DOING BUSINESS IN UAE FREEZONES

DOING BUSINESS IN UAE

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THE UNITED ARAB EMIRATES (UAE)

UAE

The UAE (United Arab Emirates) is comprised of seven emirates: Abu Dhabi, Sharjah, Fujairah, Dubai, Umm Al Qaiwain, Ras Al Khaimah and Ajman.

About 4/5 of United Arab Emirates is a desert but even so, it has several contrasting landscapes that range from the Liwa red dunes to the Al Ain palm rich oases, from the beautiful Hajar Mountains to the very fertile stretches of UAE’s coastal plains.

Abu Dhabi doubles as the largest emirate and also the capital of United Arab Emirates. A few decades ago, Abu Dhabi was majorly a large desert that was home to only nomadic Bedouin tribes with scattered villages around the highly fertile areas. The 1958 oil discovery brought about radical changes in the Emirate. Revenues from mined oil have over the years been invested appropriately in a way that has helped a great deal in facilitating transformation which has in turn transformed Abu Dhabi into an economically thriving modern emirate.

Dubai has grown from a small fishing and trading area to a cosmopolitan city as well as a trade and finance global hub. In the present day Dubai, traditional Arab-Islamic culture has been noted to flourish alongside the ultra-modern. Dubai is a great global destination for tourists and business visitors. This is because of the emirate’s year round sunshine, luxurious hotels & shopping malls, beautiful beaches, heritage attractions and a well thriving business community. By land area, Dubai is the second largest emirate after Abu Dhabi.

The UAE offers a great market for a wide variety of products and services. Due to the uniqueness of UAE as compared to other worldwide business jurisdictions, it is important to understand the business options that exist in UAE before doing business. As for onshore companies, there are three options that permit you to undertake business activities within UAE.

The options are:

  • Establishing a Free Zone Company;
  • Establishing an LLC Company;
  • Issuance of a Professional License/ Establishing a foreign branch in Dubai.
 

UAE COMPANY TYPES

ESTABLISHING A FREE ZONE COMPANY

A free zone is a designated area in UAE where specific rules and regulations are applied. There are currently around 25 free zones within the United Arab Emirates with more expected to come into existence as time goes by. A free zone permits full (100%) foreign ownership but restricts you from directly doing business outside the free zone. It is possible to deal in business activities outside the free zone but this is only through the use of a local agent or local distributor.

ESTABLISHING AN LLC COMPANY

An LLC Company does not permit you to have full foreign ownership. An LLC Company is basically a partnership between a local and a foreigner with the local having at least 51% of the total shares. This business entity permits you to undertake business within the United Arab Emirate without using a local agent or distributor.

ISSUANCE OF A PROFESSIONAL LICENSE / FOREIGN BRANCH IN DUBAI

A local agent is required so as to obtain a professional license through the establishment of a foreign branch in Dubai. The ownership of the company is full foreign ownership and the company is permitted to engage in business activities provided for in the trade license. The local agent has no involvement in the financial dealings of the company and is not to interfere with the management of the company. The local agent is required to provide services such as getting the license from DED (Department of Economic Development), obtaining company staff’s visas and residence permits, arranging for an annual renewal of the trade license, obtaining the required certificates from the Chamber of Commerce and undertaking any other services that relate to governmental departments.

Additionally, to conduct business in the UAE, the company requires to obtain a trade license (together with other incorporation documents: memorandum, certificate of incorporation and articles of association, in cases where the docs are applicable) in consideration to the business activities of the business. If you choose to establish a free zone, it is important to consider the preferred location as well as the business activities to be undertaken. This consideration should be done in advance to establishing the free zone company. Free zones differ from each other in that there are some that specialize in certain activities while others restrict certain types of business activities.

When establishing a free zone company, you can opt to register it as a FZE or a FZCO or as a foreign/local company branch.

FZE is similar to a sole proprietorship with only one individual or company as the sole shareholder/director. The set capital requirement varies from one free zone to the other and is mainly determined by the intended business activities.

FZCO is like a partnership business setting and requires at least two shareholders & a maximum of 5 shareholders. The capital requirement is not fixed and varies from one free zone to the other and is determined by the intended business activities.

Branch of a foreign company that is registered in the free zone. There is no capital requirement for this setting (branch) but other requirements vary in respect to the free zone chosen. In some of the free zones, there is a requirement that the parent company should have been in operation for not less than 2 years. In addition to this, audited account reports should be obtained but this is mainly dependent on the free zone chosen. Further, parent company’s corporate documents need to be legalized and attested to at the Foreign Affairs Ministry here in the UAE so as the docs can be accepted.

 

IMPORTANT INFORMATION

When establishing either a free zone company, LLC Company or obtaining a professional license, the business plan should consist information like:

Proposed company name: Propose the name of the company you intend to set up. This proposal should be done in a preferential order. If intending to set up a branch company, most free zones allow the use of the parent company name in respect to information in the certificate of incorporation.

Proposed activity: Defining the core business of the intended company. What is the viability of the intended activity for which the business is to be set up?

Proposed facility: What facilities are required by the company/ business setting (office/land/warehouse)? Which is the most preferred location? What facilities are you going to be looking for in the coming 5 years?

Targeted market: Which is the markets that you target to carry out the business activity? Where are you going to source the goods from? Where are you going to re-export the goods to? Why is UAE a prime location for setting up this business? Will you be dealing in the local UAE market? If you will be dealing in the local UAE market, which avenues are you going to use (agent or parent company)?

Proposed investment: What is the set capital requirement? How are you going to spend funds (furnishing costs, working capital, advertising costs, operation costs)? Estimated payback period for the funds invested? Proposed investment to be done in the next 5 years.

Estimated Gross Income: Number of potential clients? Size of potential clients? Other related estimates and assumptions. Present net income and estimated net income for the next 5 years.

Operations and estimated size of workforce-Current number of employees: Number of employees (estimated) in the next 5 years. Qualification requirements and nationality of employee (s).

Projected Expansion: What are the expectations for the business in the coming 5 years if everything goes as planned? What plans do you have for future investments?