Legal Structures for Setting up Business in Dubai
The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organisations, which can be established in Dubai. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. The seven categories of business organisation defined by the Law are:
Out of the above seven company types, LLCs are more commonly chosen by the foreign investors.
Apart from these seven categories, investments are encouraged through:
A Limited Liability Company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the Company's capital. Most Companies with expatriate partners have opted for this Limited Liability Company, due to the fact that this is the only option which will give maximum legal ownership i.e. 49% to the expatriates for a trading license.
Fifty-one per cent participation by UAE nationals is the general requirement for the Limited Liability Companies. Therefore the normal shareholding pattern for an LLC is:
Local sponsor - 51%
Foreign Shareholder (s) - 49%
While foreign equity in the company may not exceed 49%, profit and loss distribution can be mutually agreed. Responsibility for the management of a Limited Liability Company can be vested in the foreign or national partners or a third party.
The time required to form a company will be approximate 1-2 weeks from the date of receipt of all the documents. The procedure and cost breakup will be given upon request.
The Commercial Companies Law covers the formation and regulation of branches and representative offices of foreign companies in the UAE and stipulates that they may be 100% foreign owned, provided a local service agent is appointed.
A branch office, legally regarded as part of its parent company, is a full-fledged business, permitted to perform contracts or conduct other activities as specified in its license. A branch office may only be engaged in activities similar to those of its parent company.
Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local service agents. Local service agents - also sometimes referred to as sponsors - are not involved in the operations of the company but assist in obtaining visas, labour cards, etc and are paid a lump sum fee per annum. The time required to form a branch of a foreign company is approximately 3-4 weeks from the date of receipt of all the documents.
Business plan, current profile and last two year financial statements must be submitted to prove the credibility of the company. The Companies that are of trading nature must have manufacturing facilities at its country of origin. All branch ventures are subject to an approval of the Ministry of Economy.
A representative office, on the other hand, is limited to promoting its parent company's activities, i.e. to gather information and soliciting orders and projects to be performed by the company's head office. Representative offices are also limited in the number of employees that they may sponsor. Procedures are same for representative office setup except two year financial statements are not mandatory.
The detailed procedure and cost breakup can be availed via a request.
In setting up a professional firm, 100% foreign ownership, sole proprietorships or civil companies are permitted. Such firms may engage in professional or artisan activities. A UAE national must be appointed as local service agent, but he has no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover.
The basic requirement for all business activity in Dubai is one of the following three categories of licenses:
License for majority of the activities are directly issued by the licensing authority – Department of Economic Development, Dubai .
However certain activities require special approval from the related ministry /department