Company incorporation is the process of establishing a new commercial entity. In most cases, this is a company intending to trade in a particular industry or sector. Companies have different responsibilities and legal status than individual traders. UAE law can also penalize company owners if incorporation is done incorrectly. This is why it is important to hire a proven, experienced law firm to set up a new corporation. The benefits of this reduce the risk further down the line.
The formalities of company incorporation mean that new entities have a number of requirements to deal with during their creation. These include the following:
● Shareholder responsibilities – Shareholders need accurate advice and support in order to fulfil their duties as company owners. This includes distribution of shares and also ensuring steps are in place to promote business success and growth.
● Employment law and eligibility to work – New companies must adhere to relevant employment law. They must also ensure employees are fully entitled to work in the UAE, either on a permanent or a temporary basis.
● Trademarks and patents – The minefield of trademarks and patents requires clear legal advice and access to the latest information. New company names must not infringe on trademarks, patents, or intellectual property.
● Customer and employee correspondence – All companies must follow guidance on issuing correct employee notices and correspondence. This is important for tax reasons, employment contracts, and more.
Dubai free zone companies
In Dubai, a “free zone” company is a privately-held organization that has 100% ownership by its founder. This type of company has many advantages, namely: they pay no corporation tax, have fewer business charges, can operate a UAE-based bank account, be active in numerous sectors, and can also trade internationally.
Offshore companies in the UAE are owned and operated by an external individual shareholder, group of shareholders, or a parent entity. A typical example is when a business wants to open a subsidiary in the UAE. This makes the venture an offshore company. Unlike free zone enterprises in Dubai, offshore companies have more detailed tax regulations. They can operate largely as normal but require specialist legal advice and support.
Benefits of using us for company incorporation
At Abdulla Alsuwaidi Advocates, we operate a fully equipped company incorporation service for business clients. This includes access to the latest legal advice on the business setup process, helpful marketing advice, contract drafting, and more. We are able to cater to both free zone company incorporation and offshore company incorporation.
As a law firm with vast experience in commercial law, we can be trusted to provide advice and support for all our business clients. We follow a friendly, professional approach and take the time to listen to individual requirements. This is just one reason why we are highly-rated in Dubai for company incorporation services.
For more information on new company setup, or to make an enquiry about a business legal matter, please telephone us on: +971 55 9230221. We also accept e-mail messages. Just complete our short enquiry form. Our team is ready to serve you.
Mr. Aws M. Younis is the Managing Director / Senior Legal Consultant, and has had a dynamic and successful career which was built on high motivation and dedication. Adv. Aws Younis is active in Dubai since 2004.View Attorney Profile
Our team of corporate and commercial Lawyers at Abdulla Alsuwaidi Advocates & Legal Consultants advises clients on the intricacies of business setup and company formation in various jurisdictions including all Legal issues involved in the process.
FREE ZONES IN UNITED ARAB EMIRATES
- Abu Dhabi Airport Free Zone (ADAFZ)
- Abu Dhabi Global Markets (ADGM)
- Khalifa Port and Industrial Zone (KPIZ)
- Twofour54 – Media free zone
- Industrial City of Abu Dhabi
- Masdar City Free Zone.
- Dubai Multi Commodity Center
- Dubai Airport Free Zone
- Dubai World Trade Center Free Zone
- Dubai Silicon Oasis
- Dubai International Financial Center (DIFC)
- Dubai South (DWC) or Dubai Logistic City
- Dubai Creative Cluster Authority (DCCA)
Dubai Internet City
Dubai Media City
Dubai Knowledge Park
Dubai Studio City
Dubai Production City (DPC)/ International Media Production Zone (IMPZ)
Dubai Industrial Park/City
Dubai Health care city
Dubai Whole Sale city
Dubai Science Park (DSP)
Dubai outsource city
Dubai Design District (D3)
Dubai International Academic City
- Jabel Ali Free Zone Authority (JAFZA)
Jabel Ali Free Zone
Dubai Car and Automotive City Free Zone (DUCAMZ)
- Shajah Media City
- Sharjah Airport Free Zone
- Hamriyah Free Zone
- Sharjah Publishing City Free Zone
- USA Regional Trade Center Free Zone (USARTC)
- Ajman Free Zone
RAS AL KHAIMAH
- RAK Free Trade Zone
- RAK Media Free Zone
- RAK Investment Authority Free Zone
UMM AL QUWAIN
- Umm Al Quwain Free Trade Zone (UAQFTZ)
- Fujairah Free Zone
- Fujairah Creative City Free Zone
Limitations of a free zone company
Though incorporation procedures of a Free Zone Company are slightly easier than the Mainland Company, the performance of business activities is quite tormenting. One of the important point an individual should consider before incorporating a company in free zone is how the business activities can be conducted in the Mainland area.
