Why an LLC Is the Most Favourable Business Entity in Dubai

by commitbizadmin 17, Feb 2020

Why an LLC Is the Most Favourable Business Entity in Dubai

Dubai has in the past decade become a hub for the Middle East as a place to do business due to the diversification of its economy, and it continues to be an important global centre for business, trade, and finance. One of the main allures of the business landscape in Dubai is the absence of the corporate and personal tax. There is, therefore, an increasing number of investors looking to set up their businesses in Dubai.

There are generally two main options for investors setting up a business and establishing a legal presence in Dubai. A foreign investor can choose to setup up their corporation on the mainland (otherwise known as ‘onshore’ companies) or in one of the many economic free zones in Dubai. It is also possible to set up an offshore company in Dubai, but this is irrelevant if you plan on conducting business in Dubai.

Why choose to set up a business in the mainland?

When you set up a company on the mainland, you have the option of doing business in any part of Dubai, and can be licensed to carry out a wide variety of business activities. This is in contrast with setting up a company in one of the free zones, where corporations are allowed to conduct business only within the specific free zone and exclusively carry out the activities specified in their licenses.

One of the main limitations of setting up an onshore company in Dubai is that a foreign investor can only own up to 49% of the company, and a UAE national acting as a sponsor must own at least 51% of the company. This is not a limitation of companies operating within a free zone, where foreign investors can own 100% of the company. In reality, however, finding a local sponsor should not stop investors from wanting to set up a company in the Dubai mainland.

It is possible to provide in the constitutional documents of the company that profit and losses be shared differently to that of the share capital ratios, such as 80% for the foreign investor and 10% for the local sponsor. Other profit-sharing arrangements include paying the sponsor a fixed annual fee, a percentage of sales or a percentage of profits. In practice, a majority of the companies opt to pay the local sponsor a fixed annual fee, as it doesn’t require the company to disclose their accounts.

In the mainland, there are various legal vehicles which can be used to start a company in Dubai.

  • Limited Liability Company
  • Private Joint Stock Company
  • Public Joint Stock Company
  • Limited Partnership
  • Joint Liability Company
  • Opening a branch office

Limited Liability Companies (LLCs)

Of all the different types of corporate structures for establishing a business presence in the mainland of Dubai listed above, most foreign investors choose to set up a limited liability company or LLC.  An LLC can engage in any lawful activity with the exception of banking, insurance and the investment of money for third parties according to the UAE’s Federal Commercial Companies Law (No.8 of 1984 as amended). An LLC must also have a minimum of 2 shareholders and a maximum of 50 shareholders, with at least 51% of the shareholding to be held by a UAE national. A single partner LLC can only be formed by a UAE national. The liability of all shareholders in an LLC is limited to their capital contribution. There are several other reasons why LLCs are the most popular choice among foreign investors looking to conduct business in the Dubai mainland.

1.Access to Trade All Over the UAE

An LLC can trade anywhere in the UAE economy, unlike a company in a free zone, which is restricted to operating only within the free zone and internationally.

2.Wide Range of Permitted Activities

There are almost no restrictions on the type of activity that can be carried out by an LLC with the exception of banking, finance and investment on behalf of third parties.

3.No Minimum Capital Requirement

There is no minimum capital requirement for setting up an LLC in Dubai, unlike most free zone companies which do have such a requirement. Setting up a public joint-stock company as well as a private stock company also involves a minimum share capital requirement. An LLC must simply have enough share capital for the realization of the objectives of the company. 

4.Freedom in the Management of the Company

Despite the minimum 51% local shareholder requirement for LLCs, foreign shareholders still manage to exert significant control over the company. This is because, in practice, local shareholders do not usually play any part in the operations of the company and the foreign investor is often authorized to vote on their behalf in company matters. The day to day management of the company may also be vested in a manager who is not a UAE national, as selected by the foreign investor.

5.Investor Visa

An investor in an LLC will get the privilege of an investor’s visa for themselves and their family. There is also no restriction on the number of visas that can be obtained by an investor in an LLC.

Setting up an LLC is, therefore, the preferred option for investors looking to take advantage of the host of opportunities offered the dynamic economy Dubai. If you are interested in setting up an LLC in Dubai, we at Commitbiz can assist you with all your needs, including services such as finding a local sponsor. Do not hesitate to contact us for any guidance or advice.