INTRODUCTION:

Before 1984, each Emirate, Dubai, Abu Dhabi, Sharjah, Ajman, Ras Al Khaimah, Umm Al Quwain and Fujairah, followed its own procedures governing the operations of foreign business interests. In 1984, Federal Law No.8 of 1984, its amendment by Federal Law No.13 of 1988 – the ‘Commercial Companies Law’ and its by-laws have issued. The law makes it conditional that nationals must wholly own the companies or that nationals must own at least 51% of its share capital, while the remaining 49% may belong to foreigners. The law provides that commercial companies established in the U.A.E. must take any of the following legal forms:

1. Limited Liability Company (LLC):

A Limited Liability Company (L.L.C) can be formed with 49% shareholding of expatriates whereas 51% shareholding shall be in favour of local U.A.E. national. Nominee arrangement is normally available with U.A.E. national to hold these mandatory shares in his name in favour of the expatriate partner. We provide such U.A.E. national for holding 51% shares as a nominee. This would provide effective total control to manage the company and enjoy all profits. The minimum capital required to form an L.L.C. in Dubai is US$ 81,800, which has to be deposited in a bank, and shall be blocked for approximately 2 weeks time.
The L.L.C shall have specific activities as per classification made by the Department of Economic Development, Dubai. In this regard, please note that only one category of activities are being given to one company. The company cannot have multiple activities except in General Trading where minimum capital requirement is US$ 818,000. The increase capital requirement is waived upon the payment of additional fee of US$ 4,100 to the licensing authorities.
L.L.C. is perhaps the only type of entity available to foreign investors for trading and manufacturing concerns.

2. FREE ZONE COMPANY:

Currently, there are over 10 Free Zones in U.A.E., which offer the following incentives to the investors:
100% foreign ownership.
No corporate taxation for 50 years – a concession that’s renewable.
Freedom to repatriate capital and income in totality.
No personal income tax.Full exemption from import duties.
No currency restrictions.
No bureaucratic red-tapismNo recruitment problems.
Modern efficient communication.
State of the art infrastructure.
Abundant energy.Attractive working environment.
Owned premises on leased land can be mortgaged.

In general, most of the free zones issue the following types of licences:

Trading Licence
Industrial Licence
Service Licence
National Industrial Licence

Type of Entity:

A company in any free zone can be established either as a free zone establishment (FZE), Free Zone Company (FZCO) or a branch of the foreign company. Such companies can be owned 100% by foreign investor with no involvement of local partner or sponsor.
Some activities may require prior approval from the competent authority depending on the products activity you require.

Duty:

Free Zone company would require U.A.E company as a trade agent if needed to trade within U.A.E. Mainland and 5% custom duty shall be applicable if goods are exported to Dubai from the Free Zone. Outside U.A.E. trading would be permitted to free zone company without any agency arrangement and without any custom duty. No other duty or tax of whatsoever is applicable.

Following Documents Are Required For A Branch Of A Foreign Company To Establish in free zone:
a) Memorandum of Association
b) The Board of Directors’ Resolution authorizing the opening of the branch office in free zone of Dubai and appointing manager to take full charge of the branch.
c) Power of Attorney in favour of the Manager.
d) Certificate of incorporation.
e) Photocopy of the Directors’ and Manager’s passport.
Items (a) to (d) to be attested by UAE Consulate or Embassy in the company’s home country and by the UAE Ministry of Foreign Affairs in Dubai.

Following documents are required to establish a company either as FZE or FZC.

a) Passport Copy of shareholders.
b) Bank Reference on shareholders.
c) Proposed Trade Name.
d) Proposed Activities with a brief business plan.

Company Formation in Free Zone•

• Dubai Airport Free Zone (DAFZA)
• Dubai Cars & Automotive Free Zone
• Dubai Internet City
• Dubai Metals & Commodities Free Zone
• Dubai Media City
• Gold & Diamond Park
• Jebel Ali Free Zone (JAFZA)
• Knowledge Village
• Dubai Health Care City
• Hamriyah Free Zone
• Sharjah Airport International Free zone (SAIF)
• Ajman Free Zone
• Ras Al Khaima Free Zone
• Fujairah Free Zone

Free Zones offer the following incentives to the investors. Some of the salient features are:

1. 100% foreign ownership
2. No corporate taxation for 50 years; renewable for an additional 50 years
3. Freedom to repatriate capital and income
4. No personal income tax
5. Full exemption from import duties
6. No currency restrictions
7. No bureaucratic red-tapism
8. No recruitment problems
9. Modern efficient communication
10. State of the art infrastructure
11. Abundant energy

In general, most of the free zones issue the following types of licenses:In general, most of the free zones issue the following types of licenses:

• Trading Licence
• Industrial Licence
• Service Licence
• National Industrial Licence

Type of Entity:

A company in any free zone can be established either as a free zone establishment (FZE), Free Zone Company (FZCO) or a branch of the foreign company. Such companies can be owned 100% by foreign investor with no involvement of local partner or sponsor.
Some activities may require prior approval from the competent authority depending on the products activity you require.

