The prospect of reaching almost a billion people over the Middle East, North Africa and the Subcontinent has lured many of the international brands and organizations to United Arab Emirates. This was catalyzed as a result of the rules and regulations are among the most liberal in the region.
- Robust open economyThe UAE has a vibrant free economy, a significant proportion of its revenues arising from exports of oil and gas. Successful efforts have been made to diversify away from dependence on hydrocarbons and a solid industrial base has been created, together with a very strong services sector. The establishment of free zones has been an important feature of this diversification policy.
- Security and stabilitySince its establishment in 1971, the UAE has enjoyed an enviable degree of political stability, unequalled in the region. This has enabled the implementation of consistent sound economic policies and the reinforcing of the country’s social structure to produce one of the most tolerant, prosperous, secure and safest societies in the world. Dubai and Abu Dubai have been ranked the top two cities in the Middle East region for quality of life. Long-time investors include a wide range of multinational companies headquartered across the globe.
- Tax-efficient business environmentSpecial economic zones and free zones offer 100 per cent ownership, repatriation of profit and capital as well as exemptions from taxes. Outside of these areas, significant incentives are being offered to investors and corporate governance provisions ensuring transparency and accountability are being enforced. Corporate taxes are reserved only for branches of foreign banks and oil-producing companies. A negligible 5 per cent tariff is imposed on goods imported from non-Gulf Cooperation Council (GCC) countries, although tobacco and alcohol products are subject to 50 per cent customs duties.
- Proximity to growth regions
The UAE’s strategic location between Asia, Europe and Africa is a major advantage to investors, particularly the country’s proximity to some of the world’s fastest growing economies in Asia. Collectively India and China alone comprise almost 40 per cent of the world’s total population and support a combined GDP in excess of US$5 trillion, providing significant economic and trading opportunities.
- Intellectual property protection
Intellectual property, including patents and trademarks, is legally protected in the UAE and considerable efforts are being made to implement these laws. The country is also a member of international bodies, treaties and conventions that safeguard intellectual property, including the World Intellectual Property Organization (WIPO), World Trade Organization (WTO), Paris Convention, Patent Cooperation Treaty (PCT), WIPO Copyright Treaty, WIPO Performances and Phonograms Treaty (WPPT) and the Rome Convention.
- Solid infrastructure
Infrastructure in the UAE is second to none. Telecommunications, including mobile and fixed telephony as well as internet access is on par, if not better, than the world’s largest international business hubs. The road network is constantly upgraded and ports and airports are of world-class standards. To date, the Government has invested heavily in infrastructure development, but it has also opened up its utilities and other infrastructure to greater private sector involvement, so much so that public-private partnerships are now the norm.
- Multi-national human resources
Investors benefit from an abundant supply of human resource skills, courtesy of professionals migrating to the emirate from nearly every country in the globe, as well as the increasing number of UAE nationals that are joining the private sector.
Fifty-one per cent participation by UAE nationals is the general requirement for all UAE established companies except:
- where the law requires 100% local ownership;
- where the business is registered in one of the various free zones;
- in activities open to 100% AGCC ownership;
- where wholly owned AGCC companies enter into partnership with UAE nationals;
- in respect of foreign companies registering branches or a representative office in Dubai;
- in professional or artisan companies where 100% foreign ownership is permitted.
Structure of Business Entities
Federal Commercial Company Law Until 1984, the UAE did not have a federal commercial company Law. Instead, the government of each Emirate formulated practices and procedures concerning the establishment of business organizations within its Emirate. As a result of the absence of codified commercial legislation, Federal Commercial Company Law No. 8 of 1984 was promulgated and implemented in full in early 1993. Under the Commercial Companies Law, Federal Law No. 8 of 1984, UAE nationals must own a minimum of 51% of all public and private shareholding companies and limited liability companies. In practice, many public and private shareholding companies, especially those engaged in insurance and banking, are expected to be wholly owned by UAE nationals, and defines seven categories of business organisation, which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.
The various categories of business organisation defined by the law are:
- Public Shareholding Company
- Private Shareholding Company
- Limited Liability Company
- General Partnership Company
- Limited Partnership Companies
- Partnership Limited by shares
- Joint Ventures
- Sole Proprietorships
- Branches of Foreign Companies
- Representative Offices of Foreign Companies
The Commercial Agencies Law restricts commercial agencies to UAE nationals or companies owned wholly by UAE nationals.