This Article mainly emphasizes on rule and regulation to be followed by the free zone companies for performance of their business activities in the Mainland area and covers the following topics of discussion:
- Performing commercial activities through free zones.
- Performing Service or professional activities through free zone.
Performing commercial activities through free zone:
The term commercial is a wider term and includes activities related to import, export, buy, sell, distribute, store goods and services, etc.
The general rule is that the companies in the free zone are authorized to carry out their business activities within the free zone area itself. However, free zone companies may sell their products or services in the UAE market through a registered local distributor or a commercial agent. Certain laws are referred below for confirmation on this restriction:
DMCC Free Zone: Article 4.5 of the DMCC free zone rules and regulations provides, “Licensees must conduct all or a substantial part of their business or operations within the Free Zone in order to maintain a valid License and Registration”.
JAFZA Free Zone: Article 10.6 and Article 11.6 of the JAFZA Companies regulation 2016 provides, “A JAFZA license is valid for operations in the free zone and does not authorize the company to carry out operations outside the free zone. A company may operate in a jurisdiction other than the free zone subject to the laws of such jurisdiction.
UAQFTZ Free Zone: Article 6 of the UAQFTZ rules and regulations provides, “UAQFTZ licenses cannot operate outside the UAQFTZ premises. The marketing of a licensee’s products or services in the UAE needs to be undertaken either by an agent, representative or distributor with a license issued by relevant authorities in the UAE”.
DUBAI SOUTH Free Zone: Article 9.4 of DUBAI SOUTH rules and regulations provide the general guidelines for Trading License.It provides, a free zone company holding a Trading License may only sell their products in the UAE market through a local distributor or a commercial agent, which is properly registered in the UAE. Furthermore, Section14.11 provides for performing retail and marketing activities. It lays down that a No Free Zone Enterprise with a Trading License may market or sell their products directly in the local market (except thorough authorized trade exhibitions). However, potential customers may view the products within the DWC Free Zone. Free Zone Enterprise holding a Trading License that want to market products directly in the local market must do so through an authorized and locally registered distributor/retailer.
Performing service or professional activities through free zone:
Service or professional license includes performing activities such as consulting, software, training, repair and catering. Section 9.4 of DUBAI SOUTH rules and regulations provides, Service License allows the holder to carry out services specified in the License within the DWC Free Zone and elsewhere in the UAE (although additional local licenses may be required in some Emirates).
The FAQ’s page on the Dubai South authorities official web page also puts a light on the performance of professional activities by a free zone license. It provides, “under limited circumstances, a business activity can be performed outside free zone. For example, a company with a service license could provide consultancy services to clients outside of the DWC Free Zone and a company providing logistics services under a commercial license could pick up and deliver (but not sell) products within the UAE. However, trading activities under a commercial license only permit the holder to sell completed products in the UAE market through a local registered distributor or a commercial agent in the UAE”.
That being said, the professional activities can be conducted from the free zone area into the mainland without appointing any mainland agent. But this is subject to the rules of the mainland area, i.e., some activities may require additional approvals before carrying out the activities in the Mainland area.
How to overcome the limitation of performing activities by the free zone company in the Mainland area?
Despite any type of license, commercial or professional, a free zone company can open a branch of their existing company in the Mainland area. Law No. (13) of 2011 regulating the conduct of economic activities in the Emirates of Dubai provides for opening a branch of an operating free zone company in Dubai. By opening a branch in the Mainland area, the restrictions of carrying out business activities and 51% local involvement are erased and the only requirement is to appoint local service agent.
