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Types of Companies in the United Arab Emirates

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You can register a mainland company, a free zone company, or an offshore company in the UAE. Each company type has its strong and weak sides. You have to choose the type of company that you need depending on the type of business activities that you are planning to carry out when registering a company in the UAE. Below we discuss the main differences between the company types and point out the tasks that each company type can help you solve.

Company ownership 

Any company registered in a free zone can be fully owned by a foreigner (or foreigners). Previously, all companies registered in the mainland UAE had to have a local co-owner with a 51% ownership share. However, from November 2020, mainland-registered companies engaged in many spheres of business can also be fully owned by foreigners. The main exceptions are banking, insurance, and oil mining.

Geography of business operations 

Mainland companies can trade with other mainland companies, with free zone companies, and with foreign companies. A company registered in a free zone trading in physical goods can trade only with companies domiciled in the same free zone and with foreign companies. The mainland UAE markets are closed for free zone companies.

Tax benefits 

Free zone companies are basically tax-exempt. The VAT is charged, however, and export/ import duties can also be charged in some free zones if the export/ import volume exceeds a certain threshold. Mainland companies pay a 5% VAT and a 0% tax on corporate profit until it reaches 375,000 dirhams per year. A 9% tax is payable on the outstanding amount of corporate profit. The tax was introduced only last summer.

Financial audit

All mainland companies in the UAE have to undergo annual financial audit. Most free zone companies do not have to submit annual reports and undergo audits. There are some exceptions from the general rule, however. Some free zones require that companies engaged in certain spheres of business submit reports and undergo audits.

Areas of specialization in free zones 

If you count all the free zones and techno parks in the UAE, the number is going to be more than 50. Each free zone or techno park sets its own business rules and most of them have an area of specialization (or several areas of specialization). For instance, Dubai Internet City and Dubai Multi Commodities Center are focused on information and communication technologies. DIFC and ADGM free zones cater to Fintech companies. Dubai international airport is a free zone too and many logistics companies are registered there as well as companies related to aviation in some way.

It is important to choose the free zone with a suitable area of specialization. In this case, qualified personnel will be available and you can receive support from the community at an early stage of your business operations. The Department of Economic Development (DED) has a list of business activities and each free zone chooses the activities to authorize and those to exclude. An important consequence of this state of affairs is that some types of business activities may be simply illegal within a free zone. Something to make a note of.

Minimum charter capital 

While a mainland company normally has to have a charter capital (even though it depends on the company ownership form), most free zones do not put forward such a requirement. There are exceptions, however. For instance, you have to register 50,000 dirhams when setting up a company in the DMCC free zone.

Government approval 

The DED of the Emirate where you want to register a company has to issue an official approval to you. However, depending on the particular Emirate and the type of business activities that you are planning to carry out, you may also have to obtain approvals from other government agencies. For example, it can be the municipal authorities of Dubai, Dubai Healthcare Agency, Healthcare Agency of Abu Dhabi, Knowledge and Human Development Agency, Ministry of Labor, Ministry of the Interior Affairs, and so on. If you are registering a company in a free zone in the UAE, you will have to obtain approval from the zone administration. Please visit this page to learn more about the formalities involved in registering a company in the UAE.

Forms of company ownership in the UAE

You can choose one of the following forms of company ownership when setting up a business venture in the UAE:

  • LLC;
  • PLC;
  • Partnership;
  • Subsidiary;
  • Representative office.

As is to be expected, a Limited Liability Company is the most popular form of company ownership in the UAE. It can have between 1 and 50 founders, in accordance with the local legislation. Public Limited Companies are also often registered in the UAE but we are talking about large-scale business here. The minimum registered capital that a PLC has to have is 30 million dirhams. PLCs can be listed at the local stock exchange. If you want to provide banking or insurance services in the UAE, you will have to establish a PLC there. Besides, 51% of the company has to be owned by local residents.

A company branch or a representative office is not an independent legal entity: it is part of the parent company. A representative office can carry out marketing operations and promote the products/ services of the parent company in the UAE. It cannot be involved in any kind of commercial activities. A company branch or subsidiary is free to engage in any kind of legal business activities in the UAE.

Offshore companies in the UAE

An offshore company in the UAE is a commercial enterprise that conducts all its business operations outside the jurisdictions where it is registered. There can be different reasons why you may want to set up an offshore company in the UAE but the main advantages of having such a company include the following ones:

  • Opportunity to work in international markets;
  • Stable legislative system tailored for business;
  • Flexible regulatory regime;
  • Multiple tax exemptions: no personal income tax, no corporate income tax, no capital gains tax, and so on;
  • Access to global financing;
  • High level of asset protection including intellectual property rights.

The two central jurisdictions for registering an offshore company in the UAE are Ras Al Khaimah and JAFZA free zones. Both of them are ‘tax-free’ and both of them allow 100% foreign company ownership. Offshore companies registered there can open multicurrency bank accounts in the UAE and do business internationally. However, they cannot make commercial agreements with residents of the UAE nor have property in the country.

Conclusion

The United Arab Emirates is one of the most popular places for foreign company registration. It has a strategic geographical position, an advanced infrastructure, and a favorable fiscal environment. With some professional assistance, registering a company in the UAE is not a burdensome task at all.