In order to conduct business transactions and activities in the UAE, investors must comply with the UAE Laws on foreign investment and trade within the UAE.  Below is a summary of the options for business set up:

Direct Trade

Commercial Agencies

Limited Liability Companies

Representative Office

Branch Office

Private Joint Stock Companies

A foreign company wishing to supply goods and services from abroad, but without establishing a physical presence in the UAE, may find it advantageous to appoint a commercial agent. The main provision of the UAE Federal Commercial Agencies Law No. 18 of 1981, as amended, is that an agent must be a UAE national or a company 100% owned by UAE nationals. The UAE Commercial Agencies Law regulates and governs the appointment of commercial agents, sales representatives, and distributors in the UAE. This law defines a Commercial Agency as any arrangement whereby a foreign company is represented by an agent to “distribute, sell, offer, or provide goods or services within the UAE for a commission or profit”. (Article 1 of the Commercial Agencies Law).

The Commercial Code (Federal Law No. 18 of 1993) augments the Commercial Agencies Law and establishes the regulatory framework for the various types of commercial agencies permitted under the law. The most common type of agency is the contracts agency, whereby the agent undertakes “on a permanent basis and in a specific area of activity, the instigation and negotiation of the conclusion of deals, to the advantage of the principal and in return for payment”. (Article 217 of the Commercial Code). Distributor contracts are treated like contracts agencies when they involve one agent as the sole distributor. (Article 227 of the Commercial Code).

The most frequently adopted method of establishing a business in the UAE by foreign investors is to form a limited liability company (LLC) ranging from Dhs.150,000 to Dhs.3,000,000 depending on the Emirate in which the entity is established and the nature of the activities undertaken. A LLC must have at least two and not more than fifty partners. Each partner is liable to the extent of his share capital. The company is prohibited from issuing negotiable share certificates, carrying on the business of insurance, banking, investment of funds on behalf of third party, resorting to public subscription for raising its capital and accepting deposits or taking loans from the public. The words “Limited Liability Company (LLC)” must be added to the company’s name and the amount of the capital of the company must be stated.

Share Capital; Shareholding: Each Emirate has adopted its own requirement for the minimum share capital of a limited liability company.  In Dubai, the minimum share capital for most companies is Dhs.300,000 divided into equal shares of a minimum value of Dhs.1,000 per share;  In Abu Dhabi, the minimum share capital its Dhs.150,000 divided into equal shares of a minimum value of Dhs.1,000. At the time of incorporation the value of all the shares must be paid in full. 51% of the share capital must be owned by UAE nationals. 

Management: The management may be fully vested in the foreign partner or in a third party to be solely appointed and removed by the foreign partner. The number of members on the board of managers should not exceed five and they may be appointed under the Memorandum of Association or by a separate agreement. In practice, the UAE national may give the foreign partner a power of attorney to manage the company and vote on his behalf in the General Assembly (meetings of all the partners).

Accounting: It is mandatory to appoint an Auditor on an annual basis. The Auditor must be licensed and appointed by the General Assembly, usually at the Annual General Meeting. The company must allocate 10% of its net profits each year to a statutory reserve. Such deposits may be suspended when the reserve reaches an amount equal to 50% or more of the company’s capital.

Profits and Losses: It is possible to stipulate in the Memorandum of Association that profits and losses be shared in different proportions than the partners share holdings.

A representative office of a foreign company is legally distinct from a branch office in that it 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 and opens a representative office in Dubai, the office will only be able to promote and market the sale and/or production of such products and facilitate contracts in the UAE, as distinct form conducting their sale of production itself. It should be noted that in addition to the above limitation, representative offices have other restrictions in that they are not allowed to obtain credit facilities or put forward offers or tenders.

Registration of a representative office for a foreign company is governed by the UAE Commercial Companies Law No. 8 of 1984, Articles 313 to 316 (inclusive), as amended.
The representative office must have the same name of the foreign company. However, the words “Dubai (or name of Emirate) Representative Office” must be added after the name, as it is legally regarded as part of the foreign company and does not have a separate legal identity from that of the foreign company.

