Corporate Structuring in the UAE

 

WHY UAE?

The United Arab Emirates has been able to grasp the attention of the entire world due to the opportunities and flexible structures it provides to businesses. The large number of free zones operating in Dubai and throughout the UAE allows investors to pick and choose the most beneficial form of setup. By now, UAE Free Zones are home to around 40.000 companies.

UAE Free Zones are fully equipped and ready for business with all the facilities, communicational infrastructure and facilities made available for investors.

The Jebel Ali Free Zone Authority (JAFZA) introduced regulations in 2003 for the establishment of Jebel Ali Free Zone offshore international business companies (IBC). Following JAFZA, Ras Al Khaimah Investment Authority (RAKIA) formed Free Zone with even lighter requirements and lower fees. Those entities at JAFZA and RAKIA are regulated in a manner so as to deliver the convenience and efficiency of global offshore locations and maintain a high repute with international financial authorities.

 

UAE Structuring

Regular

Limited Liability Company

Free Zone

Limited Liability Company

International

Business Company (IBC)

In a nutshell Until the introduction of Free Zones, the most common form of corporate vehicle for equity participation by foreign investors; mandatory involvement of a local partner. Corporate structure with physical presence allowing 100% foreign ownership. Subject to some restrictions in the geographical scope of the activity. Flexible dematerialized corporate vehicle designed on the BVI model, but benefiting from UAE’s substance and credibility.
Activity

Any lawful activity as listed in the Standard Classification of Economic Activities issued by the Authorities.

Exception: some activities – i.e. mostly services activities

– cannot be undertaken in a limited liability form.

Ability to conduct any authorized commercial activity in the UAE and abroad.

Any lawful activity as allowed by the Zone. No restriction to conduct services activities in a limited liability form.

 

Ability to conduct any authorized commercial activity in the Zone and abroad. Companies deploying trading activities have to rely on a local agent duly licensed in the respective Emirate for their operations in the UAE. The provision of services in the UAE is common but constitutes a grey area practice.

Any lawful activity as allowed by the Registrar.

 

Ability to notably:

– conduct any authorized commercial activity abroad.

– hold assets (including real estate) abroad and in the UAE.

– operate a bank account abroad and in the UAE.

Inability to deploy a commercial activity in the UAE.

Primarily suitable for – trading in the UAE and abroad.

– commercial brokerage in the UAE and abroad.

– manufacturing/industrial activities for prime distribution in the UAE and larger Middle East countries.

– trading outside the UAE

– consultancy services

– head/regional office operation

– group structuring

– manufacturing/industrial activities for prime distribution in the UAE and larger Middle East countries.

– trading outside the UAE

– consultancy services

– material assets holding (including real estate) abroad

– immaterial assets (e.g. IP) holding in the UAE and abroad

– group structuring

– head/regional office operation

– operating a bank account in the UAE and abroad

 

Advantages – not subject to taxes in the UAE

– credibility in high profile trading operations

– ability to physically trade in the UAE and abroad

– stable environment

– white-listed jurisdiction

– ability to arrange local residence visas

– not subject to taxes in the UAE

– credibility in high profile trading operations

– stable environment

– white-listed jurisdiction

– ability to arrange local residence visas

– not subject to taxes in the UAE

– flexible legislation

– low annual fees

– stable jurisdiction

– white-listed jurisdiction

Disadvantages – accounts must be audited and filed yearly at the time of license renewal

– heavier constitution and operating requirements (as opposed to Free Zones)

– most expensive structuring option

– accounts must be audited and filed yearly at the time of license renewal

– heavier administration requirements (as opposed to IBCs)

– higher constitution and maintenance costs as compared to an offshore entity

– have to rely on a duly licensed local agent for their operations in the UAE

– depending on the Zone, share capital to be paid up at constitution

– relatively lower credibility in high profile trading operations

– difficulties to obtain banking facilities (e.g. trade finance, credit/debit cards)

– inability to arrange local residence visas

– cannot avail themselves of treaties’ benefits

 

Statutory Considerations

Ownership At least 51% of the shares must be held by a UAE national (the “local partner”) 100% foreign ownership allowed 100% foreign ownership allowed
Minimum Number of Shareholders 2 1 1
Minimum Capital AED 1.00 AED 10,000 – 1,000,000, depending from Zone to Zone AED 1.00
Capital pay-up at Inception Not required in principle Depending from Zone to Zone Not required
Nature of Shares Registered Registered Registered
Directors:

·Minimum required

 

·Corporate director (s)

 

·Location

 

1

 

 

Not required

 

At least one Director must be UAE Resident

 

1-2, depending from Zone to Zone Not allowed

 

 

Not required

 

Depending on the Free Zone

 

1

 

 

Allowed

 

No restriction

Audited Accounts – Required. To be filed yearly at the time of license renewal – Required. To be filed yearly at the time of license renewal Not required
Name Prior approval required – some wording sensitive. Ends with “LLC” Prior approval required – some wording sensitive. Ends with “FZE”, “FZC” or “FZ-LLC” Prior approval required – some wording sensitive. Ends with “Ltd”
Time Frame for Incorporation 4 weeks upon receipt of full documentation 2-8 weeks upon receipt of full documentation, depending on the Zone 1-3 days upon receipt of full documentation
Language Arabic/English English English
Legalization Process of PoA & Corporate Documents Legalization & super-legalization mandatory Legalization & super-legalization mandatory Apostille sufficient for RAKIA; Legalization & super-legalization mandatory for JAFZA
Registered Office Mandatory tenancy agreement on physical premises Mandatory tenancy agreement on physical premises – virtual office facility available in some Zones c/o Registered Agent
Companies Not available Not available Available
Tax Status Not subject to:

– Corporate tax

– Withholding tax

Total tax and duty exemption Total tax and duty exemption
Double Tax Treaties, special treaties Full benefits of DTTs; full benefits of special treaties Full benefits of DTTs No. Considered non-resident for tax purpose, IBCs cannot avail themselves of treaties’ benefits
Disclosure Identity of shareholders and offices is publicly available Accessibility to information will vary depending on each Zone’s practice Information contained within the Registrar is not public. A Court Order or equivalents is necessary to obtain the identity of shareholders and officers.

Written by Ghulam Hussain

Head of Corporate Structuring/United Advocates

For further information; please outline your query in full in an email to info@united-advocates.com