In Dubai, the authorities have deliberately sought to create an environment which is well ordered without being unduly restrictive. As a result, Dubai offers businessmen operating conditions that are among the most liberal and attractive in the region.
There are many options open to international companies seeking to establish a business relationship with Dubai.
Having a presence can provide considerable business advantages in the Middle East. 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.
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, services, craftsmen and artisans;
Industrial licences for establishing industrial or manufacturing activity.
These licences are all issued by the Dubai Department of Economic Development. However, licences for some categories of business require approval from certain ministries and other authorities: for example;
* Banks and financial institutions from the Central Bank of the UAE;
* Insurance companies and related agencies from Insurance Authority;
* Manufacturing from the Ministry of Finance and Industry;
* Pharmaceutical and medical products from the Ministry of Health;
* Contracting and Building Maintenance and some other activities from Municipality (click here for the list of activities required Municipality Approval);
* Transportation and vehicle rental activities from Road and Transport Authority (click here for the list of activities required RTA approval);
* Printing, publishing and advertising activities from National Media Council;
* Cargo Clearing, Cargo packaging, Canal dredging contracting and Fishing cages manufacturing activities from Dubai Maritime City;
* Travel and tourism activities from Department of Tourism and Commerce Marketing (DTCM).
* Gymnasium Club activity from Dubai Sports Council.
* Social Club registration and licensing to be completed from Community Development Authority.
* Tents, awnings and Tarpaulin manufacturing from Environment Protection Section of Dubai Municipality.
More detailed procedures apply to businesses engaged in oil or gas production and related industries.
Practicing some trade activities (e.g. jewellery and insurance) requires the submission of a financial guarantee issued by a bank operating in Dubai.
In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.
Ownership Requirements
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;
* In the Jebel Ali Free Zone;
* 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 (eg. consulting, educational service) where 100% foreign ownership is permitted.
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.
Since 1984, steps have been taken to introduce a codified companies law applicable throughout the UAE. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 – the “Commercial Companies Law” – and its by-laws have been issued. In broad terms the provisions of the Law are as follows:
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 recognised as offering a suitable structure for organisations interested in developing a long term relationship in the local market.
In UAE, The minimum capital requirement law was abolished on 10th August 2009. 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.
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 Department; Get initial approval for the activity from Economic Department;
Draw up the company’s Memorandum of Association and have 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. The licence will then be issued by the Department of Economic Development; The company should then be registered with the Dubai Chamber of Commerce and Industry.
Note: Trade Names that cannot be reserved: Name of country, Name of Continent, Famous regions and Towns, Coloure (blue, red etc.).
Foreign words and short words will be charged extra fee of Dh2000 per year.
Branches and Representative Offices of Foreign Commercial Companies
The Commercial Companies Law also 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 sometimes 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. In general, branches and offices of foreign commercial companies are not licensed to engage in importing activity except for re-export or in the case of products of a highly technical nature.
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. read more
Branches and Representative Offices of Foreign Professional Companies
Branches and representative offices of foreign professional firms may be 100% foreign owned provided UAE nationals or 100% UAE owned companies are appointed as local agents. Such agents are not involved in the operations of the firm but assist in obtaining visas, labour cards etc and are paid a lump sum as remuneration. The Department of Economic Developmentt is the authority in charge of licensing such branches or representational offices. read more
Professional Firms
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 licences, visas, labour cards, etc.
Setting up Business in the Jebel Ali Free Zone
The Jebel Ali Free Zone was established in 1985 with the specific purpose of facilitating investment. Accordingly, the procedures for setting up in the zone are relatively simple.
While Jebel Ali was established to complement and contribute to Dubai’s growth and development, its legal status is quite distinct. Companies operating there are treated as being “offshore”, or outside the UAE for legal purposes.
The option of setting up in Jebel Ali is therefore most suitable for companies intending to use Dubai as a regional manufacturing or distribution base and where most or all of their turnover is going to be outside the UAE.
Jebel Ali 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 Authority.
Licences
Companies approved for operation in Jebel Ali Free Zone will be 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 the Free Zone Authority.
Trading licences will be granted to companies holding a valid licence issued by the Dubai Economic 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 the provisional approval of the UAE Ministry of Finance and Industry. A National Industrial licence grants its holder the same rights as those of national and AGCC companies, and products exported to AGCC states will be exempted from customs 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 Free Zone 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. read more
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.
After consideration of this questionnaire, 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 proforma of information required for planning; and
A consumer request for electricity supply.
On receipt of 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.
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 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.
Setting Up a Free Zone Establishment
A Free Zone Establishment – or FZE – is an establishment formed and registered in Jebel Ali and regulated solely by the Free Zone Authority.
Such establishments must have a capital of at least Dh 1 million and liability will be limited to the amount of paid-up capital. A FZE need only have a single shareholder and is an independent legal entity.
Any company, organisation or individual wishing to form a Free Zone Establishment must submit a completed application form to the FZE Department of the Free Zone Authority. A decision on whether permission has been granted will be given within 30 days of receipt of the application and any other information and documentation required.
If permission is granted, the Authority will record all relevant details in the FZE Register and issue a Certificate of Formation. This will specify the date of registration after which the FZE will be free to conduct any such business as is permitted in its Special Licence.
NOTE: GCC nationals can set-up business in Dubai without local partner as a sole proprietorship. Partnership with foreigners is subject to the following conditions:
GCC nationals and foreigners can form partnerships without Emirati sponsorship
Dubai has allowed partnerships between GCC investors and foreigners without Emirati sponsorship, on condition that investors finance projects through capital inflows. GCC nationals can have foreign business partners without third local party in Dubai for any project worth a minimum of Dh10 million and based on foreign knowledge and finance.
Investments should come under the categories of enabled sectors like industrial, services, tourism or other businesses that add critical value to the emirate’s economy.
Another compulsory condition for this new initiative is that investors move the business headquarters to Dubai and engage experienced professionals. One more of these businesses conditions is there should focus on the quality of the employees rather than quantity. All workers should fall under the skilled worker category.
However, such new businesses can’t be set up before submitting a concrete business proposal to be approved by the DED committee.
Approvals for starting these businesses is speedy and won’t take more than two weeks.
