The United Arab Emirates is a global hub for business and investment. Although the UAE is the world’s seventh largest producer of oil and natural gas, it has managed to shift its economic focus away from its deep wells. Today, the country derives 71 percent of its GDP from construction, healthcare, aviation, tourism and other non-oil sectors. With the Heritage Foundation giving the country an impressive 79.6 percent business freedom score, you have every reason to set up a company in the UAE and start trading.
Here are 13 questions to ask before making the move:
1. What are the benefits of starting a company in the UAE?
Although some Middle Eastern countries such as Iraq and Yemen are known for their unending wars, the UAE enjoys a peaceful and politically tranquil environment that enables businesses to thrive. Besides, the country is home to top banking institutions such as HSBC, Standard Chartered and First Gulf Bank, so you won’t have to look elsewhere for banking solutions and financial assistance. Roads, ports, railways, telecommunication lines and other pieces of infrastructure are extremely advanced, making it ideal for diverse businesses.
2. What is the UAE tax policy?
The UAE has favorable taxation policies for both foreign and domestic businesses. But how favorable is it? The federal government doesn’t levy any tax on the income of individuals and companies. However, businesses in the oil and gas industry are subject to a 50-55 percent tax rate, while banks with subsidiaries or branches in UAE are subject a 20 percent tax rate. Newly-established UAE companies must also pay a one-time fee of entry to the register of entrepreneurs, 10 percent of annual and warehouse rent, and 5 percent of annual wages paid to employees to their respective Emirate municipalities.
3. Shall I open a free zone company, free zone establishment or an offshore company (international business company)?
The UAE consists of seven Emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Ras Al Khaimah, Fujairah and Umm Al Quwain. Each Emirate has a number of free zones, which are special trade areas with unique tax, customs and other trade regulations designed to attract foreign direct investment. Each free zone is controlled by an Independent Authority that has the mandate to register new businesses and issue relevant trade licenses and permits. In a zone, you can register a free zone company (FZC), free zone establishment (FZE) or offshore company.
If you want to do business in a certain zone, you can start either an FZC or FZE. The main difference between these two types is that an FZE can be started and owned by one individual, while an FZC needs at least two owners. Regardless of this, free zone entities allow 100 percent foreign ownership, are tax exempt and can recruit from the local workforce. On the downside, they can only trade directly inside the free zones they are registered, and some zones only allow the establishment of industry-specific businesses. To trade outside their zones, they must appoint a local commercial agent or distributor.
UAE Offshore or international business companies are ideal for investors who don't intend to trade in the UAE or want to register a holding vehicle for various international assets. Like FZCs and FZEs, offshore companies can be set up in the free zones, can be fully owned by foreigners and are tax exempt. However, offshores can only trade within the UAE after being issued with relevant licenses form competent authorities or by purchasing a stake in a local company.
4. In which free zone shall I open my company?
Although there over 30 free zones in the UAE, many of them are typically constructed around one or two industries. To find the perfect zone for your company, you need to evaluate the nature of business activities you want to do in the UAE and identify the type of company you want to register. For example, if you want to run a media firm, the Dubai Media City Free Zone will be a natural fit to start a company because it’s designed for media businesses. If you want to operate a logistics business, the RAK Maritime City Free Zone in the emirate of Ras Al Khaimah could be your perfect destination.
If you want to open an offshore company, there are zones that are more ideal for conducting international businesses. The RAKIA (Ras Al Khaimah Investment Authority) zone in RAS Al Khaimah, for instance, offers a cheaper and more flexible environment for offshore companies. You can start a RAK IBC (International Business Company), which is just like any other offshore business, but with a greater legal status. Ajman free zone in the emirate of Ajman is also a popular favorite for offshore company formation.
5. Who can register a company in the UAE?
In many free zones, you need to be at least 21 years of age to start a company. In some zones, you need to be at least 25 years old. Be sure to seek verification from your preferred zone’s independent authority. There is also no requirement for nationality, citizenship or religion.
