Company registration in UAE

Every successful entrepreneur has at least once considered opening a representative office abroad. However, it is not easy to find a jurisdiction among the many available options where a company will immediately receive a powerful boost for development thanks to a wealthy market, favourable conditions and a low tax burden on businesses.

The United Arab Emirates is a country of great opportunities with a strong, rapidly developing economy. It is increasingly becoming a place of growth for entrepreneurs. The United Arab Emirates government has relied not only on the extraction of natural resources but also on other more modern sectors of the economy. Foreign investment is always welcome and business activity is encouraged.

Six benefits of registering company in United Arab Emirates

• Employees in the UAE do not pay income tax. However, if you work as a business consultant, you will need to pay corporation tax;
• The country has seven emirates with their own legislation and several free economic zones. This makes it the best platform for your business, with reasonable running costs;
• Entrepreneurs pay almost zero duties and all kinds of customs charges in free economic zones;
• The United Arab Emirates has a convenient infrastructure for business. Trade and transport companies appreciate this country’s unique location at the crossroads of many trade routes, with its seaports and high-quality highways;
• The UAE allows to establish limited liability companies with 100% foreign shareholding. The strict laws of the UAE protect the economic interests of foreign entrepreneurs;
• Financial transactions with foreign counterparts are considerably simplified because there are no strict foreign exchange controls in the UAE. You will have a choice of both reliable local financial institutions and representative offices of major international banks.

All the above contribute to the development of your company, especially if your business is unique and has a high potential.

Three types of companies to register in United Arab Emirates

The legal form of business incorporation in the UAE depends directly on the place of registration and the type of commercial activity. Usually, foreign entrepreneurs choose one of the following types:

• An offshore company;
• A free zone company;
• A mainland company.

Let’s review each of them in detail.

Offshore company

It is ideal for entrepreneurs who plan to work only abroad. The legal form for an offshore company in the UAE is an International Business Company.

Advantages:

• A foreign entrepreneur can save a lot with an offshore company in the UEA as their business does not need to be physically present in the country. They are not required to rent an office and hire employees at the place of registration.

Disadvantages:

• An offshore company must earn all its money abroad. Under the country’s corporate laws, such a company is not allowed to work with local suppliers.

Free Zone Company

It allows to take advantage of special conditions only offered to companies registered in a free trade zone (FTZ). A free zone is a section of an emirate or several blocks in a large city, a fairly small area with a well-developed infrastructure. Hence the name of the company — a free zone company.

Advantages:

• A free zone company does not pay customs duties;
• Unlike offshore structures, a free zone company can distribute its products in the Emirates, but the distribution area is limited to the place of registration — one of several dozens of free trade zones;
• Like offshore companies, free zone companies can be fully owned by foreigners;
• Free trade zones are compact and have all the necessary infrastructure for modern-day businesses;
• Free trade zones are not only convenient locations for foreign entrepreneurs but also large professional communities where you can network with many like-minded people.

Disadvantages:

• A company in a free trade zone cannot independently sell its products or provide services throughout the UAE. All commercial activities will be limited only to the place of registration.

Therefore, free zone companies can be registered in the following three scenarios:

• The commercial activity does not require physical presence. It could be an online marketing or remote trading platform;
• Your product is sold and the service is provided directly at the place of registration. For example, if you have opened a cafe, hairdresser’s, or beauty parlour in a free trade zone;
• You are engaged in manufacturing and the benefit of using cheap raw materials without import duties outweighs the additional costs of distributing the finished product outside your tax-free zone.

This type of company must rent an office in the free trade zone where it is registered.

Mainland company

Such companies are registered outside free trade zones. A typical legal form of organisation in this case would be a limited liability company (LLC).

Advantages:

• A mainland company can operate throughout the country;
• The office of a mainland company can also be rented in any part of the UAE;
• Certain types of business activities can only be carried out through mainland companies;
• You cannot do without a mainland firm if you expect to bid for UAE government tenders;
• Finally, a mainland company is chosen by those who want the legal form of organisation for their business to be an LLC.

Disadvantages

• It will be more expensive to run a mainland company than a free zone company or an offshore company;
• The share capital of such a company must be 51% owned by Emirati citizens. This means that a foreign entrepreneur must use nominee services which will result in additional costs.

Company registration in United Arab Emirates

The process of registering a company in the UAE consists of four steps:

1. It is necessary to choose the most suitable legal type of company for your business in the UAE.

You should find a convenient place for registration. Where you will incorporate your company, whether in a particular emirate or trade zone, will determine many things:

• How long it will take to register a company and how much it will cost you;
• The amount of the company’s share capital;
• The number of annual reports;
• Costs of running the business.

