Why and how to set up a company in the UAE
The United Arab Emirates (UAE) is widely regarded as an attractive and growing market. Many companies use the UAE as a hub to base their business due to the strong economy, infrastructure, logistics and global connectivity.
Setting up a company in the UAE does require a certain amount of planning and understanding in order to avoid wasting time and ultimately money. These are some key areas that you should keep in mind when looking to establish in this lucrative jurisdiction.
How do I know what kind of business activity I should apply for?
I have worked in the Middle East within company formation for over 5 years. One of the main obstacles I have observed is foreign companies understanding exactly what they plan to do in the region and matching that with the specific activities that are provided by the relevant Government authorities be that the Department of Economic Development (DED), or one of the free zone authorities. A company will need to select a specific activity or activities that describes what scope of work they will be legally licenced to undertake.
This is not as easy as it might seem, coupled with the fact that many industries such as; banking, legal, oil and gas, recruitment, real estate, insurance require additional special approvals that are required to be obtained from the relevant government authorities.
I think it is important therefore to spend a little extra time at the front end making sure you have selected the correct activity. The activity of the company also affects other elements of the formation process, such as the office space or warehouse requirements, the form of legal entity allowed, specific required qualification of the general manager and can even affect the allowed ownership of the company.
What kind of company should I set up?
When you know exactly what you are looking to achieve, you then need to select the type of legal entity you wish to establish; be that a mainland company regulated by the DED or one of the many free zones available in the UAE. There are many pros and cons in this regard but ultimately it is again down to selecting the right entity and jurisdiction that will suits your business needs. You will need to consider the location of your clients, whether you will be contracting with local government authorities or even if the company will need to service the wider GCC or global market rather than only the local UAE. All these factors need to be taken into consideration when making the decision of what form your company will need to take.
In the UAE mainland the most commonly used entities are:
Limited Liability Company (LLC) – An LLC is required to have a UAE shareholder, either an individual or a wholly owned UAE company to hold a minimum of 51% of the shares in the LLC.
Foreign Branch (FB) – Foreign companies can establish a branch or representative office. The branch must undertake the same activities as the parent company and certain activities, trading companies for example require an LLC to be established. Again confirming the importance of understanding the correct activity first. The Branch is required to appoint a National Service Agent rather than a shareholder and again this must be a UAE individual or company.
There are however many other legal entities such as Sole Establishments, Civil Companies, Private and Public Joint Stock Companies. Each have a slightly different formation process in terms of the application and legal documentation required to protect the interests of the foreign party.
Do I need an office or commercial premises?
In order to establish an entity, a company must source appropriate commercial premises to provide a registered address. The premises must meet certain requirements in accordance with the local regulations, as well as be fit for purpose to allow the company to undertake the activities as per the trade license. In addition, it must be of a suitable size for the number of staff that will be sponsored under the entity.
Am I able to employ staff?
Once the organisation is set up , you will be able to employ staff to help you operate.
All individuals that wish to reside and/or work in the UAE must obtain a valid visa. Most individuals with a UAE Employment Visa can go on to sponsor their spouse, children or domestic workers as long as they meet certain minimum criteria.
There are a number of legal requirements to consider when employing staff such as:
- Provision of health insurance for all employees, as required under UAE Law
- The UAE Labour Law also mandates that mainland companies must pay at least 80% of employees via the UAE Wage Protection System (WPS) – an electronic salary transfer system that allows institutions to pay employee salaries via banks approved and authorised to provide the service. Failure to do so can result in sanctions being placed on the company Trade License
- End of Service Gratuity is mandatory and is payable to all employees upon leaving their employers (subject to satisfying certain conditions prescribed in the UAE Labour Law). These are payable irrelevant of whether the employee resigns or their contract is terminated. Employers are obliged to pay these amounts to their eligible employees upon (or soon after) their departure.
There are many different ways to set up a company, but all require the market knowledge and understanding of the nuances of the UAE. Having that experienced partner that can help navigate you though these stages of forming your business is critical to make sure the process is quick, efficient, cost effective and ultimately correct for you to prosper in the UAE. Links Group has been providing this service since 2002 and is regarded as an industry expert.
For more information on setting up your business in the UAE or any other services Links Group can provide please get in touch with us on firstname.lastname@example.org or +971 (0) 4 446 3900.