Public and Private Shareholding Companies
The law stipulates that companies engaging in banking, insurance or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, however, can establish a presence in Dubai by opening a branch or representative office. Shareholding companies are suitable primarily for large projects or operations, since the minimum capital required is AED 10 million (US$ 2.725 million) for a public company, and AED 2 million (US$ 0.545 million) for a private shareholding company. The chairman and a majority of directors must be UAE nationals and there is less flexibility of profit distribution than is permissible in the case of limited liability companies.
A popular, and frequently, the most appropriate method of establishing a business in the UAE by foreign investors is to form a Limited Liability Company (LLC). A Limited Liability Company can be formed by a minimum of two and a maximum of fifty persons whose liability is limited to their shares in the company’s capital. Such companies are recognised as offering a suitable structure for organizations interested in developing a long-term relationship in the local market. The legal minimum share capital is AED 150,000. However, in Dubai, the minimum capital is currently AED 300,000 contributed in cash or in kind. While foreign equity in the company may not exceed 49%, profit and loss distribution can be prescribed. Responsibility for the management of a Limited Liability Company can be vested in the foreign or national partners or a third party. No LLC may engage in insurance or banking or investment of money on behalf of others. The names and holdings of all shareholders are a matter of public record.
A General Partnership is formed by two or more UAE nationals who are jointly and severally liable for the partnership’s debts. No names other than those of the actual partners may be included in a partnership’s name. A partnership interest may be transferred only with the approval of all partners or in accordance with conditions stated in the partnership agreement. The management of the partnership must rest with one or more managers who must be natural persons and who may or may not be partners. A partnership is dissolved on the death, insanity, bankruptcy or withdrawal of one of its partners, unless the remaining partners decide unanimously to continue the partnership and their decision is registered in the commercial register.
A limited partnership comprises one or more general partners who are jointly and severally liable for the partnership’s debts and one or more limited partners whose liability for the partnership’s debts is limited to their contribution to the partnership’s capital. No minimum capital contribution is required by the law. All general partners must be UAE nationals. A limited partner may not participate in the management or act in the name of the partnership. The death, insanity, bankruptcy, withdrawal or dismissal of a limited partner does not result in the dissolution of the partnership unless otherwise provided in the partnership agreement.
A partnership limited by shares is a company that has both general partners with unlimited liability and partners whose liability is limited by the value of the share capital for which they have subscribed. The company must have a minimum capital of AED 500,000. General partners in partnerships limited by shares must be UAE nationals. An annual audit is required.
A joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be prescribed. There is no need to license the joint venture or publish the agreement. The foreign partner deals with third parties under the name of the local partner who – unless the agreement is publicised – bears all liability. In practice, joint ventures are seen as offering a suitable structure for companies working together on specific projects.
Branch Office of a Foreign Company
A very popular way for foreign companies to benefit from 100% foreign ownership is to open a branch office of the parent company. A branch office is legally regarded as part of its parent company and does not have a separate legal identity from that of its parent company. Therefore, the name of the branch office will be the same as that of the parent company. Branch offices are nevertheless required to have a UAE national as a service agent. Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local service agents (which should not be confused with the term “commercial agent”). Local agents are not involved in the operations of the company but assist in obtaining visas, labour cards, etc and are paid a lump sum and/or a percentage of profits or turnover. One of the conditions for establishing a branch office in the UAE is that it may only be engaged in activities similar to those of the parent company. It is important to note that a branch office is permitted to carry on the business of importing products of its parent company, provided that the parent company is involved in the manufacture of such products.
Representative Offices of Foreign Companies
A representative office of a foreign company is legally distinct from the branch office in that the former is only allowed to promote its parent company’s activities. Therefore, if a parent company deals in the sale and / or production of certain products, if it opens a representative office in the UAE, the office will only be able to promote the sale or production of such products and facilitate contacts in the UAE, as distinct from a branch office, which can conduct their sale or production itself. In addition to the above limitations, representative offices have other restrictions in that they are not allowed to obtain credit facilities or put forward offers. As in the case of a branch office, it is necessary when establishing a representative office to appoint a local service agent.
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 but the number of staff members that may be employed is limited. 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 role of the local service agent is to assist in obtaining licenses, visas, labour cards, etc.
Partnership companies are limited to UAE nationals only. The Dubai government does not presently encourage the establishment of partnerships-en-commandite or share partnership companies.