Understanding the Steps to Set Up a Foreign Branch Office in the UAE

by Zaara 21, Jul 2020

A branch of a foreign company in the UAE is a registered company that can be 100% foreign-owned, provided a local service agent is appointed. The branch office is an extension of the foreign parent company and must obtain a trade license for the same activities its parent company carries out. A branch office is permitted to engage in commercial activity in the Emirates and to earn profits. It is licensed for the purposes set out in its commercial license. It may only engage in activities similar to those carried on by the foreign company in its home jurisdiction.

Setting up a foreign branch office in the UAE would increase business opportunities by encompassing their operations into other markets in addition to other varied advantages. But first, let us understand the different types of branch offices in the UAE.

Types of Branch Offices in the UAE

A business person can choose from 4 different kinds and consider the one which would be the most effective for their business.

1.Corporate Shareholder

Under this type, the parent company can either operate in one of the Emirates or any other geography. The branch offices under corporate shareholders allow an individual shareholder to hold a stake along with the license. It is also likely to have multiple corporate owners.

2.Branch Company

One of the most common set-ups, a branch company, can also have a parent company operating either within Dubai or outside. However, unlike a corporate shareholder, a branch company follows the rule of a sole proprietorship.

3.Representative Office

The most cost-effective among all representative offices, branch types, too, can have their parent company operating either within or outside of Dubai. The important difference between the representative office branches from others is that their business activities are restricted to promoting and sourcing work for the parent company. They are not permitted to make a profit in the Emirates and must outsource all work back to the parent company.

4.Subsidiary

Operations of companies under the subsidiaries branch functions in a unique way. They are considered as a separate legal identity to the parent company and must be arranged within Dubai. Since the parents of the subsidiaries can be either in or out of the UAE, but the management must be based in Dubai, the subsidiary undertakes the total liability for its actions and business activities.

A Dubai branch office is wholly owned by the parent company, functions under the same name, and is approved to conduct the same business activity than its parent company. A branch office can lease office premises, issue sales invoices to the UAE, and international clients and sign local legal contracts.

branch office in the UAE cannot engage in manufacturing, import, nor export of products to/from the UAE.

Characteristics of a Branch Office in the UAE

  • Bank Guarantee - A refundable bank guarantee deposit of AED 50,000 is required for the duration of the license, which cannot be withdrawn or used as working capital. This must be paid to the Ministry of Economy
  • Liability and Tax - The foreign branch office is not a separate legal entity, and therefore the foreign parent company is 100% liable for the actions of the branch and the revenue of the branch will be taxable (in the country where the relevant foreign parent is resident) as the income of the foreign parent
  • National Service Agent - The National Service Agent (NSA) has no equity participation or liability to the business, nor can the person characterize the foreign branch office or participate in its management
  • Activities - The foreign branch office is not well-thought-out a separate legal entity from the foreign company and therefore commercial activities must stay the same as those of the parent company
  • Company Duration - The branch has longevity and is not restricted by specific contracts

Procedure to Establish a Branch Office in the UAE

The steps to register your branch office in the UAE is simple and straight-forward. Here are they –

  1. The foreign branch office must appoint a national service agent to handle the procedure. It is compulsory that the local agent in the Emirates national or a company owned by 100% by the UAE nationals. You can then complete the trade name reservation process through the Department of Economic Development (DED).
  2. The next step is to obtain consent from the Ministry of Economy, and the application includes the details of the company regarding share capital, nature of the business, head office, the name of the general manager in UAE, etc. along with certain obligatory documents.
  3. The next step is to obtain a license from the DED. The Ministry of Economy (MOE) will issue the initial approval letter to either the Abu Dhabi Department of Economic Development (ADDED) or Dubai Department of Economic Development (ADDED). Documents that are required include –
    1. Initial approval from the MOE
    2. Copy of proposed lease in UAE (Tawtheeq in AD, Ejari in Dubai)
    3. Copies of documents submitted to MOE
    4. Engagement letter from a regionally registered in the UAE auditor confirming company existence and two-year financial statements of the parent company.

A commercial license will be given by the DED for one year and is subject to annual renewal.

  1. Once the commercial license is issued, the company can investigate office space, open bank accounts, and acquire visas and labor cards for employees. Note that the banks will need to see full UBO information on the Parent company and additional corporate and shareholder structures within the Parent company – all foreign documents will need to be attested, legalized and translated for use in the UAE.

Registering with the Ministry of Economy is the key to setting up a branch in the UAE. There is a procedure that must be adhered to with related registration fees to enable a branch company to be formed.

We at Commitbiz can help you open your foreign branch office in the UAE. Contact us today to learn more.