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Company Formation in Dubai

Overview :

Dubai is the second largest of the seven states of the United Arab Emirates (UAE) and is main port and commercial centre. It is one of the world’s few locations where modern city life, sandy beaches and the desert are all within easy reach. The city has built its wealth mainly on its traditional role as an international trading centre, and it is less dependent on oil revenue than the other Emirate states. Dubai’s government is now heavily promoting the city for international investment, commercial and industrial development, and, more recently, tourism. Fifteen free trade zones are being developed, including the world’s first e-business free zone. Dubai has also been rated highly in three major rankings; 44th among the world’s best financial cities, it was recorded as the 33rd richest city in 2007 and 37th in MasterCard’s world’s most financial cities 2007 (1st in the Middle East). These rankings represent a huge achievement for the city as it is one of the most recently developed on the list.

Advantages of Incorporating company in Dubai

There is no income tax, capital gains tax and inheritance tax. Only banks and companies in the oil sector are subject to corporate taxes.

  • Dubai is the 3rd largest re-export centre in the world, and the largest state of the seven United Arab Emirates.
  • Dubai’s economy is comparatively flourishing in the wake of the global recession, making it an opportune time for investors and entrepreneurs to buy into its rebounding economy.
  • Dubai is also a safe city with a low crime-rate. It has a fair and stable judicial system.
  • Dubai is the fastest growing city in the world and is known as a “gateway for regional opportunity”
  • Availability of more than 15 Free Zones where 100% foreign ownership is allowed.

Attractive Tax Regime :

Dubai has fourth best tax regime in the world for businesses and this helped the country to continue to attract direct foreign investment during the global meltdown. Individuals living in Dubai are not subject to Income tax. Like most other countries in Middle East most government is funded by revenue from oil industry. There is also no tax on rental income, capital gains, inheritance or property transfers (stamp Duty)

Types of Entities

For carrying business, each Emirate is separate and license is required for business to be carried in each Emirate. Even in case of federal law such as Commercial Companies Law, Implementation is at the Emirate level by issue of license by the competent authority in each Emirate. Basically, there are two types of areas where business can be done namely, Non Free Zone Area and Free Zone Area.

Non Free Zone Area :

In non-Free zone area, various forms of entities are as under

Sole Proprietorship

The sole proprietor has unlimited liability for his business. Some professional activities are permitted to be carried on by foreigners as sole proprietorship subject to fulfillment of professional qualifications. However, in such cases, local service agent (UAE National) who acts as a sponsor is also required to be appointed.

General Partnership

This Consist of two or more partners who are jointly and severally liable with respect to all their assets for obligations of the company. This type of entity is restricted to UAE Nationals. Hence, this entity is not relevant to foreigners.

Limited Partnerships

This consist of one or more general partners who are jointly and severally liable with respect to all their assets for obligations of the company, and one or more silent partners who are liable for the obligation of the company to the extent of their share in the capital. However, all general partners must be UAE Nationals. Hence, this type of entity is not relevant to foreigners.

Joint Participation Company

This is a company between two or more partners to divide the profits and losses of one or more commercial enterprises undertaken by one of the partners in his own name. The contract is not expected to be disclosed to third parties dealing with the venture. Third parties only have recourse against the partner with whom they have dealt with but if the existence of the Joint Venture is disclosed to third parties by act of partners, the partners jointly become liable to third parties. Joint Venture Agreement regulates the obligation between the parties and the method of profits distribution and this contract is not subject to registration.

Partnership Limited with shares

This is similar to limited partnership but with negotiable shares. This consists of one or more general partners who are jointly and severally liable with respect to all their assets for the obligations of the company, and one or more shareholding partners who are liable for the obligations of the company to the extent of their shares in the capital. Capital of the company is divided into negotiable shares. However, all general partners must be UAE Nationals. Hence, this type of entity is not relevant to foreigners.

Public joint Stock Company

This is an entity with capital divided into equal negotiable shares, and the shareholder is liable only to the extent of his share in the capital. This is similar to a public listed company as known in common law countries. Minimum capital required to form a PJSC is AED 10 million. A PJSC must have 10 founder members (this may be relaxed by the government in case of government owned companies or other cases), management vested in a Board of Directors with Chairman and majority directors being UAE Nationals and 51% shares must be held by UAE Nationals. Founder members must hold at least 20% of the capital but not more than 45% of the capital. At least 55% is required to be offered to the public. Considering the various restrictive rules, a PJSC is inappropriate for foreigners.

Private Joint Stock Company

This is similar to Public Joint Stock Company except that there is no invitation to public for share subscription. Minimum capital required is AED 2 million and minimum number of shareholders is 3. Chairman and majority of directors have to be UAE Nationals. All provisions applicable to public joint stock company are applicable to this entity, except the provisions pertaining to public subscription. Considering the restrictive rules, a private joint stock company is inappropriate for foreigners.

Limited Liability Company

LLC is closest to the concept to private limited company as understood in common law and is widely used by foreigners to conduct business in UAE. Where UAE National has not invested any capital, foreign partner brings in full capital and LLC is usually formed with minimum capital wherein 51% shares are held in UAE National’s name. Additional capital is brought in by the foreign partner by way of loan capital. As regards 51% shares held in UAE National, a written understanding is signed with him whereby the rights and benefits relating to 51% shares can be assigned to their foreign partner if such capital is contributed by the foreign partner

Branch of Foreign Company

A branch of foreign company can be established for carrying the activities of the parent company. Branch does not have a separate legal entity of its own but is considered a part of the parent company. Generally, this will be in the form of promotional activities of the parent company or carrying out non-trading service activities of the parent company. In general, trading activities (import/export of goods) are not permitted to be carried by the branch.

Free Zone Area

Business can be established in a Free Zone with 100% foreign ownership. Following are the forms which are available :
  • Branch of Foreign Company or an existing UAE based legal entity
  • Free Zone Establishment in which sole shareholder is an individual or corporate
  • Free Zone Company in which there are two or more shareholders who could be individual or shareholders
The following are the few important Free Zones available :
  • Sharjah
  • Jebel Ali Free Zone
  • Ras Al Khaimah
  • Umm Al Quwain, etc
Off Shore Company:

This is a limited liability company similar to an entity which can be incorporated in any other offshore jurisdiction. Such an offshore company can be used as holding company vehicle, and for owning properties in designated areas in Dubai where such foreign ownership of properties is permitted. Similar to other offshore jurisdiction, Dubai offshore company cannot do business with resident of  Dubai.

Time Period

Usually, Incorporating a Company takes about 12-14 days in Dubai.