A brief overview on doing business in the United Arab Emirates
Why the United Arab Emirates?
The United Arab Emirates (UAE) is recognized as one of the most prestigious and well-respected business locations, offering inhabitants a strategic location between the vast markets of Europe, Asia, and Africa. The UAE’s reputation for ease of doing business, low corporate tax rates of 9%, zero personal taxes, and world-leading free economic zones bring to the country the highest tier of entrepreneurs and investors.
Small and medium enterprises, better known as SMEs, are at the heart of the UAE’s economy. SMEs account for 94% of the country’s business and employ nearly 90% of the private sector’s labor force. Collectively, SMEs contribute to 60% of the country’s GDP and on average, show year-on-year annual increases. Currently, there are approximately 500,000 small and medium-sized businesses that are set up in the UAE each year. The government actively supports growing start-ups, and there are low barriers to entry which provide ease for company formation and opportunities for SMEs to grow, develop, and thrive.
Doing Business in the UAE
The UAE is made up of seven emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, and Fujairah. The Wolds Bank annual rating ranks the UAE 16th amongst 190 nations as one of the easiest places in the world to do business. With its robust banking systems, well-established business infrastructures, and an expat population of around 89% it attracts business owners from around the globe.
UAE’s business is governed by the country’s judicial system, which varies between the different emirates. Arabic is the official court language where legal and official paperwork usually requires translation and attestation. The Dubai International Financial Centre (DIFC) and the ADGM courts in Abu Dhabi are independent and follow an English-language common law judiciary system with jurisdiction governing civil and commercial disputes nationally, regionally, and worldwide.
UAE Tax system
UAE businesses are subject to corporation tax on their worldwide income. However, dividend income and capital gains will be exempt, subject to meeting certain conditions of participation exemptions. The tax system is dependent upon the company you incorporate and whether any exemptions apply to your circumstance. Generally, incentives (including tax incentives) for foreign investment in the UAE include but are not limited to the following:
|Personal Income Tax||0%|
|Corporate Tax (Mainland Companies)||9%
Not exceeding AED 3,000,000
|Small Business Relief||Applicable to revenue not exceeding AED 3,000,000|
|Corporate Tax (Certain income: Free Zone companies)||0%|
|VAT||5% flat fee|
|Custom tax exemption||100%|
|Zero currency restrictions|
|Capital and profit repatriation|
|Simple visa and licensing processes|
More commonly asked questions:
As well as providing advice and corporate services such as facilitating contracts, agreements and assisting with corporate licenses to existing well-established companies in the UAE, ADG Legal offers advice and services to entrepreneurs and new companies seeking to set up in the region. For the purposes of this article, we have answered our most frequently asked questions by new entrepreneurs setting up in the UAE:
What type of company can I set up in the UAE?
There are three types of company setup options available when setting up in the UAE; mainland, freezone, and offshore setups. The most common types are mainland and free zone setups.
Mainland companies are incorporated onshore entities licensed by the Department of Economic Development or a local authorized body. You are free to incorporate a mainland company anywhere in the UAE and can conduct business within and outside the local market.
Freezone companies are entities incorporated within special economic zones and are self-regulated. Businesses can conduct a variety of activities in free zones including import and export, manufacturing, storage services, and other services. Offshore companies in the UAE operate outside the country of origin, they are often used for investments, financial transactions, and asset protection.
There are several differences between the three types of companies. However, from a taxation perspective, the main differences between the three are that offshore entities are exempt from corporate tax (provided their activities remain offshore as is required), free zone companies benefit from certain tax exemptions and mainland companies will be obliged to pay corporate tax from 2024.
What documents do you require from me to set up a company in the UAE?
The documents required to be produced by you are dependent upon which company you incorporate however generally the following documents are required for most UAE company setups:
- A company application form describing your business and/or its trade.
- Passport and visa copies for you and all other business owners/partners of the company.
- A valid trade name certificate issued by the Department of Economic Development (DED).
- Three months’ bank statements from all company shareholders.
- Clearance certificates or licenses from relevant government departments or municipalities (if required).
- A business plan (especially for some free zones).
How much does setting up a company in the UAE cost?
The cost is dependent upon the type of company incorporated. Offshore companies typically cost around $4,000, whereas freezone companies or LLCs (mainland companies) can cost anywhere between $11,000- $20,000, after accounting for a flexi-desk, government fees, and other fees. These estimates are exclusive of any legal fees or agency fees.
Do I need a local partner to set up my company?
No, the UAE Commercial Companies Law has been amended to permit 100% foreign ownership of companies incorporated in the UAE. This took effect on 1 June 2021 and supersedes the previous requirement that a minimum of 51% of shares in an Onshore Company should be held by one or more UAE nationals.
This stands true for multiple sectors which are listed by the company registration authorities however certain industries such as banking, finance, and insurance will continue to be subject to at least some portion of mandatory shareholding by Emirati partners.
Do I need legal advice?
When navigating in a new jurisdiction, entrepreneurs often face difficulties in understanding the different systems, processes, and procedures and often fall foul of the legal requirements. Starting a company is relatively straightforward however often entrepreneurs find difficulties with opening corporate bank accounts and obtaining business documents such as trade licenses. Generally, banks are reluctant to open accounts for companies incorporated in cheaper-free zone areas, and because offshore companies are intended to be for holding assets rather than trading, corporate banking requirements are strict, and often individuals face difficulties opening accounts for the same. Therefore, although incorporating a company in the UAE does not require an agent or a lawyer it is highly recommended.
Once you have incorporated your company and as your business grows, you will have to give careful ongoing consideration to other rules and regulations such as; Commercial Company Law, which outlines company management and operation, UAE Labour Laws, governing employment rights and duties of employee and employers, Tax Laws especially for certain industries such as oil, gas and banking that are subject to specific taxes, UAE Intellectual Property Laws and other the regulations regarding investments.
It is advisable to obtain legal advice from a reputable firm, not only to accelerate the process of incorporating your company but also to ensure compliance with all applicable local, federal, and international laws and regulations are adhered to.
For enquiries and more information on how ADG Legal can help your business, please contact:
Phone: +9714 441 2031 Ext 136