Here is an example of how different the two most popular emirates, Abu Dhabi and Dubai, are in terms of registering a business:

• The process of opening a company takes a long time;
• Registration cannot be done remotely, without the physical presence of the shareholder;
• A registered company will be required to have an audit once a year;
• A corporate account must be opened in a UAE bank with the share capital transferred there (usually at least 50,000 Emirati dirhams or US$13,500);
• All resident employees (citizens and residence permit holders) must be provided with health insurance.

It is much easier for companies to register in the northern emirates. As a rule, the decision on the application is made faster. You will not need to deposit share capital into a current account, and there is no requirement to have an annual audit.

Moreover, if a shareholder has previously visited the United Arab Emirates without violating any laws (appropriate immigration records will be checked), they will be able to register their company in the Northern Emirates through a representative, without a physical presence in the country.

Please note that even in the “friendliest” Northern Emirates of the UAE, there is no 100% remote incorporation option. The authorities require either the founder themselves or their representative to participate in the process.

1. Once you have decided on the type of your future company, its place of registration and corporate structure, you should proceed with the following steps:
   • Create an appropriate name that follows UAE requirements;
   • Prepare the company’s incorporation documents such as articles of association, memorandum of association, and share certificate(s);
   • Sort out several organisational issues: rent a virtual or physical office, hire a nominee (if you are registering a mainland company), open a local bank account, deposit share capital, etc.
2. When everything is done, you should pay the incorporation fee, carefully fill in the application form and submit it with copies of supporting documents to the local municipality or registrar (this is for those who are launching a business in one of the free trade zones).

If everything is done correctly, the government will approve the application and grant the licence. In the United Arab Emirates, every officially registered company receives a licence as a statutory document.

Please feel free to contact the specialists of our company to avoid mistakes and do everything correctly. Imperial & Legal will not only help you register a company in the United Arab Emirates on favourable terms but also promptly solve all related tasks: from organising the transfer of employees to accounting and opening a current account in a local bank.

Licences in the UAE

No company registered in the UAE can operate without a licence, even if it is an offshore company. Operating without an official licence in the UAE is punishable by a severe penalty.

Annual licence renewal is another factor in doing business in the United Arab Emirates. The cost of renewal is usually equal to the cost of obtaining a new licence. A business licence would cost a foreign entrepreneur $700-$5,500. The exact amount depends on such details as the place of registration and the type of company.

There are several types of licences, the names of which differ significantly from emirate to emirate. Here is the standard classification:

• Commercial licences for general trading businesses in 2-3 groups of goods;
• General trading licences for trading in a wide range of goods except for liquefied oil and liquefied gas, alcohol, tobacco and prohibited products;
• Professional licences for those companies that provide professional services.

If an entrepreneur plans to engage in several types of commercial activities at once, they may need not 2-3 licences. Moreover, certain types of activities require an entrepreneur to have an additional licence which is granted by the relevant government ministry. It includes medical services, education and banking.

To renew your licence, you need to send the following documents to the municipality or registrar:

• A signed application form for the renewal of a commercial licence;
• Confirmation of payment of the renewal fee;
• Renewed virtual or physical office lease agreement.

Once you have received your renewed licence, remember to send a copy of it to the bank where you have the corporate account in the UAE within 30 days.

How long does it take to register a company in the UAE?

The actual process of registering a company and opening a bank account takes 3-4 weeks. However, additional activities such as renting and refurbishing an office, recruiting staff, etc. can take from 3 to 6 months, especially if you start a business in one of the free trade zones of Dubai, which is in high demand among foreign entrepreneurs.

It is much quicker for companies to open in the Northern Emirates. It takes 2-3 working days for the authorities to make a decision on your application.

How much money do I need to open a company in the United Arab Emirates?

Running a new business requires significant investment, even if you open an offshore company in the UAE. However, the initial costs could be recovered thanks to tax savings.

The exact amount required in the first year of your company’s activity in the UAE depends on several important factors:

• Type of company. Offshore companies are cheaper as you do not need to rent an office and hire local employees to run a company. The most expensive solution is a mainland company because, in addition to office rent, wages and insurance for employees, you will have additional expenses for nominee shareholders and auditing;
• Visa quota. How many resident visas (from 1 to 15) you will need to transfer employees to the UAE;
• The emirate of incorporation. It is more expensive to run a company in Dubai followed by Abu Dhabi. It is cheaper to do business in the Northern Emirates.

Imperial & Legal’s specialists confirm that the difference, depending on the emirate, can be significant. For example, in the north, an entrepreneur will spend about $4,000 a year on an IT company, while in Dubai, even $20,000 may not be enough.

Here is a list of the costs to register a company in a free trade zone in Dubai:

1. Registration fee

   Registration fee is a one-off payment to the administration of the free zone at the initial stage of incorporation of your company. The exact amount depends on the legal form chosen to register your business. It usually does not exceed AED 10,000 (US$2,700).