6. What is the time frame for company formation and bank account opening?
The duration for setting up a company varies from zone to zone and also depends on whether you are opening a FZE, FZC or offshore company. In general, offshore companies take a shorter period to form than FZCs and FZEs. Given that the World Bank’s Doing Business website gives the UAE a lowly rank of 53 when it comes to starting a business, the formation of your business may take several weeks. However, using agents or companies that specialize in UAE company formation can reduce help to get your business up and running in a matter of days. These agents know how to legally work around the bureaucratic registration processes that inhibit speedy company formation.
As long as your business is properly registered in any of the free zones, you shouldn’t find any trouble opening a business or corporate account. Your personal presence will, however, be required by your preferred bank. You will need to provide your personal identification documents and information about your business. Although opening an account can take up to two weeks or more, you only need to visit the bank for a day.
7. Would I need to have share capital?
Share capital is the amount of money you and your partners contribute to start a business. When forming a UAE company, you may be required to have minimum capital of about AED 500,000 (about $135,000), which, according to the UAE Trade & Commercial Office of the UAE Embassy in Washington DC, is the average minimum share capital in many zones.
8. Which structure or form shall I choose for my company?
If you want to extend your existing business into the UAE, you don’t have to go through the hassles of setting up an FZE, FZC or offshore company. All you have to do is open a branch office. Foreign branches must have a service agent, who must be a UAE national. If the agent is a company, it must be owned wholly by a UAE national.
9. What documents are required?
It depends on whether you want to form the UAE company as an individual (natural person), or if you want to use an existing company (legal person), as is the case with opening a foreign branch. As an individual, you need to provide copies of your passport, as well as those of your partners, and utility bills as proof of residence. As a company or legal person, be prepared to provide a flurry of documents, including copies of certificate of incorporation, and memorandum and articles of association of the parent company. Your agent should be able to provide you with a list of all the documents you need to provide.
The structure of the company can also determine the required documents. To form a professional or specialized company, for instance, you may be needed to provide certificates demonstrating your competence to offer the professional service.
10. Do I need to permanently reside in the UAE to register a company?
No. You can open a UAE company from any country in the world. You can hire a law firm to work as an intermediary between you and the UAE government. Even after it is registered, you don’t have to move to the UAE to run it, since you can appoint a manager to do the job. However, if you formed a business that provides professional services, you must reside in the UAE to provide the service.
11. Do I need a license for my UAE Company?
Absolutely. Whether you are starting a professional, industrial or commercial company, you need to obtain the relevant license from the Independent Authority that controls the zone in which you want to register the business.
12. Which business activities are allowed?
While a wide range of business activities are encouraged in the UAE, gambling is illegal and insurance services are highly restricted in most of the UAE. Only the Dubai International Financial Center Free Zone allows foreign investors to set up and fully own insurance companies.
If you are interested in diamond trade, you must meet a number of other technical and legal requirements. For example, you must secure a Kimberly Process Certificate to trade in rough diamonds, and you cannot trade in conflict or blood diamonds.
13. What do I need to know about residency visas?
Starting a free zone entity or being an employer enables you to obtain a residency visa. Each zone has its own residency requirements for foreigners, so you must apply to the immigration department in the zone where your company is located. Regardless of this, residency visas typically expire in 3 years, after which you can apply for a renewal. There is no limit to the number of times you can renew the visa. To keep your visa active, you must enter the UAE at least once every six months, failure to which it will be revoked. Owners of offshore companies cannot use their companies to obtain a residency visa.
These are some of the main questions to ask before opening a UAE company. Keep in mind that it takes more than just setting up a company to be a successful trader in the UAE. Learning the Arabic language will enable you to understand the culture of the UAE natives and enhance your chances of building great business relationships with locals, many who take exceptional pride in speaking their native language. Good luck!