Onshore Setup (UAE resident company)

In order to conduct business in the UAE, foreign investors must comply with the UAE laws on foreign investment and trade. Below is a summary of the various onshore setup options.


Direct Trade

International manufacturers and exporters may conduct business within the UAE by concluding transactions directly with importers and traders who are already established in the market. Imports into the UAE can only be undertaken by those importers who have the appropriate trade license. This relationship is distinct from a Commercial Agency, as there is no long term contractual arrangement and the products are sold to the distributor who may then resell the products into the market or utilize the products for his own enterprise (in the case of raw materials or components). This type of arrangement is more suitable for low volume trade. However, for an on-going business relationship, foreign investors may need to consider a more permanent form of setup.


Commercial Agencies (Exclusive Distributors)

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 UAE 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) arguments 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 primary requirements and characteristics of commercial agencies are:

  • Commercial agents must be UAE nationals or companies incorporated in the UAE and owned entirely by UAE nationals;
  • The agency agreement must be registered in order for the agent to avail himself of the protection afforded under the law and to have the agency relationship recognized under UAE law;
  • Commercial agents are entitled to have an exclusive territory encompassing at least one Emirate for the specified products (Article 5(1) of the Commercial Agencies Law);
  • Unless otherwise agreed, commercial agents are entitled to receive commission on sales of the products in their designated territory irrespective of whether such sales are made by or through the agent (Article of the Commercial Agencies Law);
  • Commercial agents are entitled to prevent products, subject to their agency, from being imported into the UAE, if the agent is not the consignee.
  • Commercial agents are entitled to receive compensation from the principle if the agency is terminated without substantial justification or 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 circumstances.


Limited Liability Companies

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 (however not necessarily to be deposited in a bank to issue a bank certificate) 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.

Nationals of Gulf Cooperation Council Countries (GCC): Two or more GCC nationals (from the same country) may establish a Limited Liability Company to practice a specific commercial activity. However if there is one or more partners who are not GCCC nationals, in this case one or more UAE National partners are required, with a shareholding of not less than 51% of the paid-up capital.


Representative Office

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.


Branch Office

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.


Private Joint Stock Companies

Founders not less than three and not more than fifty persons may incorporate a 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).

Requirements:

  • UAE Nationals should hold at least 51% of the Shares; however three or more GCCC nationals may establish a private joint stock company to practice a specific commercial activity and if there is one or more partners who are not GCCC nationals then in this case one or more UAE national partners are required, with a shareholding of not less than 51% of the paid-up capital;
  • Minimum Capitalization: Dhs.2,000,000;
  • Minimum of 3 and a maximum of 12 Members of the Board of Directors;
  • Chairman of the Board must be a UAE National;
  • The majority of the Board Members must be UAE Nationals;
  • 10% of the net profits must be allocated into a reserve account until such reserve account amounts to half of the total paid-up capital of the company.


Joint Venture Company (Consortium Company)

A Joint Venture Company is a type of company where two or more partners agree by contract to share in the profits or losses of one or more commercial enterprises, which will be carried on in the name of one of the partners. Joint venture contracts may be written or oral, are not notarized and shall not be subject to registration in the Commercial Register or to any publicity requirement. Third parties have recourse only against the partner with whom they are dealing with.

However, should the Joint Venture arrangement be disclosed to third parties, all of the partners shall be liable to such third parties. Existence of a joint venture arrangement may be proved by any method of proof.

If you are looking to setup onshore, please fill in our ‘Onshore Application Form (link)’ and send back to us. One of our corporate team shall contact you shortly.

If you wish to discuss other business setup options, please feel free to contact us at contact@motei.com to arrange for an appointment.

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Office No. 801, 8th Floor
P.O. Box: 112888
Dubai, UAE

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