October 18, 2014
One of the important aspects of doing business in the UAE is determining the legal structure your company will be established under. If you are not familiar with the policies and procedures of the UAE, you may be confused as to which jurisdiction is actually right for you to set up your company in.
The first step for any business set up, regardless of size, is to determine the scope and nature of the business activity that is to be conducted.
There are two options when incorporating a legal entity within the UAE:
1 - Free Zone
Under the UAE federal constitution, each emirate is permitted to set up "Free Zones" for general or industry-specific activities to encourage foreign direct investments. Free zone entities are not required to have any UAE nationals as owners. There are at least two free zones in every emirate; Dubai alone has more than 20 and each zone has its own laws and regulations. Free Zones are often considered as offshore areas separate from mainland UAE; hence strictly speaking companies located and registered within Free Zones are only permitted to trade within that Free Zone or another UAE Free Zone or outside the UAE, and not within the UAE generally unless specific consent is obtained from the relevant authorities.
The types of companies available within Free Zones differ, but the basic types available are:
- Free Zone Establishment - For Single Shareholders
- Free Zone Company - For more than 1 Shareholder
- Representative office - Can be a rep office of a local or overseas company
- Branch Office - Can be a branch of a local or overseas company
- Subsidiary - Can be a subsidiary of a local or overseas company
The entities established in the free zone can have 100% foreign ownership and there is no requirement for having a local partner or local service agent.
2 - Onshore Jurisdiction (Dubai LLC or UAE LLC Company)
Onshore, or Mainland as some like to call it, is the area within an Emirate which is not classified a free zone and is ruled by federal laws and regulations.
The most common types of companies within the onshore jurisdictions are:
- Limited Liability Company (LLC)
- Sole Establishment/Professional License (for Consultancy Set-ups)
- Representative office / Branch office (can be a rep office of a local or overseas company)
To setup a company in the UAE onshore jurisdiction requires a 51% local UAE shareholder/partner. A branch office, a representative office or a sole establishment/professional license in an onshore jurisdiction can be 100% owned by the expatriate and only requires a Local Service Agent to be their representative in front of the local authorities. This means the own no shareholding and only assist with Company setup formalities and visa processing / PRO services.
In conclusion, the formation of all UAE onshore company licenses in most business activities are available, however certain activities are linked with certain types of entities i.e. some business activities require the company formation to be an LLC and some business activities are reserved for UAE Nationals only.