Growing business activities give birth to company expansion. When a business entity performs extremely well in the home market, further expansion is normally the next logical step. The process of expansion initiates with establishing a child company in the targeted location. You might have come across terms like the subsidiary company, representative office, or branch office. These terms appear to be the same, but aren’t. Let’s have a look at the differences.
1. Representative Office
This is a type of company that is established by the parent company in a foreign location to carry out the marketing and non-transactional business operations. They are much easier to establish that a branch office as they are not used for core business purpose.
2. Branch Office
A branch office is another office other than the parent office in a different location to perform the business activities in the targeted location. These offices have got different departments such as HR, Marketing, Accounting, etc. The ownership belongs to the parent company.
Benefits of Establishing a Branch Office
1. Tax Benefit
This is perhaps the most attractive feature of a branch office setup. UAE corporate tax stands at 0%, making the country very lucrative for establishing a branch.
2. Audit Stream
Audit process becomes more complicated when it comes to an international level. Segmenting and establishing a branch office helps to a great extent. The funds that flow between the parent and branch office can be easily tracked and it makes the audit process much easier.
3. Low Administrative Burden
Setting up a branch office helps to a great extent as it removes the need for separate finance function and audited accounts need not be submitted.
4. The Cost-Effective Route into a New Market
Setting up a representative office normally doesn’t require share capital. Only the standard fees, applications, and initial deposits need to be cleared, which turns out to be quite cost-effective.
Benefits of Establishing a Representative Office
1. Pricing Structure
The total setup cost of a representative office in the UAE comes to around AED 100,000.
2. Multiple Shareholders
One has the flexibility of setting up a representative office with multiple shareholders, with an upper limit of 50.
3. No Share Capital
It is possible to establish a representative office in the UAE without the requirement of any minimum share capital.
Different Types of Foreign Business Entities in UAE
There exist four types of business entity structures that a company abroad may choose to set up as its offshoot in the UAE, depending upon the business activity:
1. Corporate Shareholder
Stands as a business entity that owns shares in another limited company and possesses the same rights that of a non-corporate shareholder. The parent company can be based in UAE or abroad. It provides the right to vote at general meetings, to receive a portion of business profits as dividends, and to receive the capital contribution in case if the business is wound up.
2. Branch Company
Similar to that of a corporate shareholder and parent company can be based in UAE or abroad. The difference between a branch and a corporate company is that the parent company remains as the sole owner of the branch company, and the child company uses the articles of association of the parent company.
3. Representative Office
The parent company can again be a UAE national or foreign company. The main difference lies here is that representative office is not allowed to make individual profits, and their business activities are limited to promoting and sourcing of parent company.
This serves out to be the most unique branch out of all the above stated. It holds a separate identity from that of their parent company and is solely responsible for its business actions. The parent company can be a UAE based or foreign company but its mandate for the management to be based in UAE.
How to Establish a Branch Office in UAE?
The process of establishing a branch office in UAE involves a few steps:
1. Identify Local Agents
This is the initial task that’s required to be done. Identifying a local agent is one of the common tasks that is followed by both branch office and representative office. It is mandatory that the local agent must be a UAE national or a company fully owned by UAE nationals.
2. Reserve a Trade Name
An application needs to be submitted in Emirate’s Department of Economic Development (DED) stating about the trade name reservation and office registration approval.
3. Apply to the Ministry of Economy
A complete picture of the company needs to be stated in the application that includes the details regarding share capital, head office, nature of the business, the name of the general manager in UAE, etc. along with certain compulsory documents that are mandated for an approval.
4. Obtain a License from the Department of Economic Development
Once the relevant documents are submitted and evaluated, the Ministry of Economy (MOE) will issue the approval letter to either Abu Dhabi Department of Economic Development or Dubai Department of Economic Development. Now, at this stage, the client needs to submit another set of documents that will accompany the initial application. These include:
- MOE approval received along with other approvals applicable to the industry
- Copy of proposed lease in the UAE
- Copies of documents submitted to the MOE
- Undertaking from the foreign parent company
- A letter from UAE auditor confirming its existence, summarizing two-year financial statements of the parent company
After submission and verification of the aforementioned documents, a commercial license will be issued by the DED for a validity of one year and is subjected for renewal annually.
5. Carry Out the Administrative Tasks
Once the license has been received, further tasks of company incorporation can be looked into like office space, the opening of bank accounts, acquire visa and labor cards for employees.
6. Become a Member of the Chamber of Commerce and Industry
The final step is to become a member of the Abu Dhabi Chamber of Commerce and Industry by filing an application along with copies of office lease agreement, a commercial license obtained from DED.
Documents Required to Set Up a Branch Office in UAE
As we have seen in each step, documentation plays a major role. Let’s have a clear view on the mandated documents required to set up a branch office in UAE, which include:
- Trade name reservation and initial approval forms
- Certificate of Incorporation, Memorandum of Association (MOA), Articles of Association (AOA)
- Board resolution that authorizes the opening of the branch office, certificate of good standing
- Power of attorney in favor of General Manager
- Director’s passport copy
- Audited accounts of the parent company for the last two years
- A statement that highlights the company’s establishment aim, main operational activities
- Notarized agreement with the local agent
- Government approval
Before performing the business activities, a representative office needs to get registered with the following authorities:
- Ministry of Economic and Commerce
- Company Registrar
- Chamber of Commerce
Cost of Establishing a Branch Office in Dubai
Trade License Activity
Cost in USD
Cost in AED
Application for the Ministry of Economy (UAE Govt.)
Registering with the Ministry of Economy (UAE Govt.)
Deposit with the Ministry of Economy to be submitted in a bank guaranty format
Registering and licensing with the local government (approx.)
Local Client-service agent fees (maximum)
Benefits of Establishing a Branch or Representative Office in UAE
Let’s have a quick glance at the benefits that can be derived by setting up a branch or a representative company in UAE:
- 100% ownership option to foreign investors
- Flexibility to own a bank account
- Business privacy is strictly maintained
- 0% corporate tax
- 0% personal tax
- Only 5% is the minimum charge for imports
In a nutshell, we can say that setting up a branch or a representative office acts as a supporting pillar, an extension to the parent company, ultimately helping them to capture the mass market in different regions of the world. Are you planning to set up your business branch in UAE? It’s an excellent decision that will help your business to grow at a faster pace at an international level. We, being business consultants, understand the setup process and have helped multiple clients to establish their business in the UAE. To proceed to the next step, do contact us – we’d be happy to assist you.