Making plans on starting a venture in Dubai? Even though Dubai is known for it’s booming business options and high economic growth, still a factor of risk is involved. Dubai offers businessmen operating conditions that are among the most liberal and attractive in the region.It is good to have a detailed insight of the market before establishing a commercial setup. There are several options available for international companies seeking to establish a business relationship with Dubai.
Licensing
The basic requirement for all business activity in Dubai is one of the following three categories of licences:
- Commercial licences covering all kinds of trading activity.
- Professional licences covering professions.
- Industrial licences for establishing industrial or manufacturing activity.
All commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.
Legal Structures for Business
In the past, each emirate followed its own procedures governing the operations of foreign business interests. In practice, however, Dubai and the other emirates followed the same general system, whereby foreign companies operated in one of three ways with a local sponsor, through a partnership with a UAE national or company, or through a private limited company or public shareholding company incorporated by Ruler’s decree.
The Federal Law stipulates a total local equity of not less than 51% in any commercial company 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.
The seven categories of business organization defined by the law are:
- General partnership company
- Partnership-en-commendam
- Joint venture company
- Public shareholding company
- Private shareholding company
- Limited liability company
- Share partnership company
Limited Liability Companies
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. Such companies are recognized as offering a suitable structure for organisations interested in developing a long term relationship in the local market.
The following steps are required in establishing a limited liability company in Dubai.
- Select a commercial name for the company and get it approved by the Licensing Department of the Economic Department
- Issue an initial approval for the activity from Economic Department
- Sketch out the company’s Memorandum of Association and get it notarised by a Notary Public in the Dubai Courts
- Seek approval from the Department of Economic Development and apply for entry in the Commercial Register
- Once approval is granted, the company will be entered in the Commercial Register and have its Memorandum of Association published in the Ministry of Economy and Commerce’s Bulletin and the licence will then be issued by the Department of Economic Development
- Make sure that the company should then be registered with the Dubai Chamber of Commerce and Industry.
Branches and Representative Offices of Foreign Commercial Companies
To establish a branch or representative office in Dubai, a foreign commercial company should proceed as follows:
- Apply for a license from the Ministry of Economy and Commerce, submitting an agency agreement with a UAE national or 100% UAE owned company.
- Before issuing the licence, the Ministry will:
- Forward the application to the Department of Economic Development to obtain the approval of the Dubai government
- Forward the application specifying the activity that the office or branch will be authorised to undertake in the UAE, to the Federal Foreign Companies Committee for approval
- Once this has been done, the Ministry of Economy and Commerce will issue the required Ministerial licence specifying the activity to be practiced by the foreign company
- The branch or office should be entered in the Economic Department’s Commercial Register, and the required licence will be issued
- The branch or office should also be entered in the Foreign Companies Register of the Ministry of Economy and Commerce
- Finally the branch or office should be registered with the Dubai Chamber of Commerce and Industry.
Professional Firms
In setting up a professional firm, 100% foreign ownership, sole proprietorship 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.
Setting Up a Branch of a Foreign Company
Any company wishing to set up a project in Jebel Ali Free Zone must first complete a simple questionnaire. From the information provided, the Free Zone Authority can make a first assessment of whether the company’s needs can be met.
Only on receiving these documents, the Free Zone Authority will consider the proposal. If provisional approval is given, the company will be asked to prepare and submit the documents called for in the appendix to the licence application.
After the checking of these documents, a meeting will be called to discuss and finalise the project details. If everything is satisfactory, the Authority will issue conditional approval for the project. Thereafter, a lease agreement and, if required, a personnel secondment agreement will be prepared by the Authority for signature by the company.
At the time of signing, the applicant will be required to provide the insurance policies called for in the agreements and should pay the agreed rental and licence fee prior to collection of the licence.
If the company wishes the Free Zone Authority to sponsor employees on its behalf, applications for entry permits may be submitted once the licence has been issued. The bank guarantee called for in the personnel secondment agreement will be required at this stage together with visa charges.
If the company’s project involves the erection of a structure, detailed plans must be submitted after the lease has been signed. When the plans have been agreed, a building permit will be issued.
Administrative work, such as importing equipment or engaging labour for installation of equipment, may proceed in parallel with construction work. But application for entry permits for operatives to be sponsored by the Free Zone Authority will not normally be accepted until a completion certificate for the construction has been issued.
Businessmen in the region prefer to deal with someone they know and trust and personal relationships are much more important in doing business in the Arab world than they are in Western Europe or America. Also, the buying patterns of some countries served by Dubai tend to be unpredictable, creating a need for first class market intelligence and information. Dubai offers foreign companies a wide choice of business options, including:
- Direct trade – selling directly to established dealers and distributors
- Commercial agency arrangements – appointee must be a UAE national or company; agreement to be registered with Ministry of Economy and Commerce
- Branch or representative office – 100% foreign ownership permitted; local agent (sponsor) must be appointed; Economic Development Department licence required
- Limited liability company – foreign ownership restricted to 49%; Economic Development Department licence required
- Special free zone investment incentives.
Joint Venture Companies
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.
