proceedings to occur in
deciding subsequent cases. private, in a language of the parties’ choice and with arbitra-

How To Set Up A Business In The UAE: A Guide — 7. Legal Information: Corporate and Commercial Key Points 23
 7.4 Immigration

A person must receive sponsorship either based on owning

a business or property in the UAE or an employment contract
with a UAE-based employer to live there. The sponsorship re-
quirements include obtaining a residence visa or work permit.
Nationals from certain countries may enter the UAE with a short
visit visa issued upon arrival. The employer must process and
obtain visas for its employees.

The employer will carry out the following process:

tors selected and approved per the relevant individual arbitrators’ 1. The Government Relations Officer or PRO sends the
organisation’s own rules. Historically there have been concerns requisite documents to the Labour/ Immigration offices
about the ability to and costs associated with the enforcement to apply for the residency visa;
of arbitral awards.
2. Once approved, the employee goes for a medical test;
Parties to a contract can mutually agree upon their choice
of arbitration forum. Popular forums include: 3. The application will receive the residency visa if the
medical examination results are satisfactory. The Ministry
• ICC; of Labour (“MOL”) then issues a labour card and identifies
• DIA; an employee and his/her place of work.
• DIFC LCIA
Employees working for employers established in a free zone are
The DIFC LCIA Arbitration Centre (“DIFC LCIA”) is known as a seat sponsored by the relevant Free Zone Authorities (“FZA”) and not
of arbitration in the UAE (as well as the Middle East), and it has by their employers. It is noteworthy that holders of a residency
a modern set of rules based on the long-established rules of the visa can sponsor dependents (subject to restrictions).
London Courts of International Arbitration. The DIFC LCIA is a
court of arbitration fostered on a strategic partnership between
the DIFC and the LCIA.

How To Set Up A Business In The UAE: A Guide — 7. Legal Information: Corporate and Commercial Key Points 24
7.5 Real Estate

The Emirati UAE constitution states that real estate falls within the GCC nationals are permitted to purchase property any-
Federal jurisdiction (i.e. to be regulated by the federal government where on a freehold basis or rent property on a leasehold
of the UAE, rather than by the local government of each of the basis except in the emirate of Abu Dhabi. GCC nationals and
emirates). However, if the Federal legislation is silent on a particu- foreigners are subject to various restrictions in the emirate
lar area of real estate law, then each emirate may legislate and of Abu Dhabi, including that they are only permitted to:
issue local real estate laws.
• Own units or entire floors in buildings constructed within
UAE Federal law covers legislation regarding: Abu Dhabi Investment Areas;
• Lease units, floors or buildings constructed within
• Land ownership; Abu Dhabi Investment Areas (up to 99 years);
• Leasing; • Acquire leasehold for up to 99 years
• Co-ownership of floors and flats;
• Creation and operation of owners’ associations

Foreign individuals and entities wholly or partly owned by foreign

individuals cannot own property in the UAE, except within areas
designated for foreign property investment (“Investment Areas”).
Purchase may be on a freehold basis or as leasehold property
within such Investment Areas. The rules and regulations surround-
ing property ownership differ depending on the emirate.

How To Set Up A Business In The UAE: A Guide — 7. Legal Information: Corporate and Commercial Key Points 25
8. About Europe
Emirates Group
Europe Emirates Group provides
company formation services for
firms looking to expand into
new geographies.
With primary headquarters in Dubai Jumeirah Lake
Towers and associate offices in major business hubs,
we provide professional corporate setup solutions in
over 60 low tax and tax-free jurisdictions worldwide.

We offer company incorporation services, supported

by legal and financial consultancy services and
cross-border transactional advice to individuals and
companies looking to establish a business presence Contact Details
in the UAE or other key overseas markets.
Call our team at +971 4 311 6547
to set up an initial consultation
or simply email [email protected]

For more information, visit:

www.uae-eu.com

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