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Dubai Company formation and Registration














May 2009

Article by Intuit Management Consultancy/Management consulting www.intuitconsultancy.com


In the UAE, economic activity is regulated by individual emirates as well as the Federal Government. In Dubai, the authorities have deliberately sought to create an environment which is well ordered without being unduly restrictive. As a result, Dubai offers businessmen operating conditions that are among the most liberal and attractive in the region.

Dubai is considered heaven for foreign and non-resident investors. It has a completely independent financial system where there are no taxes imposed in any way to the consumers which has increased their confidence in these markets and they are therefore willing to invest readily.

The simple and transparent nature of the Dubai market has also added to its glory and has made Dubai the most promising market for foreign businessmen. The government's support in reduction of unethical practices along with the simultaneous betterment in the framework of law has increased the reliability of consumers in the market.

Incorporation procedure in UAE is a simple step by step process and does not require endless visits to a lawyer at every juncture of company formation. The procedures for incorporation in UAE are recognized to be a legal one and it includes the registration of company name and licensing of business activity.

Licensing

The basic requirement for all business activity in Dubai is one of the following three categories of licences:
  • Commercial licences covering all kinds of trading activity;
  • Professional licences covering professions, services, craftsmen and artisans;
  • Industrial licences for establishing industrial or manufacturing.
These licences are all issued by the Dubai Economic Department. However, licences for some categories of business require approval from certain ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health.

More detailed procedures apply to businesses engaged in oil or gas production and related industries.

Practising some trade activities (e.g. jewellery and insurance) requires the submission of a financial guarantee issued by a bank operating in Dubai.

In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.

Ownership Requirements

Fifty-one per cent participation by UAE nationals is the general requirement for all UAE established companies except:
  • Where the law requires 100% local ownership;
  • In the Jebel Ali Free Zone;
  • In activities open to 100% AGCC ownership;
  • Where wholly owned AGCC companies enter into partnership with UAE nationals;
  • In respect of foreign companies registering branches or a representative office in Dubai;
  • In professional or artisan companies where 100% foreign ownership is permitted.

Business incorporation Types:

  • Limited Liability Company: The most common form of business in the UAE. Dubai requires a share capital of AED. 300,000, but this varies by Emirate [e.g Sharjah, Abu Dhabi etc.], by Free Zone, and by activity. e.g. The new procedures for incorporation in UAE for Real Estate brokers who wish to rent out property in their own name is to now give a bank guarantee of around AED 1 million.
    • An UAE national, 'Sponsor' must own 51% of the shares of this company - even though he may not invest any funds into the venture. An agreement with him can be reached about the profit sharing percentage or the fee he will be entitled to instead.
  • Joint Venture: These companies are basically formed to share the profits or losses of another venture which will be run by one or more of the partners. This maybe a written or verbal contract and need not be notarized.
  • Professional Company: These are partnership companies between members of the same profession to supply a professional service e.g. accounting, educational services, medical and so on.
  • Sole Proprietorship firm to Practice a Profession: For a foreign professional investor, the procedures for incorporation in UAE allow him / her to form such a firm without any UAE national being a 'partner'. However, a UAE national must be taken on as a fee based 'Service Agent' instead of a 'Sponsor' to sign important documents such as applications for visas and practicing licenses.

Free Zone Incorporations

Free Zones offer the following incentives to the investors.

1. 100% foreign ownership
2. No corporate taxation for 50 years; renewable for an additional 50 years.
3. Freedom to repatriate capital and income
4. No personal income tax.
5. Full exemption from import duties.
6. No currency restrictions.
7. No bureaucratic red-tapism.
8. No recruitment problems.
9. Modern efficient communication.
10. State of the art infrastructure.
11. Abundant energy

Offshore Company:

Offshore companies can feature in most financial planning scenarios when trying to mitigate tax exposure and/or with regards to passing assets on to beneficiaries freely in the event of death. Sometimes referred as Special Purpose Vehicles (SPV), there is an array of scenarios where an offshore company becomes invaluable and this article relates to their uses when buying property.

The offshore possibility has basically been set up to cater for companies who need to have a regional "tax relief-invoicing-facility" - There is no minimum capital required and also no need to set up an actual office facility. The off-shore regulations have been issued according to international standards and the company will have to register minimum 2 directors, keep financial records and issue an annual financial report audited by a professional auditing company approved by JAFZA/RAKFTZ.

Activities Restricted:

  • To carry on business with persons residing in the United Arab Emirates.
  • Own an interest in the real property situated in the U.A.E. other than approved by authority.
  • To carry on banking, insurance, re-insurance, insurance agency or insurance broker.
    • Salient Features: Local companies allowed to deal with: Legal consultants, accountants, management companies, etc carrying on business within the UAE, any bank in the UAE for the purpose of conducting its routine operational transactions. If an offshore company wishes to conduct trade or other business in the free trade zone or elsewhere in the UAE, it must obtain the appropriate licence to conduct the trade or other business activity from the competent authorities.
    • Capital Requirement: No minimum capital required.
    • Directors: A company must have at least two directors and one company secretary.
    • Real Estate: An offshore company is only allowed to rent/lease space for keeping a registered office. It can own real estate property on the Palm Islands, Jumeriah Islands, any properties owned by Nakheel Company L.L.C & Emaar properties by specific permission available to foreigners.
    • Shares: All shares must be fully paid when allotted; No bearer shares shall be allowed. No different classes of shares allowed.
    • Registered Agent: An offshore company shall at all times have a registered agent in Dubai to which all communications and notices may be addressed. Accounts & Audit: Every offshore company shall keep accounting record; accounts shall be preserved for a period of 10 years from the date on which they were made. An offshore company's accounts shall be approved by the directors and to be audited by an approved auditor. For RAKFTZ the audit is not mandatory.
    • Winding Up: Winding up an offshore company may be by one of the following: - Summary under chapter 1 of part 13 of the regulations. - By its creditors - By the court under the UAE commercial transactions Law no. 18 of 1993.
Many speculative investors who purchase property with a view to re-selling after a profit is secured have to overcome the issues of transfer costs. Sometimes referred to as stamp duty, associated transfer costs with regard to creating the new ownership of property can be quite high and thereby eat into your re-sell profits. Dubai has its own form of stamp duty and at present fees can range from 2-8% depending on which project you are selling. If the property was bought in the name of the offshore company then the transaction of ownership can be achieved by selling the company. In essence, you sell your offshore company that owns a property(s) and not the property itself. Furthermore, you may want to reinvest your gains in your home country but want to avoid the potential taxes associated. In the UK for example, as a tax resident you would pay 40% CGT (Capital Gain Tax) on any gain (after allowances) on property disposal outside your prime residence. An offshore company would not be liable since it is non-resident for tax purposes.

Generally husband and wife can be appointed Directors of the entity and in the event of death the surviving spouse will absorb the offshore company equity. This can be affected either by using specialist Trustees or indeed an undated share transfer letter. Additional Directors can be appointed at anytime so children could be included in due course as a means of passing on the assets in your offshore company.

If you have established your offshore company to team up with other investors so you can collectively increase your position in the property market, then there are a number of measures to ensure the interests of all Directors are met. This can be done through a double-option agreement whereby in the event of death an insurance policy pays out the value of the deceased shares. Conversely, if each property is bought under a separate entity then the proceeds from the sale would be passed to the deceased's estate or the surviving Directors can offer to purchase the value of the remaining shares.



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