It has become easier and more attractive for foreign companies to establish a 100% foreign owned-corporate presence in the UAE. That trend looks set to continue.
At the first cabinet meeting of 2023, the UAE government announced that one of its top five priorities for the year is the expansion of the UAE’s international economic partnerships. This priority highlights the UAE's ambition to become a global leader in attracting international investment.
Background
With some exceptions, a foreign entity will be required to establish an entity in the UAE if they wish to carry on business.
Legal presence can be established either in mainland UAE or in one of the many free trade zones (free zones).
Mainland UAE
Foreign businesses seeking a presence in mainland UAE can choose to set up either a::
- branch;
- representative office;
- public joint stock company (PJSC);
- private joint stock company;
- limited liability company (LLC).
Both a branch and representative office are extensions of the parent company and therefore are not separate legal entities of the foreign company. A representative office only carries out marketing and promotional activities for the head office/parent and cannot undertake any business. A branch can carry out any activity allowed under the relevant laws.
A PJSC is a company whose shares are offered to the public under a public subscription. The issued share capital of the company cannot be less than AED 30,000,000 ($8.17m). Certain sector activities, such as banking and insurance, must be carried out through public companies in the UAE.
The most common form of commercial company is an LLC. An LLC is a type of private company can conduct all activities included in its license in the respective Emirate and outside the UAE. An LLC can be formed with between one and 50 shareholders subject to certain foreign direct investment laws.
Foreign direct investment controls in Mainland UAE
Controls on foreign direct investment in mainland UAE have become more relaxed over time. Now, the law in the UAE permits 100% foreign ownership of onshore companies unless a restriction applies. For more detail on the history of how the law has evolved and on which restrictions apply, please see our separate guide on foreign direct investment in the UAE.
Free zones
Free zones are geographic locations within the UAE that have their own rules and regulations. The main advantage of free zones is that they allow for 100% foreign ownership and provide additional tax benefits. The main disadvantage, however, is that, generally, free zone entities can only do business in the free zone designated area.
There are over 45 independent free zones and business parks in the UAE, most of which are located in Dubai.
Whilst the free zone authorities will regulate the registration and licensing in the free zones, most matters will be subject to federal UAE law. Those matters include leasing, employment, and criminal matters
Two exceptions to this are the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Markets Free Zone (ADGM), which have their own laws and courts.
All free zones will offer the option of establishing a company with limited liability or a branch. Some free zones also offer the options of registering a publicly listed company.
Most free zones are sector focused. For example, Dubai Internet City and Dubai Multi Commodities Centre are focused on telecoms and IT, while financial services is the focus of the DIFC and ADGM, and ports and logistics the focus of the Dubai Airport Free Zone and Jebel Ali Free Zone.
Legal consequences
The UAE government is taking foreign investment seriously and encouraging diversification in the economy.
The relaxation of controls on foreign direct investment is evidence of this and is a positive step towards increasing diversification across various sectors and promoting the UAE's ambition to become a global leader in attracting foreign investment.
Depending on the individual business needs, various options are available to set up a business in the UAE. Adopting the appropriate corporate structuring from the outset is paramount to the ongoing sustainability and profitability of a foreign investor’s strategy within the UAE.
Initial considerations when selecting the most appropriate corporate structure may include:
- foreign investment laws;
- proposed activities;
- expected duration;
- a need for location in mainland UAE versus free zone;
- licensing requirements;
- costs; and
- tax implications.
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