This guide was written in November 2009.
Introduction
The United Arab Emirates, a federation of seven Emirates consisting of Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain, continues to benefit from its location at the cross-roads of the major Western and Eastern economies and as a result remains an attractive investment option for many companies.
This guide looks at five key considerations for companies looking to do business in the UAE.
See also: Establishing a company in Dubai Internet City, an OUT-LAW Guide
Licensing and registration requirements
Any company looking to conduct business in the UAE must first obtain a licence from the appropriate licensing authority in the Emirate in which it wishes to conduct its business. Upon obtaining a licence the company will be registered to undertake the licensed activities in that Emirate.
The relevant authority dealing with licensing and registration formalities varies from Emirate to Emirate. In Dubai the relevant body is the Dubai Department of Economic Development.
The categories of business licence available vary between Emirates but generally fall into the following categories:
- trading licences covering many various trading activities;
- professional licenses covering a wide range of professional activities and services including accountancy and consultancy services; or
- industrial licences for establishing industrial or manufacturing activities.
Certain types of activity, for example those in relation to finance, health, aviation, media, education, construction, engineering and telecommunications, require special approval from the relevant Ministry or department dealing with those activities.
Companies locating in one of the UAE's economic Free Zones (see below) will be subject to the licensing and registration requirements of that particular free zone.
Company structures
1. Limited Liability Company (LLC)
A foreign company looking to set up a presence in the UAE can incorporate an LLC. UAE law provides that at least 51% of the shares in an LLC must be owned by a UAE national or a company wholly-owned by a UAE national.
However, profits can be shared as the shareholders agree, subject to the requirements of each Emirate (for example, in Dubai the UAE nationals are entitled to share in a minimum of 20% of the company's profits). There is no requirement that UAE nationals be involved in the management of the company.
There is currently no minimum share capital requirement for an LLC.
2. Branch office of a foreign company
A foreign company can establish a branch office in the UAE which will be permitted to carry out business in its own name. A branch office will only be granted a licence once it has appointed a national agent under a National Agency Agreement. The national agent has to be a company wholly-owned by UAE nationals and will charge a yearly fixed fee.
There are no capitalisation requirements to establish a branch office although the branch will be required to obtain a bank guarantee for an amount of AED 50,000 (approximately £8,500). It is also possible that the foreign parent company will be asked to guarantee the liabilities of the branch.
3. Representative office of a foreign company
A foreign company can establish a representative office in a similar way to a branch office by appointing a national agent. Representative offices are generally only permitted to promote sales and assist local agents and not to carry on trading activities.
4. Joint stock company
Companies undertaking certain specific activities, for example banking and insurance activities, must be registered as a joint stock company. A joint stock company is one whose capital is divided into equal, negotiable stocks and where a member is only accountable to the extent of his/her share in the company.
Joint stock companies can be either public or private. A public joint stock company may offer its shares to the general public whereas a private joint stock company may only offer its shares to a limited number of private investors. UAE law provides that 51% of a joint stock company must be owned by a UAE national or a company wholly-owned by a UAE national.
5. Free zone companies and free zone establishments
Free zone companies and free zone establishments are unique company structures available to companies locating in one of the UAE's economic free zones. These company types are discussed in further detail below.
6. Partnerships
Three main forms of partnership are permitted under UAE law: general partnership, simple partnership and partnership limited by shares.
Only UAE nationals can be partners in a general partnership. Foreign individuals can be partners in a simple partnership but their role must be limited to that of a sleeping partner with a non-managerial role.
Foreign partners are permitted to enter into a partnership limited by shares provided that the partnership also has partners that are UAE nationals. The UAE nationals' liability must be unlimited and the foreign partner's liability limited to the share capital they have put in.
In practice these options are not particularly attractive and foreign companies intending to operate by means of a partnership will usually set up an LLC company and then enter into a separate partnership agreement to regulate the management of that company/partnership.
The free zones
There are a number of economic free zones throughout the UAE including, amongst others, Dubai Airport Free Zone, Dubai Healthcare City, Dubai International Financial Centre, Dubai Silicon Oasis, Dubai Technology and Media Free Zone (comprising of Dubai Internet City, Dubai Media City and Knowledge Village) and Jebel Ali Free Zone.
The main advantages of establishing within a free zone include the following:
- 100% foreign ownership is permitted;
- free zone companies are exempted from taxes, including personal income and corporate taxes;
- each free zone will usually have a central authority which deals with registrations and licensing and which will often sponsor a foreign company's employees to obtain residence visas; and
- the free zones cluster together companies in related industries providing a targeted infrastructure and effective base from which those companies can trade.
