Introduction

1.1 This guide provides an overview of the legal issues for those
considering setting up business in Dubai. The guide examines the
numerous commercial entities that can be used and provides an
overview of the most popular methods used by foreign companies to
operate in Dubai. The guide also provides information on the ‘free
zones’ established to facilitate foreign investment.

The Main Requirements

2.1 In order to set up a business within Dubai, the business entity used
must fall within one of the seven business categories stipulated in
Federal Law no 8 of 1984 Concerning Commercial Companies (as
amended by the Federal Law no 15 of 1998) (the Companies Law).

2.2 In addition, a trade licence must be obtained from the Dubai
Department of Economic Development (the DED) prior to the entity
commencing commercial activities. Certain business sectors may also
require further approval from various ministries and/or other
authorities1. Certain commercial activities are restricted to UAE
nationals or companies fully owned by UAE nationals2.

The Seven Business Entities

3.1 The seven business entities permitted by the Companies Law are:

a limited liability company;

b public joint-stock company;

c private joint-stock company;

d joint liability company (general partnership);

e simple commandite company (simple liability partnership);

f private unlimited company; and

g share commandite company.

3.2 The majority of the entities (outside the specified ‘free zones’ referred
to in paragraph 4) require participation by a UAE national (usually in
the form of holding an equity interest).

3.3 It is also permissible in the UAE to establish a branch of a foreign
company or a representative office.

The Free Zones

4.1 Businesses wishing to operate in Dubai should be aware that several
zones, known as ‘free zones’, have been established with the specific
purpose of facilitating foreign investment into Dubai. However,
businesses operating within a free zone are restricted as to the type of
dealings that they may conduct outside of the designated free zones.
Businesses wishing to conduct local business in Dubai should comply
with the requirements of the Companies Law and other relevant laws
applicable to the respective industry.

4.2 Below is an overview of the most popular methods used by foreign
companies to operate in Dubai outside and within a free zone.

Operating outside a free zone

Limited Liability Company

5.1 The limited liability company (LLC) is the most widely used
commercial entity for companies with a non UAE national element
wishing to conduct commercial activities in Dubai. An LLC is a private
company and shares in it cannot be offered to the public.

5.2 Article 22 of the Companies Law requires that no less than 51 per cent
of the shares in an LLC must be held by UAE nationals. However,
Article 227(2) of the Companies Law permits profits (and losses) of
the LLC to be distributed disproportionately to the UAE national/non
UAE national shareholding ratio. This ratio should be set out in the
LLC’s memorandum of association.

5.3 Article 218 of the Companies Law regulates the composition of an
LLC. An LLC requires a minimum of two shareholders, with a
maximum of 50 shareholders permitted.

5.4 There are no nationality restrictions regarding the management of an
LLC. The minimum number of directors is one, with a maximum of
five directors permitted by the Companies Law.

5.5 While Article 227 of the Companies Law (which applies throughout
the UAE) stipulates that the minimum share capital of the company is
AED150,000; the Dubai authorities require a minimum share capital
of AED300,000 for Dubai incorporated LLCs. Individual shares should
have a minimum face value of AED1,000. The shares cannot be other
than ‘equal shares’.

5.6 An LLC may not conduct the business of insurance, banking or the
investment of money on behalf of third parties.

5.7 Several administrative steps must be completed before the LLC’s
incorporation is effected. These include the approval of the LLC’s
name and memorandum of association by the DED. Article 219 of the
Companies Law sets out various requirements that must be followed
when naming an LLC: these include a requirement to derive the LLC’s
name from either its purpose or from the name of one or more or its
shareholders. The DED also provides a standard form of
memorandum of association and will review an LLC’s memorandum
to ensure compliance with local requirements. The DED must also be
satisfied that the minimum share capital of the LLC has been
deposited with a bank operating in Dubai before it will allow the LLC
to be incorporated.

Publiic joint-stock company

5.8 A public joint-stock company (PJSC) is very similar to a UK public
limited company or German Aktiengesesallschaft (AG). It requires a
minimum share capital of AED10,000,000 and a minimum of founders, who are responsible for the incorporation of the
company.