What are the penalties for violation of the Rules and regulations:
Penalties imposed by Free zone: Any Free Zone Enterprise which is found to be in violation of any provision of the Regulations shall be guilty of an offence which, if not remedied within the time frame and to the satisfaction of the Free Zone Department, shall render the Free Zone Enterprise liable to sanctions in accordance with the Regulations, or such other sanctions the free zone may implement from time to time.
Penalty imposed by Mainland authorities: Department of Economic Development (DED) is responsible for regulating the rules governing the performance of activities in Mainland area. Under DED rules and regulations, a person who commits violation of any law, shall be punished by a fine not less than AED 100 and not more than AED 100,000.
Mainland Area refers to an area which falls outside the free zone. Under Mainland area, the general UAE rules and regulations are applied, whereas free zones may have their own set of rules and regulations. Company set up in Mainland Area offers different choices as well as benefits which are matchless to any Free zone area.
Department of Economic Development (DED) is the main regulatory authority for Mainland company formation in Dubai. In addition, DED is the main regulatory body for issuing all kind of Mainland licenses.
Setting up a company in the Mainland area means a person cannot have 100% ownership of the business, if it is a commercial or industrial license. By Law, 51% of the ownership has to be shared with the local UAE resident and the non UAE resident is entitled to have 49% of the ownership. Therefore, it becomes a cumbersome task to find a right local UAE resident.
However, in case of professional license, this limitation is waved and the only requirement is of local service agent. The role of Local service Agent is limited to assisting and representing a body corporate before the government authorities and does not share a dime in the profits or the ownership of the company.
Having a Mainland company gives investor access to the local UAE market without the need of appointing a distributor. In addition to it, there are wider options available for choosing an office space, warehouses. The office space requirement may vary from time to time depending on the type of a business license. Being a mandatory requirement, it is the duty of an investor to provide a valid tenancy contract for an office before applying to the DED for license or within 6 months from obtaining an initial approval.
Depending on the nature of the business activity a company can plan to undertake, one of following licenses:
- Commercial License/LLC Company in Dubai – to be issued to a company that will operate in any kind of trading activity.
- Professional License in Mainland– to be issued to service providers, professionals, doctors, artists, lawyers and craftsmen.
- Branch / representative office of a foreign company in Dubai issue for the purpose of marketing or conduct the same business as per the parent company.
- Industrial License – to be issued to a company that will engage in manufacturing or any industrial activity.
There are 6 main steps involve in Mainland company formation as provided below:
- Selecting a right business activity and name approval.
- Selecting of Local Partner or Local Service Agent.
- Apply for Initial approval.
- Preparation of Memorandum of Association or a Local Service Agent Agreement and Notarization of the above from Notary Public.
- Conducting a search for the office space and finalizing tenancy contract.
- Final submission of the documents and receiving final certificate.
Advantages of Mainland Company Registration
- Mainland company formation has no currency restrictions
- In mainland company setup you can drive your company from any part of UAE
- Mainland company setup has flexibility to rent office anywhere
- Wide range of license types as well as activities.
- Allow to conduct business in Mainland area.
- 100% repatriation of capital as well as profits.
- Choice of office locations across UAE.
- Stable local authority and Simple set up process.
- Hassle free legal procedures to seek license and registration.
- Free zone visa as well as license costs are cheaper; as compares to the Mainland; but it restrict a person to work within free zone only, whereas, with a Mainland license, a person can have local clients as well as global clients.
There are 2 offshore jurisdictions available in Ajman Free Zone under which an individual can establish his offshore company. These are:
- Ajman International Business Company
- Ajman Free Zone (Offshore)
What are the perks of establishing an Ajman offshore company formation in UAE?
- Limited Liability of the company
- 100 % ownership and confidentiality
- Ability to hold shares in other companies
- Ability to do international business
- Asset protection & succession planning
- No accounting, auditing or booking keeping.
- No share capital requirement
- 0% tax
- Separate legal regulations than that of UAE Commercial Companies Law
- Easy Bank account opening
- No visa requirement
- No office requirement
- No physical presence of the shareholder is required
- Easy documentation
Documents required for establishing offshore company:
- Clear passport copy
- Proof of address
- Memorandum of Association
- CV of the shareholders
- Bank reference letter
- Registered Offshore Agent’s name & address
Abdulla Al Suwaidi Advocates & Legal Consultants are officially registered with the Ajman Free Zone as an Offshore Agent. All the enquiries related to the incorporation, renewal and maintenance of the offshore companies must be directed to email@example.com, and firstname.lastname@example.org.
