Types Of Companies
Setting up a business in another country is a significant task. It’s crucial to understand not just the paperwork (like starting a business in Dubai) but also the importance of creating the right company structure. While it might seem straightforward, it’s essential to remember that there are details that only professionals are aware of.
We want to highlight that you have three common options when establishing a company:
- Free Zone Company
- Offshore Company
- Local company (firm with a local partner / UAE citizen)
About Opening A Business In The UAE
All companies in the UAE can be divided into onshore, which are allowed to operate in the UAE and offshore, which are prohibited from doing business in the Emirates.
The most popular onshore organizational and legal forms are the following:
Limited Liability Company (LLC) (registered in a partnership with a UAE citizen on the territory of an emirate. The UAE citizen owns 51% of the company’s shares)
Free Zone Company (is 100% foreign owned)
Sole Proprietorship (the company is registered in the territory of the emirate, but 100% of the capital can be owned by a foreign person It is worth noting that in this case, the liability is unlimited. For example, if the company is in arrears and the company’s assets are not enough to repay it, means will be found from the personal assets of the company owner).
Freelancer License (permits are issued by a number of free economic zones)
Offshore companies, whose activities in the UAE are noticeably limited, are no less in demand.
Offshore companies do not have the right to conduct business in the UAE and rent an office for this purpose. They are holding companies that manage assets, invest in businesses and purchase real estate.
The following types of licenses are available in the UAE Free Economic Zones:
- General Trading License (allows you to trade a wide range of products)
- Trading License (allows you to trade only those products that are listed in the license)
- Industrial License
- Service License
The largest number of free economic zones is represented in Dubai. Their number exceeds 20. The most popular are the following:
- Jebel Ali Free Zone (JAFZ)
- Dubai Airport Free Zone (DAFZ)
- Dubai Internet City (DIC)
- Dubai Media City (DMC)
- Dubai Health Care City (DHCC)
- Dubai International Financial Centre (DIFC)
- Dubai Multi Commodities Centre (DMCC)
- Dubai Knowledge Village
- Dubai Silicon Oasis Authority (DSOA)
Abu Dhabi is rapidly gaining momentum and it is planned to create here several free economic zones at once. At the moment, the Twofour54 free economic zone is the most popular.
Free economic zones are also located in a number of other emirates.
Sharjah
- Sharjah Airport Free Zone (SAIF Zone)
- Hamriyah Free Zone (HFZ)
Ras Al Khaimah
- Ras Al Khaimah Free Trade Zone (RAKFTZ)
- Ras Al Khaimah Investment Authority (RAKIA)
Fujairah
- Fujairah Free Zone (FFZ)
- Fujairah Creative City
Ajman
- Ajman Free Zone (AFZ)
Umm Al Quwain
- Umm Al Quwain Free Trade Zone (UAQ FTZ)
The original idea of creating free economic zones in the UAE was to establish conditions for conducting a certain type of business activity. For example, the Dubai Multi Commodities Centre (DMCC) was created solely for the exchange of goods and trade and the Dubai International Financial Centre (DIFC) – for working with financial instruments. After several years, the management of free economic zones decided not to limit their range of potential client companies. Now you can open a store, clinic, beauty salon or others in the Dubai Multi Commodities Centre (DMCC). Thus, when choosing a free economic zone, you should not pay close attention to its name. If you want to register a company there, then you need to check this option with the local government. Some free economic zones are willing to add new activities to their lists, if this does not generally contradict the very idea of this free economic zone.
Special attention should be paid to companies engaged in trade and registered in the free economic zone. Such companies may conduct direct trading activities only within the geographical limits of their free economic zone. If a company wants to sell products to companies registered outside the free economic zone, then in this case, a sales agent will be required as the official distributor. An agreement with a local company registered outside the free economic zone will be also required.
There are no taxes in the United Arab Emirates. If you start up a company, your responsibilities include only the annual payment of the license fee, the amount of which varies in each free economic zone.
Having a registered company address is one of the key conditions for obtaining a license. To obtain an address, a business owner can rent an office, sign a lease agreement for premises in a business center, or rent a flexi-desk in a free economic zone. Flexi-desk is a workplace in the business center of the free economic zone, which is allocated for use for 16-20 hours per month. The cost of renting a Flexi-desk is 3-6 times less than the cost of an annual office rental, which is the optimal solution for a start-up business.
Having a registered company address is one of the key conditions for obtaining a license. To obtain an address, a business owner can rent an office, sign a lease agreement for premises in a business center, or rent a flexi-desk in a free economic zone. Flexi-desk is a workplace in the business center of the free economic zone, which is allocated for use for 16-20 hours per month. The cost of renting a Flexi-desk is 3-6 times less than the cost of an annual office rental, which is the optimal solution for a start-up business.
An important indicator is the requirement to submit annual audit reports. The free economic zones of Dubai require audit reports, which is associated with certain expenses. The free economic zones in other Emirates do not require or have canceled annual audit reports in order to attract customers. An important feature is the size of the registration fee for opening a company. As a rule, if you are looking for a more economical solution, it will be reasonably to register a company in another emirate.
In Dubai and other emirates of the UAE, you can register the following forms of businesses:
- A new company
- A company branch
- A subsidiary enterprise.
The list of documents required to open a company depends on the following factors:
- Who will be the company’s shareholder (individual or legal entity) and how many shareholders will own the company,
- A new company will be opened, or it will be a branch or a subsidiary.
If legal entities, shareholders want to open a branch or subsidiary, certified/legalized corporate documents will be required.
The time to open a company varies from emirate to emirate. Companies in Dubai require significantly more time for their registration due to the large number of daily requests. Opening a company in Dubai can take from 2 weeks to one month. In other emirates, it may take only a few days to open a company. However, we must not forget that some activities require additional permits from local authorities (Ministry of Health, Ministry of Defence, etc.), which can increase the time period required for registering your company to several months
To open a company in the UAE, the formation of the authorized capital is required. As a rule, the standard size of the authorized capital is 50 000 dirhams. Depending on the type of activity, this amount may be higher. Some free economic zones do not require the physical transfer of funds to a bank account as well as the receipt of a confirmation letter from the bank about the transfer of capital. In a number of free economic zones, the physical transfer of funds is mandatory. For example, the DMCC requires a shareholder to deposit an amount of 50,000 dirhams into the company’s bank account.
After the company is registered in Dubai or in another emirate, the owner of the company receives the following documents (please note that depending on the free economic zone, the names of the documents may vary):
- Certificate of Registration / Incorporation;
- License;
- Memorandum and Articles of Association / Articles of Incorporation;
- Share certificate.
In case of opening a branch of the company, the Articles of Association is not issued.
After obtaining a company license, the owner or manager of the company must apply for an immigration card (Establishment Card). The application is submitted through the Office of the free economic zone to the immigration service of the relevant emirate. The Immigration service opens a file on the company and issues this card. Without it, the company cannot hire employees and obtain resident visas for them. This card must be renewed annually on time, otherwise penalties are imposed. The cost of the card, as a rule, is about 460 dirhams. The same amount must be paid annually for its renewal. The Establishment Card is also called the Company Immigration Card (CIC) in some free economic zones.