THE PURPOSE OF THIS GUIDE IS AN OVERVIEW FOR FOREIGN INVESTORS CONSIDERING DOING BUSINESS IN THE UNITED ARAB EMIRATES (U.A.E).
The United Arab Emirates is a federation of seven emirates, namely Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al-Khaimah, Sharjah and Umm Al-Qaiwan.
The federal Constitution was formally accepted in 1996 and provides for the allocation of powers between the federal government and the government of each Emirate. Whilst the federal government has exclusive jurisdiction in some areas, the local government of each emirate still retain substantial powers to regulate the incorporation of corporate entities.
Foreign investors wishing to conduct business in the U.A.E have various formation options available depending on the type of activities, budget/time restraints, perceptions and facility requirements of their business. The most common types are:
- Limited Liability Company (L.L.C) – Requires a U.A.E citizen to hold 51% of shares
- Branch office or Representative office
- Free zone company in one of the free trade zones
- Offshore company
The U.A.E. has established a multitude of free trade zones targeting all areas of industry and business and separated by geographical location within the Emirati. Dubai alone has over 30 different trade zones. Offshore companies are more restricted in their offering and only certain Emirates and zones offer this as a set up option.
By establishing a presence under one of these methods, a foreign entity is permitted to engage in all activities as licensed in the U.A.E. While the scope of activities that may be conducted through these vehicles can include a number of business activities, foreign entities may only engage in those activities licensed by the relevant U.A.E. authorities. Such foreign entities also will remain subject to the relevant restrictions that reserve certain activities as set out by relevant Free Trade Zone (for example an offshore company must conduct its trading business outside of the U.A.E)
Listed below are some of the major benefits in establishing a free zone company and some of the major free zones commonly set up in region:
- 100% foreign ownership of the enterprise
- 100% import and export tax exemptions
- 100% repatriation of capital and profits
- No corporate taxes
- No personal income taxes
- Assistance with labour recruitment such as visa sponsorship and housing
- Dubai Multi-Commodities Centre (DMCC)
- Jebel Ali Free Zone Authority (JAFZA)
- Dubai Airport Free Zone Authority (DAFZA)
- Dubai International Financial Centre (DIFC)
- Ras Al Khaimah Investment Authority (RAKIA)
- Ajman Free Zone (AFZ)
The set-up costs and statutory requirements associated with each free zone vary aecording to criteria like type of office required, visa requirements, type of trading license. Attached is a brief summary to help show differences but depending on the exact requirements these can be looked at in more detail to determine the most suitable option.
The basic requirement for all business activity in Dubai is one of the following categories of licenses:
- Commercial licenses covering all kinds of trading activity;
- Professional licenses covering professions, services, craftsmen and artisans;
- Industrial licenses for establishing industrial or manufacturing activity:
- General trading
The Department of Economic Development (DED) issues these licenses (except for licenses for hotels and other tourism-related businesses). Some categories of businesses require approval from certain ministries also: for example, banks and financial institutions from the Central Bank of the UAE; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health. More detailed procedures apply to businesses engaged in oil or gas production and related industries.
To become a resident a person would need to either by employed by a free zone company and therefore granted sponsorship, or be the shareholder (investor/partner) of a free zone company. Employees can generally obtain a visa for up to 2 years while investors are permitted for 3 years, at which time they have to be renewed. The number of visas which are permitted is linked to the type of company formed, size of office space and in which free zone as rules do vary.
A medical examination and immigration tests (finger prints and retina scans) must be conducted and passed within the U.A.E prior to the issuance of Emirates ID card. Emirates ID is required to perform local requirements such as renting of property or obtaining any form of credit.
If the individual is not staying in the U.A.E, then they are required to visit every 6 months to maintain their visa status. To be declared tax domiciled in the UAE a person must be within the country for 183 days during a calendar year.
There is no corporate tax or personal tax in the UAE. The only exceptions to this are oil producing companies and branches of foreign banks.
Value Added Tax (VAT) is something which the U.A.E are looking to introduce by January 2018 having now been approved by all GCC members. The exact details of its introduction and implementation are yet to be published but early indications are of a 3-5% tax applied to some luxury goods items.
There are no withholding taxes in the United Arab Emirates.
A transfer charge of 2% is levied on the transfer of real estate property, with the seller paying 0.5% and the buyer 1.5% on the sale value.
The U.A.E. has concluded 94 income tax treaties with countries such as Switzerland, France, Germany, Italy, Spain, USA, Ireland, Portugal, Hong Kong, Singapore, China, India, Canada, Australia, Russia, Nigeria.
Exchange of information
United Arab Emirates has a Memorandum of Understanding in place with the Organisation for Economic Co-operation and Development (OECD) regarding Automatic Exchange of Information (AEOI). This will come into effect from Q4 2017 whereby the ministry is authorised to collect and exchange information and data on natural persons and legal entities licensed to operate in the UAE, including Central Bank of the U.A.E, Dubai International Financial Centre (DIFC), Jebel Ali Free Zone (JAFZA), Dubai Multi Commodities Centre (DMCC), Fujairah Free Zone Authority, Ras Al Khaimah Investment Authority (RAKIA), Umm Al Quwain Free Trade Zone Authority.
There is already in place a separate agreement with United States that it is undertaking automatic information exchanges pursuant to FATCA legislation.
There is no public registry available in the U.A.E. Details of officers are restricted to the Memorandum and Articles only and held by relevant free zone authorities. A certificate of incorporation for a company only shows the company name and number.
Central Bank is the supervisory body of all financial institutions in Dubai and the other emirates. Tighter regulations imposed by them have meant a large culture change in the region since 2015 with much more emphasis placed on the KYC requirements relating to account openings and transaction monitoring. Offshore companies have especially come under close scrutiny as by nature they are deemed more exposed to financial risks than free zone companies trading locally.
Dubai offers a large selection of banks including both local and international options. The shareholder of a company in Dubai is deemed as the ultimate owner and banks like to meet the ultimate owner in person to verify the opening process. Important consideration must be given to this point during the incorporation process.
If you have any further questions regarding doing business in the U.A.E, please contact our office.
ANIMO CONSULTANTS FZE
Westburry Tower 1, Office 307 Business Bay
United Arab Emirates