Duty:

Free Zone Company would require U.A.E Company as a trade agent if needed to trade within U.A.E. Mainland and 5% custom duty shall be applicable if goods are exported to Dubai from the Free Zone. Outside U.A.E. trading would be permitted to free zone Company without any agency arrangement and without any custom duty. No other duty or tax of whatsoever is applicable.

Following Documents Are Required for a Branch of a Foreign Company to establish in free zone:

a) Memorandum of Association
b) The Board of Directors’ Resolution authorizing the opening of the branch office in free zone of Dubai and appointing manager to take full charge of the branch.
c) Power of Attorney in favour of the Manager.
d) Certificate of incorporation.
e) Photocopy of the Directors’ and Manager’s passport.

Items (a) to (d) to be attested by UAE Consulate or Embassy in the company’s home country and by the UAE Ministry of Foreign Affairs in Dubai.Following documents are required to establish a company either as FZE or FZC.

a) Passport Copy of shareholders.
b) Bank Reference on shareholders.
c) Proposed Trade Name.
d) Proposed Activities with a brief business plan.

3. Opening a branch or representative office of the foreign company:

The Companies Law, in article (313) allows a foreign company to exercise its main activity in the UAE by opening a branch or a representative office. The difference between the two is that the foreign company that opens a branch in the UAE may exercise freely the activities for which it is licensed whereas a representative office may practice only promotional business for the products and services provided by the parent company. Unlike a foreign branch, a representative office cannot conduct business operation or market directly its product. In order to engage a foreign branch to conduct its operation in UAE it should obtain a license from the Ministry of Economy & Commerce prior to obtaining the license from the concerned authority in the respective Emirate. Foreign companies licensed to operate in UAE may not start their activities before being inscribed in the Ministry’s Register of Foreign Companies. The main stipulation for opening a representative office or a branch of!
a foreign company in the UAE is to appoint a Service Agent who should be a UAE national or a company fully owned by a UAE national. A service agent is not an empowered agent who can bind his principal as explained in the definition of the term “agent” in the Commercial Companies Law. A service agent is not responsible to under take any financial obligations concerning the activities of the company’s branch or office within the UAE or abroad. He should not interfere in the matters related to the company’s management or activities. His duties towards the company and others are confined to providing such services as required by the principal. These services usually include the obtaining of entry or residence permits, acquiring of the necessary Licenses or facilitating the processing of its transactions with the government authorities. The service agent is remunerated in lump sum for the services rendered to the foreign company that sum shall be the subject of an agreement bet!
ween him and the company.

4. Establishments by GCC Citizens:

The states of the Gulf Cooperation Council(the UAE, Saudi Arabia, Sultanante of Oman, Qatar, Kuwait and Bahrain) signed the United Economic Agreement in Riyadh on 7th June 1981, with a view to coordinate and unify economic, financial, monetary, commercial and industrial legislations and UAE endorsed this agreement in 1982. It is conditional as per the Federal Law No.2 of 1989 concerning permitting the GCC citizen to conduct a business operation in UAE that the investor should be a natural person residing in UAE and practice the required activity by himself and have a license to practice the activity in his country of origin. In case the investor is a juridical person wishing to conduct retail or wholesale trade then the investor must be in the form of a company of which the share owned by UAE nationals is not less than 50% of the capital.

5. Sole Proprietorship Firm to practice a profession:

A foreign investor is permitted to practice certain types of business activities allowed for non-nationals without having a national partner. Such activities are medical services, engineering consultancies, legal practice and consultancies, computer consultancies and similar services provided that such an investor holds a valid and legal UAE residence permit. However, it is a condition that he should have a local service agent according to service agency contract authenticated by a Notary Public.

