Legal Entities in UAE

Limited Liability Companies (LLCs)

In the UAE, new enterprise with expatriate partners tend to opt for setting up as an LLC (Limited Liability Company). Traditionally this is formed with a minimum of two, and a maximum of 50 persons whose liability is limited to their shares in the company’s capital. Voting rights within the company should not exceed 49 percent, profit and loss distribution and the share in allocation of liquidation proceeds can be mutually agreed upon. Limited Liability companies can sell directly to the local market.

Sometimes the scope of activities in the UAE can be restricted without a branch or representative office. To facilitate a resident branch the company would need a local sponsor. In cases such as these the role of the sponsor would involve dealing with local and federal government regulations. The sponsor would not gain any voting rights.
Free Zones Entities (FZEs)

Setting up a free zone can be more attractive than working through a local company. It is particularly beneficial to foreign companies with office space and local staff, and who have no need to sell directly to the local market. Companies in a free zone would enjoy:

  1. Import of goods duty free (they must not be goods provided to the local market),
  2. For a period of 15-20 years companies would be guaranteed against the future imposition of corporation tax. Currently it is not absolutely clear whether this would apply to VAT.
  3. All formalities are typically dealt with through the free zone authorities (there would be no need to deal with government departments). This can lead to a great saving in time money and communications and streamline procedures overall.
  4. There are no restrictions on hiring expatriates in a free zone.
  5. 100 percent foreign ownership would be allowed

Benefits of IBC’s (International business companies)

For companies setting up who do not require a local office (offshore companies), an International Business company (IBC) regime can be ideal. For instance, some IBC’s (see RAK IBC’s below) the manager or owner would not need to visit the UAE in person, there is no requirement to deposit capital in a bank account, the only data on public record is the company name and date of incorporation and there is no requirement to submit financial statements.

The IBC comprises Dubai, (the Jebel Ali Free Zone), and Ras al Khaimah, (the RAKIA Free Zone and the RAK Free Trade Zone). Restrictions around IBC’s are they cannot hold office space and they cannot make applications for staff visas or trade with parties inside the UAE.

By setting up a free zone branch, offshore companies can benefit from some of the tax treaties in the UAE in the same way that free zone and local companies do. However there are few banks in the UAE that allow foreign entities to open bank accounts (those that do – fees are likely to be very high). This makes it difficult for an offshore company to benefit from the powerful client confidentiality rules applicable in the UAE and provided by local banks.

Offshore companies can only be incorporated through a licensed registered agent. Other types of entities listed above are not covered by this publication as they are not widely in use. Branch of a foreign company

There are few restrictions for establishing a branch office in the UAE. Primarily, as much as support activities are allowed, a branch office may not carry out any commercial activity in its own name. Also it can only enter into contracts on behalf of the parent company, and any subsequent goods or services required for the contract must come directly from the parent company.

Representative office

Foreign companies often set up representative offices in the UAE. A representative office can undertake marketing and promotional activities on behalf of their parent company, but trading is not allowed.