As in the case of a branch office it is necessary when establishing a representative office to appoint a local services agent (the “Local Services Agent”), however, in some exceptional cases, a local services agent is not required.  The Local Services Agent, however, will neither acquire any rights or interests in the business of the representative office. The Local Services Agent will merely provide services on matters that concern local government authorities (i.e., processing the representative office’s registration and licensing renewal requirements, processing visas and work permits for the representative office’s personnel). In return, the Local Services Agent usually receives a fixed annual fee to be agreed upon between the parties.

A very popular way for foreign companies to benefit from a 100% foreign ownership is to establish a branch office of the foreign company. Registration of a branch office for a foreign company is governed by the UAE Commercial Companies Law No. 8 of 1984, Articles 313 to 316 (inclusive), as amended.

The branch must have the same name of the foreign company. However, the words “Dubai (or name of Emirate) Branch” must be added after the name, as it is legally regarded as part of the foreign company and does not have a separate legal identity from that of the foreign company.  The branch office does not have limited liability as a limited liability company; therefore, the liabilities of the branch extend to the parent company.

The branch is required to have a UAE national as a local sponsor (the “Local Services Agent”). The Local Services Agent, however, will neither acquire any rights or interests in the business of the branch nor interface in the substantive management of the branch. The Local Services Agent will merely provide services on matters that concern local government authorities (i.e., processing the branch’s registration and licensing renewal requirements, processing visas and work permits for the branch’s personnel). In return, the Local Services Agent usually receives a fixed annual fee to be agreed upon between the parties.

The branch may only be engaged in activities similar to those of the foreign company. However, some activities may require specific approval from the concerned authorities in the Emirate concerned.

Founders not less than three and not more than fifty persons may incorporate private joint stock company, which shares are not issued for public subscription, and those founders shall subscribe from the whole capital which shall not be less than Dhs.2,000,000 (UAE Dirhams Two Million).

Amongst the GCC, the UAE has taken the lead in developing free zones and has been remarkably successful in attracting foreign investment. In fact, nearly all new foreign investment in the UAE gravitates to the free zones.

The proliferation of Free Zones in the United Arab Emirates witnesses the emergence of two parallel, yet distinct and divergent business environments.  The “onshore” (the rest of the UAE) environment remains subject to national laws and regulations, regarding foreign ownership; whereas the free zones or the “offshore” environment, offers complete freedom of ownership to foreign investors.

As the proliferation of free zones continues, with over 25 free zones throughout the UAE, three segments within the free zone environment are also emerging.  Initially, free zones were typified by proximity to a port or airport, however, over the last few years a new phenomenon has emerged which is not linked to a port or an airport but designed to appeal to specialized or service industries (an “urban free zone”).

The port-based free zones are working to attract investors who will route their shipments through the respective ports. The airport free zones have a comparable target market among users of air cargo. The urban free zones, on the other hand, by allowing freedom of movement within the onshore environment are, in effect, competing with the onshore environment. There are already signs of a movement of established foreign companies from the onshore environment to the urban free zones.  The net result is the convergence of the free zone environment with the onshore environment, whether that was the intended result or not.  Having said that, by law, the free zone environment still remains distinctly different form the onshore environment and is still subject to the restrictions imposed on free zone entities.  A free zone (including the urban free zones) is considered a foreign entity and conducting business onshore is subject to the UAE laws regarding foreign investment and commercial transactions.

Generally, the differences between the free zone and the onshore environments in the UAE are as follows:

In most other respects, the free zone and onshore environments in the UAE are the same. For example, there is no corporate or personal direct taxation; there are no constraints on repatriation of capital or profits; and in most cases there are no explicit controls on the pricing of goods, services, labor or materials.  

Motei & Associates has an in-depth knowledge of the requirements and workings of the free zones in the UAE. We are, therefore, in an ideal position to advise as to the most appropriate zone for your needs and the most appropriate corporate vehicle.

In incorporating your free zone company we provide a comprehensive bespoke service and undertake all aspects of the incorporation on your behalf, ranging from the initial advice, to preparing business plans, applying for visas, securing premises, obtaining the trade license and ongoing legal compliance.

There are various free zones within the UAE, some of the most popular are as follows:

Motei & Associates has established a dedicated and efficient department to assist clients with the establishment, management and administration of offshore companies within and/or the UAE.  All offshore companies must fulfill certain legal requirements in order to maintain their standing. To ensure the smooth running of your offshore company, our Corporate Services Department provides comprehensive services, both statutory and non-statutory, to suit each client's requirements.