Companies located in a free zone will be subject to the specific laws of that free zone along with all of the laws of the UAE. The exception to this is Dubai International Financial Centre which has its own set of laws and is not governed by the laws of the UAE other than the criminal laws.
Free zones are considered as offshore areas which are separate from the mainland UAE. Strictly speaking, therefore, companies located within free zones are only permitted to trade within that free zone and not within the UAE generally unless specific consent is obtained from the relevant authorities. In practice, however, most, if not all, companies located in free zones trade with and contract freely with companies located outside the free zone and the UAE authorities do not, at present, actively police the activities of such companies in such regard.
The company structure options for companies establishing in a free zone are as follows:
(a) Free zone company (FZCo)
FZCos are incorporated with limited liability and (depending on the particular free zone) must be owned by between one and five shareholders.
The minimum share capital of a FZCo varies depending on the free zone (for example the minimum share capital in Jebel Ali Free Zone is AED 500,000). FZCos will be subject to regulation by the relevant Free Zone Authority.
(b) Free zone establishment (FZE)
FZEs are unique entities that are incorporated with limited liability and a single shareholder. FZEs can be owned by either a single individual or a company.
The minimum share capital of a FZE again varies depending on the free zone (the minimum share capital in Jebel Ali Free Zone is AED 1 million). Like FZCo's, FZEs will be subject to close regulation by the relevant Free Zone Authority.
(c) Branch office of a foreign company
It is also possible for a foreign company to establish a branch office in a free zone in a similar manner as in the UAE.
Visas and employment issues
A residence visa is required for every foreign employee who works or lives in the UAE. A foreign employee must be sponsored in order to obtain a residence visa by either a UAE national or a company holding a valid municipal licence.
Foreign employees will usually be sponsored by their employer company although it is possible for wives, unmarried adult daughters or minor children to be sponsored by their husband or father.
Sponsored foreign employees will be granted both a residence permit and a labour card permitting them to work. Once a labour card is granted it can be difficult for that employee to move jobs as UAE immigration laws provide for a six-month to a year ban on employment upon any termination of prior employment unless that employee falls into certain categories of professionals. This rule does not apply in the free zones.
Employment issues are governed by Federal Law No. 8 of 1980 Regulating Labour Relations as amended. Companies located within the free zones will be subject to UAE federal employment law as well as any employment laws of that particular free zone.
Features of the UAE employment law include the following:
- all employees must have a written employment contract for a fixed or indefinite term in both Arabic and a language understood by the employee;
- the parties can agree an initial probationary period of up to six months;
- the maximum number of working hours is eight per day and 48 per week (although persons employed in trades, hotels, cafeterias and as guards can be required to work nine hours per day);
- no minimum wage has been prescribed by law to date; and
- any employee who has completed one year or more in continuous employment is entitled to severance pay on the termination of his employment by his employer calculated as 21 days' salary for each year during the first five years of service and 30 days' salary for each additional year after.
Cultural do's and don'ts
The UAE is a market in which the importance of local knowledge is often neglected. Providing staff with a briefing on local culture and customs can provide significant advantages when dealing with local Emiratis and nationals of other Gulf states.
Below we set out some basic cultural do's and don'ts when undertaking business in the UAE:
Do's
- Always provide a firm handshake with your right hand.
- Always dress appropriately. Conservative business dress for both men and women is considered appropriate in the UAE.
- Always be punctual even if your host is not.
- Always accept hospitality. You don't have to finish your drink but never refuse one.
- Always remain aware of the time of day. Muslims are required to pray five times a day roughly at morning, midday, afternoon, sunset and night.
- Always remain aware of the cultural importance of the holy month of Ramadan. Ramadan usually falls in August or September and is an Islamic month of fasting in which participating Muslims refrain from eating, drinking or smoking from dawn until sunset.
Don'ts
- Never try to shake a lady's hand unless her hand is offered.
- Never assume a posture which leaves the soles of your feet pointing at your host.
- Never use your finger to emphasise a subject, beckon or point in any direction.
- Never show frustration or take offence at a lack of punctuality.
- Never make any critical comment in relation to religion, government or Arabic life.
- Never eat or drink in front of Muslims during the month of Ramadan and take into account the timings of the fast when organising meetings during this month.
Contacts
If you have any further queries about setting up your company in the UAE then please contact one of the following in our Dubai office: