Forming a Corporation in the UAE

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1 December 2017

Forming a corporate entity in the UAE has a number of unique advantages that businesses should consider when seeking to expand their reach to the region. Furthermore, there are a number of different ways to establish a corporate presence in the UAE, and as such business persons should familiarize themselves with the fine points of UAE corporate formation in order to make an optimal business decision.

Different Types of Onshore Entities in the UAE

There are a number of different entities that can be formed in the UAE including sole proprietorships (also known as an Individual Enterprise), a Civil Works Company (also known as a Professional Partnership), or a Branch Foreign Company. Each of these entities will require the designation of a UAE Local Representative as a Local Representative Agent. This person need not own any shares in the entity formed, and is not responsible for the liabilities incurred by the entity. However, should the proprietors wish to form a Limited Liability Company (also known as an LLC), the UAE Local Representative must be a Local Sponsor (not an agent) and must hold 51% or more of the shares in the LLC. In addition to these limitations, proprietors should keep in mind that the setup formalities for each of these entities must be completed in Arabic.

Free Zone Companies in the UAE

Free zone companies are entities formed within one of the many UAE free zones, including Jabel Ali Free Zone (JAFZA), Dubai Airport Free Zone Authority (DAFZA), Fujairah, Ras Al Khaimah Free Trade Zone (RAK FTZ), Sharjah, and Ajman. Unlike onshore corporate entities, free zone companies do no require a Local Representative of any kind, permit 100% foreign ownership, and are tax free while still permitting local entity bank accounts and can hold various properties. In particular, these entities are useful in order to carry on import/export businesses, as goods coming through the free zones can avoid customs duties on those goods. That said, the details of these companies will vary from one free zone to another, so before incorporating in a particular free zone incorporators should refer to the specific free zone regulations to learn more.

Offshore or International Entities in the UAE

One corporate option that is unique to the UAE is the formation of an offshore or international company. There are three different free zones in which this option is available; the JAFZA in Dubai, and the Ras Al Khaimah Investment Authority (RAKIA) and RAK FTZ. An entity formed within one of these free trade areas has a number of associated advantages, including 100% tax exemption, the ability for the entity to be 100% foreign-owned, limited liability entity structure, and the ability to own real property, intellectual property as well as open UAE bank accounts through the entity. Furthermore, the proprietors of an offshore entity should bear in mind that the entity itself will not be subject to local laws, and will be able to choose the laws to which the entity itself is subject. One major limitation on the offshore entity is that it cannot conduct trade within the UAE; it can only conduct international trade between the UAE and another country. That said, exception is made for certain domestic activity, including entering into professional contracts with consultants, holding shareholder meetings, holing the lease of a property for use as an office, owning real property in Dubai if approved by the relevant authority, and opening a bank account in the UAE.

Choose the appropriate entity

Choosing the appropriate entity can involve a somewhat complicated process of weighing the pros and cons of formation either onshore or offshore, and then in deciding between the various onshore entities or the various offshore zones in which an offshore company can be formed. Proprietors faced with these decisions should speak to experienced professionals that understand the corporate landscape in the UAE, and can assist with these complex legal issues.

 

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