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, 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, 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 UAE.
There are two main ways to setup business in UAE:
In conjunction with one or more local partners in national mainland; or
With 100% foreign company ownership through one of the many free zones located in each Emirate.
Even though the first option has some advantages (no limitations in terms of business activities within 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 partner
The local partner 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 partner
As per UAE jurisdictions, the local partner has the right to claim 51% ownership of the company’s shares
The local partner still holds the liability of 51% of the company
Employment Visa is valid for 2 years only (renewable)
Alternatively the business setup in UAE free zones can be an extremely attractive option for foreign investors.
The free zones in 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.
*Some free zones are exempted as well.