6. Professional Companies (Professional Partnership):

A firm shall be regarded as a professional company that practices a profession as its main object and that partners rely on their livelihood on the intellectual effort they exercise more than on profiting from the business of others. On this basis the professional companies are set up between professionals or partisans and carry out non-commercial activities.
The firms, which are registered as professional companies or firms may only practice specific activities. Such activities include rendering the services of legal practice and consultancy, auditing, organizing and keeping accounting records and books, civil engineering, architecture consultancies and services, managerial and economic consultancy and studies, technical services, medical and curative services, educational services and other similar services.

7. General Partnership Company:

It is firm that consists of two or more partners who are jointly and severally responsible for all the firm’s liabilities. Partnership companies are confined to UAE nationals only because partners are responsible towards the liabilities of the firm by all their assets, which may not be applied to foreigners as in most of the cases their assets are usually abroad.

8. Partnership in-commendam (Limited Partnership):

It is a firm consisting of one joint partner or more who is liable with all his money for the firm and another in-commendam partner or more who shall not be responsible for the liabilities of the firm except to the value of his share in the capital. According to law, all joint partners in such type of firms should be nationals of the UAE.

9. Public Shareholding Company (PJSC):

Public Shareholding Company is a company with a capital divided into equal negotiable shares. In such companies a shareholder’s liability is limited by the number of shares held by him. Minimum capital required form a Public Shareholding Company is AED 10 million(US$2,724,796) with a nominal face value of AED 1-100, and for a banking entity it is AED 40 million and insurance and investment companies AED 25 million. Among the other requirements for establishing a public joint stock company is the preparation of a founders’ agreement, a prospectus or invitation for public subscription supported by an over all business plan or feasibility study and an auditor’s certificate, a due diligence survey, a memorandum and articles of association. A PJSC must have at least 10 founder members and its management should be vested in a board of directors consisting of a minimum of three to a maximum of fifteen persons whose term of office may not exceed three years. The Chairman and majorit!
y of the Directors in a public shareholding company must be UAE nationals. In addition, UAE nationals should hold at least 51% of the shares of the PJSC.
The founder members may only hold 35% of the share capital, as 65% is required to be offered to the public. The Law stipulates that the companies engaged in banking, insurance or financial activities should be run as public share holding companies.

10. Private Shareholding Company:

A Private Shareholding Company is incorporated by a number of persons not less than three. Unlike public shareholding company, a private shareholding company cannot invite the public for subscribing in its shares. The minimum share capital to form a private shareholding company is AED 2 million.(US$ 544,959). The Chairman and majority of the Directors in a private shareholding company must be UAE nationals.

11. Joint Venture (Consortium Company):

A Joint Venture is a type of company where two or more partners agree by contract to share the profits or losses of one or more commercial enterprises, which will be carried on in the name of one of the partners. Contract of Joint Ventures may be written or oral and not required to be notarized. Third parties can recourse only to the partners with whom they deal.
However, should the Joint Venture is disclosed to the third parties, all the partners are liable to the third parties. Existence of Joint Venture may be proved by any method of proof.

12. Appointing a Commercial Agent (Exclusive Distributor):

Foreign investors may appoint a commercial agent to represent their interests in the U.A.E. instead of establishing a permanent presence. The U.A.E. Commercial Agencies Law(Federal Law No.18 of 198, as amended by Federal Law No.14 of 1988) regulates and governs the appointment of commercial agents, sales representatives, and distributors in the U.A.E. This law defines a commercial agency as any arrangement whereby a foreign company is represented by and agent to “distribute, sell, offer, or provide goods or services within the UAE for commission or profit”
The primary requirements and characteristics of commercial agencies are:
1. Commercial agents must be U.A.E. nationals or companies incorporated in the U.A.E. and owned entirely by U.A.E. nationals.
2. Commercial agents must be registered with the U.A.E. Ministry of Economy and Commerce to engage in commercial agency activities.
3. The agency agreement must be registered in order for the agent to avail himself of the protections afforded under the law and to have the agency relationship recognized under U.A.E. law.
4. Commercial agents are entitled to have and exclusive territory encompassing at least one Emirate for the specified products (Article 5(1) of the Commercial Agencies Law).
5. Unless otherwise agreed, commercial agents are entitled to receive commissions on sales of the products in their designated territory irrespective of whether such sales are made by or through the agent (Article 7 of the Commercial Agencies Law).
6. Commercial agents are entitled to prevent products subject to their agency from being imported into the U.A.E., if the agent is not the consignee.
7. Commercial agents are entitled to receive compensation from the principle if the agency is terminated without substantial justification or if the agency is not renewed by the foreign principle, and the agent may be able to preclude the foreign party from appointing a replacement agent in such circumstance.