Thinking of opening a company in UAE?
Below are some of the few questions which a entrepreneur should take into consideration while establishing a company in UAE.
- What will be the activities of the company? The answer to this question shall determine the proper location for the company and whether the company requires approvals from the government authorities or not. In case there is any approval required, the time frame for establishing a company increases to some extent.
- Which area in UAE is most suitable for the business growth? There are many areas in UAE, it again depends upon activities of the company to be established. Generally speaking, if the activities of the company shall be mostly done internationally, than it is advisable to go for free area, and if the activities are to be performed within the UAE territory and mainly in the Mainland area, that it is always advisable to go for establishing a company in the Mainland area.
- Should a person go for Mainland area or for a free zone area? The answer to this question depends upon the available budget of the person concerned. Of course the free zones are cheaper than Mainland, involves 100% ownership and several other benefits, but there are some restrictions imposed on the free zones for carrying out their activities, such as, a free zone company must appoint a local mainland authorized distributor to sell their products into mainland.
- How many shareholders’ will be there? If the activity of the company is commercial and not professional, than we suggest going for Limited liability license under which there can be minimum 2 and maximum 50 shareholders. If the activity of the company falls under professional, there can be 1 shareholder.
- How many initial visas’ is required? How many staff shall be employed in the first 12-24 months? The no. of staff determined the office space for the company. The office space is allotted proportionally to the no. of employees in the company. The important point here to be noted is that the companies in the free zones can have their office space within their free zone area only.
- What kind of office space or warehouse will be sufficient for carrying on business? This again depends upon the business activity and how many visa’s a company has to undertake. In UAE, the size of the office space goes proportional with the visa requirements. For ex: where a company is having flexi desk office with 2 visa’s and is looking to have more visa’s, than in such case its office space shall be increased. Generally speaking of offices in Dubai, for 50 sq.ft. of area, a person is authorized to take 1 visa.
- Where are the majority of customers based? The answer to this question helps in determining the suitable location as per the scope of work. If the majority of customers of a company are outside UAE, than, it is suitable to open a company in free zone, whereas, if the majority of customers of a company are inside Dubai, than it is suitable to open a company in Mainland.
- Are you planning to conduct your business through partners, agents in the UAE or sell your product / services directly to local companies in the UAE? The answer to this question helps in determining the suitable location as per the scope of work. If the plan is to conduct business, i.e., sell products or services, through partners, agents in the UAE, than, it is suitable to open a company in free zone, whereas, if the plan is to conduct business, i.e., sell products or services, directly to local companies in UAE, than it is suitable to open a company in Mainland.
- How to open a bank account? After the trade license is issued, next step is to open a bank account in UAE. Along with incorporating company in UAE, we provide our assistance in opening bank accounts in a swift manner through our good associations with the bank authorities.
- Most important, what are the rules governing companies in Dubai and procedure of hiring employees and their termination? Before coming into UAE, one must be aware about the hiring – termination trend, regulations to be followed as per the UAE Labour Law and Commercial Companies Law. Our Attorney’s provide accurate legal consultation in regards to prevailing rules in United Arab Emirates.
- What is the cost involved in setting up a company? The answer to this question depends upon the answers of all the above points. Generally, company incorporation cost revolves around 3 factors: license fee, additional approval fee, visa fee and office rent.
- Other ancillary process involved? Apart from obtaining the license, there are steps to be taken for processing visa with the immigration authorities. Companies in the Mainland area and in many of the free zones are also subject to the Value Added Tax (VAT), therefore, all such companies are required to register themselves with the Federal Tax Authority (FTA) in order to obtain their Tax identification number.
Therefore, our handful advice to all the entrepreneurs shall be to contact an experienced professional for this purpose. Our team of Lawyers can assist you in providing a tailor made solution after carefully reviewing all your needs. For more information, or, in order to take our assistance in company formation, you can contact us at email@example.com or you can call us at 045547635.