Introduction

The United Arab Emirates today constitute the second largest economy in the Arab world, after the exhausted Arabia, thanks to a stable policy and the continuous incentives from the Government of Duabi in favor of enterprises.

Just recently, according to the directives of His Highness Sheikh Mohammed bin Rashid Al maktoum, the government of Dubai is presenting an AED 1.5 billion package with 15 initiatives covering the retail sectors, commercial, tourism and energy to reduce the costs for azeinde and residents in the next 3 months.

The foresight of its leaders and the diversification of the national economy has allowed Dubai to maintain high levels of growth and a positive economic trend despite the current phase of fall in the price of crude oil.

Currently the non-oil sectors make up 69% of the country’s wealth and massive investments in the industrial and commercial sector in one of the tax-free environment encourages many foreign and private companies to set up companies in Dubai.

The procedure

The procedures for opening a branch or setting up a business vary depending on whether you want to start a company in central Dubai or in one of the emirate’s free-trade zones (so-called free-zone).

To start a business in Dubai you must obtain a specific license. The categories of licenses are as follows:

• Commercial Licenses: cover all types of business
• Industrial licences: to establish industrial or manufacturing activities
• Professional licences: include professions, services, and craftsmen

These licenses are issued by the Dubai Department of Economic Development (except for the licenses for hotels and other tourism-related businesses that are issued by the Department of Tourism and Commerce Marketing).

Some licences also require the prior approval of some ministries and other federal authorities: for example, banking and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Trade; pharmaceuticals and medical products from the Ministry of Health.

Example of the opening of a commercial company:

• Choose a business name for the company and receive approval from the licensing Department of Economic Development or draft the Memorandum of Association of the company and obtain notarial deed from a public notary at the Dubai court
• Obtain the approval of the Department for Economic Development and request registration to the Commercial Register or Once the approval has been obtained, the company will be registered in the Commercial Register and will obtain the publication of its Memorandum of Association in the Bulletin of the Ministry of Economy and Commerce.
• The license is issued by the Department of Economic Development. The company is thus registered in the Chamber of Commerce and Industry.

Company forms of business

The main requirement for establishing a company in the UAE is the 51% holding of a citizen of the Emirates under Federal Law No 8 of 1984 and its amendment by Federal Law No 13 of 1988, the so-called Law of Commercial Companies.

However, this rule has the following exceptions:

• Cases where the Act provides for 100% local ownership
• Free zones such as Jebel Ali and Dubai Airport, Dubai Internet City, Dubai Media City, Dubai Silicon Oasis, DIFC, etc. or branches and representative offices of foreign companies recognized in Dubai
• Professional or craft companies where 100% foreign ownership is permitted by law

There are 7 types of company:

1. General partnership (similar to our collective partnership)
2. Limited Partnership (similar to our limited partnership)
3. Joint participation (Joint venture)
4. Public Joint Stock Company (similar to our Public Company)
5. Private Joint Stock Company (similar to our Private Company)
6. Partnership Limited with Share (similar to our limited partnership)
7. Limited liability Company (similar to our Limited Liability Company)

The most commonly used corporate forms are:

Joint Venture

The Federal Law of the UAE expressly regulates c.d. joint venture companies. This is a contractual agreement between a foreign party and a local party authorised to carry out the activity in question. The local holding must be at least 51%, but the distribution of profits and losses can be regulated differently. The JV may not have an autonomous license, using that of the local partner, and the JV agreement may not be made public. The foreign partner deals with third parties using the name of the local partner who (unless the agreement is published) assumes responsibility. In practice, joint ventures are suitable for companies working together for specific projects. 

Public and Private shareholding companies

The joint stock companies are primarily suitable for large projects or operations, so the minimum capital required is 10 million dh (Euro 2.000.000.00) for a public shareholding company and 2 million dh (Euro 418.000.00) for a private shareholding company. 

The administrator and majority of the Board of Directors must be UAE citizens and there is less flexibility in the distribution of profits than expected in limited liability companies. 

Limited liability company (limited liability company) 

A Limited Liability Company may consist of a minimum of two to a maximum of 50 persons whose liability is limited to the value of the shares held. LLCs are an appropriate structure for stakeholders to develop a long-term relationship in the local market. There is no longer any minimum capital requirement, but the authority in each case will have to verify that the capital is adequate for the company’s business. Although foreign ownership may not exceed 49%, the distribution of profits and losses may be established differently.

