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Strictly Business — Starting Out in the UAE
- Free zones offer enticing regulations for setting up a business, but be aware of the fact that this does not allow you to conduct commercial activities in the UAE themselves.
- Outside of the free zones, a majority share of a foreign business (51%) has to be owned by a UAE national.
- When setting up a new business, you can choose between onshore and offshore companies, as well as among LLCs, branch offices, and representative offices.
It’s a Numbers Game
The UAE is hardly a secret to investors around the world. Back in 2012, all of the top ten Fortune 500 companies had established offices in the Emirates. Nevertheless, the UAE business scene is regulated fairly strictly. When starting a business in the UAE as a foreign resident, you will come across some barriers. The main obstacle is the fact that if you’re not setting up a company in a free zone, 51% of the business needs to be owned by an Emirati resident.
However, the UAE does have a good legal framework for protecting minority shareholders, which is why expats don’t shy away from starting a company under these conditions. As with so many things, there are some exceptions that enable foreign residents to own more than 49% of a business outside the free zones. If the foreigner in question is a GCC national, a foreign majority shareholder is perfectly acceptable. The second exception includes professional companies offering, for example, legal, accounting, and medical services.
According to the World Bank, starting your own business in the UAE has become slightly harder over the past years: relative to 188 other countries, the UAE has dropped from 57th place to 60th from 2015 to 2016. However, the ranking for protecting minority investors has actually improved considerably, so that’s good news for foreign businesspeople in the UAE!
Keen foreign investors can start their journey by checking out the website of the local Chamber of Commerce in the respective emirate they’re interested in:
- Abu Dhabi Chamber
- Ajman Chamber of Commerce and Industry
- Fujairah Chamber of Commerce and Industry
- Dubai Chamber
- Sharjah Chamber of Commerce and Industry
- RAK Chamber
- Umm al Quwain Chamber
Weighing the Pros and Cons
Any investor worth their salt will be aware of the lack of direct business and income tax in the UAE, with some exceptions — the latter include banks, oil companies, and telecommunication operators. Moreover, any foreign-owned business in the UAE will benefit greatly from the skilled expat labor force already living in the Emirates.
You can also freely repatriate as much capital as you want in your home country’s currency, or any other currency, for that matter, as there are no controls on foreign exchange. Despite the country’s relatively small domestic market, these features keep the UAE interesting for foreign investors.
The average number of days it takes to register a firm in the UAE is eight — quite an achievement, given the regional average for the Middle East and North Africa is almost 19 days. The UAE’s number is more in line with the average for OECD high-income countries.
However, there are definitely some potentially negative aspects you should consider when thinking about starting a business in the UAE. As mentioned above, the fact that foreign nationals cannot own a majority share of their business, unless they set it up in one of the many free zones, holds back some investors. If the business is set within a free zone, though, it can be subject to certain other restrictions.
Business Types and Offshore versus Onshore
During your research for starting a business in the UAE, you will probably come across the terms "onshore" and "offshore". If your business is onshore (i.e. outside one of the many free zones), you need a UAE national to be your partner and shareholder, but this also means that you can trade within the UAE market. Offshore businesses, on the other hand, normally refer to a company located in a free zone. Strictly speaking, however, they are not allowed to conduct commercial activities in the UAE outside the free zones.
While there are various business types in UAE law, most foreign investors opt for one of the following three: Limited Liability Company (LLC), branch office, or representative office. Representative offices are somewhat restricted in their function and usually serve only as administrative and marketing centers with a small number of employees acting on behalf of a company headquartered abroad. A branch office — while also being wholly-owned by a foreign parent company — is able to conduct regular business activities more freely.
Both branch and representative offices need to appoint a UAE national as their service agent or sponsor. Local agents are generally not involved in running the business itself, but help the company to obtain UAE visas, licenses, etc. in exchange for a lump sum payment. If you need more detailed information, many international law firms provide instructions of setting up a branch or representative office in the UAE.
Sometimes, however, the term "offshore company" can also refer to an International Business Company set up under the so-called offshore regulatory system. This means that the business in question can’t be actively involved in any kind of commercial activity in the UAE, either within a free zone or in the Emirates as such. These kinds of offshore business are normally set up as asset, property, or holding companies, e.g. for owning property in the UAE.
Free Zones — Welcoming Expats with Open Arms
The reason why free zones can offer foreign investors full ownership of their business is that they are governed by their own set of regulations. Therefore, free zones generally make it easier to set up your own business and doing so will be less time-consuming here than elsewhere in the UAE.
All seven emirates have various free zones, so you don’t have to limit yourself to the popular destinations of Abu Dhabi and Dubai. Some of the largest free zones — based on the number of companies they house — are the following ones:
- Jebel Ali Free Zone (Dubai)
- Sharjah Airport International Free Zone
- Dubai Media City
- Ras Al-Khaimah Free Trade Zone
There are multiple free zones in the UAE, but the registration processes are similar across the board. First, you need the official approval from the respective free zone authority. Once you’ve received the initial approval, you can move on to applying for a license and registering your company. The latter usually takes between four and six weeks.
The free zones are governed by a Free Zone Authority (FZA), which is also the body which approves your business in the free zone and distributes licenses. You can either register under a Free Zone Establishment, which ties you to the free zone regulations, or you can establish a branch office of an existing company in the free zone.
Setting up in a free zone has many advantages:
- Full foreign ownership is allowed.
- Your business is completely exempt from import and export duties.
- There are no restrictions on the repatriation of capital.
- Residency visas are available to registered business owners.
- You won’t have to pay any corporate tax for at least 15 years.
- You don’t have to pay any personal income tax.
- The paperwork for your business is mostly available in English.
- Support services for such things as recruitment and housing are easily available.
Naturally, all businesses must obtain a license from the emirate they are based in. Companies must also be officially registered in the Commercial Register. However, such procedures may vary between emirates. Within a free zone, the respective FZA is responsible for granting licenses and leasing land for office space.
The three license categories for setting up a business in the UAE are:
- commercial or trade licenses to cover trading activities
- industrial licenses for industrial or manufacturing activities
- professional licenses covering professional services
If you hold a trade or an industrial license, you can, however, only conduct commercial activities within a free zone or in other free zones in the country, as well as abroad. You can trade under these licenses in the UAE by using an official UAE agent.
Industrial licenses will outline that the majority share of the business must be in the hands of a UAE national, and that 40% of the sale value of the products in question must be value-added in the UAE.
Although the UAE is very conducive to business and commerce and is becoming increasingly welcoming to foreign investors in this respect, it is still advised to hire local legal counsel and make sure that everything is set up properly.
Upcoming Changes for Foreign Business Owners?
In March 2015, the Ministry of Economy indicated that the UAE is planning on implementing legislation to allow the full foreign ownership of businesses outside of its free zones. This would, however, only apply to certain sectors where doing so would make strategic sense. When the law is going to be instated, if at all, was not specified, and the sectors wherein foreigners might soon benefit from fewer restrictions were also kept secret.
The Commercial Companies Law (CCL) was updated in June 2015. Even though the statement made by the Ministry of Economy looks promising for foreign investors, the new legislation also includes a clause which enables the Cabinet of Ministers, per recommendation of the Ministry of Economy, to restrict certain sectors to UAE businesses only.
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