Company Incorporation in the UAE
Though it’s common knowledge that you must form a company to conduct any business in the UAE, many people are confused about the variety of incorporation options available. Experienced Dubai lawyers and advocates in Dubai offer expert guidance on the best corporate structure for your needs and requirements. Below we discuss key benefits and drawbacks for the main company structures in the UAE: offshore companies, onshore companies, and free zone companies.
The UAE has established offshore jurisdictions that function similar to traditional offshore locations, like the British Virgin Islands and the Cayman Islands. Available through the RAK Free Zone and JAFZA Free Zone, an offshore company allows 100% foreign ownership with no local partner or service agent required. These structures work best as holding companies for corporate interests, such as intellectual property rights, invoicing, and opening and operating bank accounts. Additionally, JAFZA offshore companies can own property in Dubai. Though beneficial especially for corporate structuring, UAE offshore companies cannot carry out business in the UAE and do not provide visas.
UAE onshore companies operate on the “mainland,” i.e. outside of free zones, and are licensed by each emirate’s Department of Economic Development. Most onshore companies are limited liability companies (LLC), though certain types of activities can be licensed as sole proprietorships, private and public joint stock companies, or partnerships. By UAE law, foreigners may own up to 49% of the onshore company’s shares and at least 51% must be owned by a UAE National or company wholly owned by a UAE National (except for sole proprietorships and branch offices, which are limited to certain approved activities, and must have a UAE National as a local service agent).
Onshore companies may sponsor visas, but the size of the company’s office or warehouse will determine the number of available visas. These companies offer the widest range of options for doing business in the UAE, and are essential for trading activities. The shareholders may decide how to divide profit and loss, but in general, the UAE National is entitled to no less than 20% of the profit. Additionally, most side agreements that claim the UAE National partner holds his/her shares in trust for the foreign partner or otherwise tries to transfer those shares are largely considered legally invalid under UAE and Dubai law. Therefore, it is vital to have knowledgeable Dubai lawyers and advocates in Dubai draft and review any agreement between partners before committing to any arrangement.
Free Zone Company
Unlike UAE onshore companies, free zones allow 100% foreign ownership; however, free zone companies are restricted to conducting business within the free zone. A free zone company can trade outside the free zone, but only with a UAE National acting as its local service agent or by partnering with an onshore company. With over 30 free zones in the UAE, there are a wide variety of options from which to choose. Some free zones, such as Dubai Knowledge Village, Dubai Healthcare City, and Fujairah Creative City, focus on certain industries whereas other free zones, such as Dubai Multi Commodities Centre and Ras Al Khaimah Free Zone, offer a full range of activity options. Free zone companies can also sponsor visas, but these are limited according to the size of the office or warehouse, just like onshore companies. Most free zones offer “flexi-desk” options, allowing companies to avoid leasing expensive office space, but with the option of sponsoring up to three visas.