Taxation of a LLC in Dubai

The tax on a LLC in Dubai is zero. In fact, a company established in Dubai in the form of a LLC is not subject to any direct taxation, except in the oil and gas or banking sectors.

Oil companies in Dubai are subject to a 50% rate of income tax;

Financial and banking institutions in Dubai are subject to a 20% direct tax on profits.

Interestingly, any company in Dubai is not subject to withholding tax on dividends, interest and royalties paid to foreign shareholders and/or subsidiaries or associates.

VAT in Dubai

As far as indirect taxation is concerned, VAT in Dubai has a fixed rate of 5% which applies are on goods and services sold within the Emirati territory (not free zones).

Liability for the management of a LLC may be attributed to the national and foreign parties or to a third party. 

Branches and representative offices

The Law regulates the opening and establishment of branches and representative offices of foreign trading companies by stipulating that they may be wholly owned by the foreign company provided that a local agent is appointed. 

Only citizens and companies owned 100% by UAE citizens can be appointed agents (not to be confused with commercial agents). Local agents are not involved in the company’s activities, but assist in obtaining visas, employment records, and other administrative activities and receive as compensation fixed sums or as a percentage of the profits or turnover of the parent company. 

Free zones and Dubai center

In 1990, free zones were established in the United Arab Emirates to facilitate the opening or relocation of foreign companies. The main advantages of operating within these areas are as follows:

• The possibility of holding 100% of the shares (therefore it is not necessary to have a local partner);
• No tax on personal income or capital gains
• No corporate and personal income tax guaranteed for 15 to 50 years, depending on the area
• No restrictions on currency movements
• Possibility of repatriation of capital invested without taxation;
• Company constitution faster.

In the case of an open society in the free zone, the company:

• will not be able to sell goods or services in the territory and under penalty of the application of a fine of 35,000 dollars;
• the average time taken to set up a business in free zones is 3 months;
• it is compulsory to rent an office space;
• In some free zones, especially those most in demand for low start-up costs, renting an office is quite expensive.

Set up an offshore company in Dubai (Dubai offshore company)

The opening of an offshore business in Dubai is an efficient solution from the fiscal and economic point  ofview for entrepreneurs carrying out international business activities.

The offshore company, established in the form of LLC, is exempt from taxation and has no annual accounting and tax obligations, except for the obligation to keep invoices.

Offshore companies in Dubai are used for activities of:

• or international trade;
• or holding company;
• or shipping;
• or international advisory services;

An important feature of offshore companies registered in Dubai is corporate secrecy.

The Dubai business register is not publicly accessible.

Disadvantages of an offshore entity registered in Dubai:

• An offshore entity in Dubai is not authorised to conduct business activities in Dubai and the United Arab Emirates; or Ilc offshore may not rent premises or employ staff in the Arab Emirates;
• Does not give right to any residence visa in Dubai or work visa for the company’s staff;
  or the LLC offshore cannot exploit the Convention against the double impositions stipulated from the Arab Emirates with other Countries for diurre the retention on the profits;
• An offshore business in Dubai cannot invest in real estate in the United Arab Emirates.

Why it is better to open a company in Dubai

Dubai enjoys one of the highest per capita incomes in the world, since state policies allow the full repatriation of profit and capital, no income tax, capital gains tax and dividends.

Labour costs are low because the tax on employees is zero: this means that the amount received in salary has no additional overheads, which is an advantage for both the employer and the worker himself.

Since 1 January 2018, the Arab Emirates have decided to introduce VAT in view of the possible future economic repercussions for the inevitable end of oil: this is obviously a huge change in the economic and financial landscape. The tax is set at 5% but basic food, education and health care will be exempt.

In addition to tax aspects, foreign investors can also take advantage of other advantages including:

• Strategic position: Dubai is located exactly at the meeting point between the western and eastern markets. It is strategically located in the middle of the Middle East and only three hours away from a market, the Indian market, with 1.3 billion potential consumers.
• or Growth in the Middle East: all of the Emirates are experiencing an extremely prosperous period from the economic point of view and this is multiplying the opportunities for investors and entrepreneurs.

In general, it is easy to predict that the development of this emirate will continue over the next few years and that this will become one of the main financial and commercial poles at a global level. Especially when you consider that Dubai will host in 2020 an international event of enormous importance, that is EXPO 2020, that will bring in the Country more than 20 million visitors.