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 Dh. 10 million (US$ 2.725 million) for a public company, and Dh. 2 million (US$ 0.545 million) for a private shareholding company. The chairman and 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.
Limited Liability Companies
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. Such companies are recognised as offering a suitable structure for organisations interested in developing a long term relationship in the local market.
In Dubai, the minimum capital is currently Dh. 300,000 (US$ 82,000), 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 foreor national partners or a third party. The following steps are required in establishing a limited liability company in Dubai.
- Select a commercial name for the company and have it approved by the Licensing Department of the Economic Development Department
- Draw up the company’s Memorandum of Association and have it notarised by a Notary Public in the Dubai Court
- Seek approval from the Economic Development Department and apply for entry in the Commercial Register
- Once approval is granted, the company will be entered in the Commercial Register and have its Memorandum of Association published in the Ministry of Economy and Commerce’s Bulletin. The licence will then be issued by the Economic Development Department
- The company should then be registered with the Dubai Chamber of Commerce and Industry.
Branches and Representative Offices of Foreign Companies
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 agent is appointed. Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local agents (which should not be confused with the term commercial agent). Local agents – also often 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 and/or a percentage of profits or turnover. To establish a branch or representative office in Dubai, a foreign company should proceed as follows:
- Apply for a licence from the Ministry of Economy and Commerce, submitting an agency agreement with a UAE national or 100% UAE owned company. Before issuing the licence, the Ministry will:
- forward the application to the Economic Development Department to obtain the approval of the Dubai government;
- forward the application specifying the activity that the office or branch will be authorised to undertake in the UAE, to the Federal Foreign Companies Committee for approval;
- Once this has been done, the Ministry of Economy and Commerce will issue the required Ministerial licence specifying the activity to be practised by the foreign company;
- The branch or office should be entered in the Economic Development Department’s Commercial Register, and the required licence will be issued;
- The branch or office should also be entered in the Foreign Companies Register of the Ministry of Economy and Commerce;
- Finally, the branch or office should be registered with the Dubai Chamber of Commerce and Industry.
Setting Up Of Professional Firms
In setting up a professional firm, 100% foreign ownership, sole proprietorship’s 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 licences, visas, labour cards, etc.
Free Zone Incentives
- 100% foreign ownership
- Exemption from all import duties
- 100% repatriation of capital and profits
- Freedom from corporate taxation, as applied throughout Dubai, with the added bonus of a renewable 15 year guarantee in the free zone
- Abundant inexpensive energy
- Simple and efficient recruitment procedures ensuring the availability of a competitive skilled and experienced workforce
- A high level of administrative support from the free zone authorities.
Free Zone Licenses
Companies approved for operation in Jebel Ali Free Zone or Dubai Airport Free Zone, are granted one of the following types of licences: Trading; Industrial; Service; or National Industrial. These licences are renewable annually for as long as the company holds a valid lease from either of the Free Zones. Trading licences will be granted to companies holding a valid licence issued by the Dubai Economic Development Department or an equivalent authority in the UAE, and to companies incorporated outside the UAE. In each case, the permitted activities on the Free Zone licence must conform to those on the existing licence. Trading licences are also issued to Free Zone Establishments (FZE)
Industrial licences are issued to companies incorporated outside the UAE and to Free Zone Establishments
Service licences are only granted to companies holding a valid UAE licence
National Industrial licences are issued to industrial companies registered within or outside the UAE, provided they meet the conditions of having at least 51% AGCC equity and their local production accounting for at least 40% value added. Such companies must obtain provisional approval from the UAE Ministry of Finance and Industry. A National Industrial licence grants its holder the same rights as those of national and other AGCC companies, and products exported to AGCC states will be exempted from custom duties.
If a company wishes to practise more than one of the above mentioned activities, it must obtain a separate licence for each category of activity. Companies holding a Free Zone licence are permitted to operate in the Jebel Ali or Dubai Airport Free Zones and outside the UAE. Operation within the UAE can be undertaken either by a commercial agent, representative, distributor, or the mother company licensed by the relevant UAE authority. Any company holding a Free Zone licence can itself purchase goods or services within the UAE.
Setting up a Branch of a Foreign Company
Companies that wish to set up a project in the Free Zones should at first complete a simple questionnaire. The Jebel Ali Free Zone Authority or Department of Civil Aviation can make a first appraisal of whether the company’s needs can be met.
The company will be provided with:
- A licence application including an appendix with details of the documents required concerning the company’s legal status
- A Performa of information required for planning and
- A consumer request for electricity supply.
On receiving the necessary documents the Free Zone authorities will consider the proposal. If provisional approval is given, the company will be asked to prepare and submit the documents called for in the appendix to the licence application. After the checking of these documents, a meeting will be called to discuss and finalise the project details while signing, the applicant is required to provide the insurance policies called for in the agreements and should pay the agreed rental and licence fees prior to collection of the licence. The bank guarantee called for in the personnel secondment agreement will be required at this stage together with visa charges. If the company’s project involves the erection of a structure, detailed plans must be submitted after the lease has been signed.
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