The United Arab Emirates is one of the major economic centres of the Middle East region and the second largest economy in the Arab world, following Saudi Arabia.
Thanks to its political stability, security and continuous incentives for economic diversification, the country became one of the most desirable destinations for conducting a business. Establishing a company in Dubai turned to be, in particular, a very good investment opportunity as the Emirate is leading the economic development at national level.
After the global financial crisis of 2008, the UAE proved its capacity to maintain high growth rates and to follow a positive economic trend, even in the face of falling oil prices.
Indeed, thanks to the wisdom of its leaders and their efforts to diversify the national economy in order to reduce its dependence on oil, the UAE has made significant steps in a number of alternative sectors, aimed at reducing oil dependency by 20% over the next few years.
Today, non-oil sectors make up the 69% of the country’s wealth and the massive investments in industrial and export-oriented sectors (including heavy industry, transport, petrochemical industry, tourism, information technology, telecommunications, alternative energy, aviation and space) are considered as a stabilizing force and as a protection from any negative impact from oil price volatility in the international markets.
This context, accompanied by the presence of an easy and flexible legal framework and a tax-free environment, is currently attracting thousands of foreign entities and individuals to start business in the UAE.
There are three main ways to setup business in the UAE:
In conjunction with one local sponsor in national mainland
With 100% foreign company ownership and without sponsorship through one of the many free zones located in each Emirate
- With 100% foreign company ownership and without sponsorship through setting up a company offshore
Even though the first option has some advantages (no limitations in terms of business activities within the UAE, the number of employment Visas or office locations, no yearly auditing and no specific minimum capital requirement*), there are significant disadvantages, specifically:
Foreign ownership restrictions, 51% of the shares must be officially registered under the ownership of the local sponsor (unless it is an individual establishment for conduction of professional services, where it is possible to own 100% of the shares but the sponsorship is still required)
The local sponsor must have access to the company’s bank accounts
Official registration of a side agreement is not possible
A full POA is required from the local sponsor
As per the UAE jurisdictions, the local sponsor has the right to claim the ownership of his company’s shares
The local sponsor still holds the liability of its shares of the company
Employment Visa is valid for 2 years only (renewable)
Alternatively the business setup in the UAE free zones can be an extremely attractive option for foreign investors.
The free zones in the UAE are separate entities subject to the rules and regulations of the concerned Free Zone Authority, that oversees all the aspects of the company formation and operation (company registration, license, employment contracts, Visas, etc.).
Investors can either register a limited liability company in the form of a Free Zone Establishment (FZE), if there is only a single shareholder, or Free Zone Company (FZCo), if there are two or more shareholders, or simply to establish a branch or representative office of their existing or parent company based in the UAE or abroad.
However, free zone companies may only operate within the free zone boundaries (depending on the business) and are generally limited to performing solely those activities listed in their license.
The third option, that is setting up an offshore company in the UAE, is also convenient, especially for conducting the business in a confidential way.
The offshore companies can own an UAE bank account and buy properties in the country, subject to the authorization of the competent authorities.
To get more information about setting up a business in the UAE, write to firstname.lastname@example.org.
*Some free zones are exempted as well.