2. Licence fee

   The most important step in running a business in one of Dubai’s free trade zones is choosing a business licence. The three most common types of licences are granted for trading, services and manufacturing.
   Unlike the registration fee, licence costs are recurring and can range from AED 8,000 to AED 50,000 per year, which at the current exchange rate is from US$2,160 to US$13,500.

3. Office rent

   Renting an office in Dubai is necessary to obtain a business licence. Each free zone in this emirate provides different types of offices for company registration, from virtual to workplaces with all necessary facilities. Renting a virtual office in one of Dubai’s free zones with minimum related services limited to an official correspondence address starts at AED 10,000 (US$2,700) per year.

4. Share capital

   The minimum share capital depends on the free trade zone, type of company, type of activity and licences. In some cases, it may be as high as AED 1,000,000. The average paid-up share capital requirement for companies in Dubai free trade zones is AED 50,000 (US$13,500).

We should also mention smaller costs:

• Company name check and confirmation fee – AED 776.5 / US$209.7;
• Confirmation fee for the registration application – AED 256.50 / US$69.3.

If you want to know the exact cost of opening and running a company in the UAE, contact our advisors. Moreover, an advisor will minimise unnecessary costs associated with changes in the structure of your company, amendments to statutory documents, etc.

Corporate taxation

The United Arab Emirates is no longer a country where foreign entrepreneurs have an excellent opportunity not to pay corporate tax. The UAE’s 2023 corporate tax rate will be 9% on the profits for the following categories:

• UAE-registered companies (including those in free trade zones);
• Individuals engaged in business activities in the UAE;
• Foreign legal entities operating from the UAE territory;
• Permanent representative offices of international companies earning income in the country or having a significant economic presence in the UAE.

Businesses earning less than AED 375,000 annually will not be subject to UAE corporate tax (equivalent to US$101,250).

The following organisations are exempt from paying corporate tax:

• State-owned and controlled companies;
• Companies engaged in the extraction, exploration or development of natural resources;
• Charitable organisations and legal entities whose activities are qualified by the authorities as bearing public benefit;
• Qualified investment funds;
• Public and private pension and social funds;
• Companies in free trade zones receiving qualified income.

What do the UAE authorities mean by the qualified income of companies registered in a free trade zone?

At present, qualified income includes profit from transactions with residents of free trade zones, as well as profit derived from transactions with non-residents of free trade zones but from qualified activities. Qualified activities include logistics, distribution, manufacturing and the operation of holding structures. Retail or provision of services is no longer a qualified activity.

How is this exemption implemented? According to the new law, a legal entity registered in a free trade zone is obliged to prepare and submit a tax return within the established deadlines.

The part of the declared income that will be recognised as qualified income (or if it does not exceed USD101,250) will be taxed at the preferential rate of 0%.

A value-added tax (VAT) was introduced on 1 January 2018. The VAT rate stands at 5%. There are two ways of charging this tax.

VAT in trade

If your goods are sold outside the UAE, even though the money from their sale goes into bank accounts in the UAE, VAT is not charged.

If your products are sold in the UAE, your taxable turnover begins to form, and when it reaches AED 375,000 (US$101,250) you will be required to:

• Register for VAT;
• Include 5% VAT on your invoices;
• Collect VAT from the customer and pay it to the government.

VAT in services

All services are taxable and VAT can be charged at 0% or 5%.

The zero VAT rate applies to services provided by UAE-registered companies abroad.

5% VAT is charged on services provided in the United Arab Emirates to clients of any tax and incorporation jurisdiction.

The standard period for companies to submit VAT tax returns and pay the tax is three months. Those businesses that provide services abroad must still report and submit a “zero” VAT return to the tax authorities.

However, the reporting period can be extended to four months or, on the contrary, reduced to one month if you have a large turnover and accumulate significant amounts of VAT.

Despite new initiatives aimed at increasing business tax revenues, the following types of income are still not taxable in the UAE:

• Dividends received as a result of profit distribution of companies that are tax residents in the country;
• Any other income from shares and share capital of commercial organisations, if the ownership is at least 5%;
• Income of a tax resident of the country received by a foreign permanent representation of companies;
• Income of individual non-UAE tax residents derived from the operation of aircraft in the course of international transport.

Under the UAE’s law, there are several other options to reduce the tax burden on businesses by reducing the tax base or applying favourable tax rates. You should consult an experienced advisor to benefit from all of these options effectively.

Opening company in UAE with Imperial & Legal

Our advisors provide legal support to businesses in the UK and around the world (including the UAE). If you want to find out more about how to benefit from all the unique opportunities for entrepreneurs in the UAE, please contact our advisors.