5.9 Shares in a PJSC must be offered for public subscription and the
subscription notices must be published in two local daily Arabic
newspapers. The founders are obliged to subscribe for a minimum of
20 per cent of the share capital (but this cannot exceed 45 per cent of
the share capital). Article 153 of the Companies Law prevents shares
being issued which have differing rights.

5.10 A PJSC is required to have between three and 15 directors, who are
elected for three year terms. The chairman and a majority of the board
of directors must be UAE nationals.

Private joint-stick company

5.11 A private joint-stock company (Private Company) is similar to a UK
private limited company. It requires a minimum share capital of
AED2,000,000 and a minimum of three founder shareholders. Shares
in a Private Company cannot be offered for public subscription but in
all other respects the regulations applicable to a PJSC apply equally to
a Private Company.

Branch/representative office of foreign commercial companies

5.12 Article 314 of the Companies Law regulates the operation of branch
and representative offices of foreign companies in the UAE. These may
be wholly owned by a foreign entity, provided that a UAE national is
appointed as local agent. The role of the local agent is further
discussed below.

Branch office

5.13 While a branch office may carry out activities similar to those of its
parent company, there are certain activities which are restricted to
UAE nationals such as importing goods.

Representative office

5.14 A representative office may only promote its foreign parent company’s
activities through, for example, gathering information and soliciting
orders and projects to be performed by the company’s head office. It is
not permitted to carry out the parent company’s activities.
Representative offices are also restricted as to the number of
employees that they can sponsor and, due to these constraints,
representative offices tend to act as administrative and marketing
centres for their foreign parent company’s head office.

Local service agent

5.15 The role of a local service agent for a branch/representative office is to
assist generally with administrative matters such as obtaining visas,
licences and dealing with local authorities. The local service agent is
generally paid a fixed fee and does not have a right to participate in
any profits from the branch or representative office.

5.16 Provided that approval is received from the Ministry of Economy and
the DED, and the appropriate trade licence is obtained, a company
may establish a branch/representative office in the UAE. The
branch/representative office must be registered on the Registry of
Foreign Companies at the Ministry of Economy before it commences
trading.

Professional/service companies

5.17 In setting up a professional firm, 100 per cent foreign ownership is
generally permitted, however certain sectors and activities are
restricted to either UAE nationals or have a UAE national
shareholding requirement. Professional firms may be in the form of a
sole proprietorship or a civil company. Such firms may engage in
professional or artisan activities but the number of persons that may
be employed by such firms is limited. A UAE national must be
appointed as local service agent for sole proprietorship, but he has no
direct involvement in the business and is paid a lump sum and/or
percentage of profits or turnover. The role of the local service agent is,
among other things, to assist in obtaining licences, visas and labour
cards.

Setting up business in a free zone

6.1 A number of free zones exist within Dubai and, as such, have a distinct
legal status within the UAE. Companies incorporated and operating
within the free zones are not subject to many of the restrictions
imposed by the Companies Law and other UAE laws and regulations.
Entities operating within the free zone may be 100 per cent foreign
owned and benefit from a guarantee that tax will not be applied for a
certain period of time, notwithstanding any subsequent change to
federal or local laws.

6.2 The free zones include the Jebel Ali Free Zone (the JAFZ), the Dubai
International Airport Free Zone (DAFZA), the Dubai Technology and
Media Free Zone (TECOM), the Dubai Cars & Automotive Zone, the
Dubai Health Care City, the Dubai Multi Commodities Centre and the
Gold and Diamond Park. We understand that additional free zones
will be established in the coming years.

6.3 The type of business that is to be set up dictates which free zone
should be used. For example, the DAFZA is intended for businesses
that import and export goods and the business activities permitted in
TECOM include ‘design, development, use and maintenance of
everything relevant to Information Technology, E-commerce and
Media’.

6.4 The largest free zone in Dubai is JAFZ. It was established in 1985 and
was the first zone to be set up in the UAE.

6.5 Each free zone is governed by an independent Free Zone Authority
(FZA), which among other things, is responsible for issuing to
businesses the necessary operating licences for operation within the
relevant free zone.

6.6 As an illustration of the types of operating licences issued by the free
zones, the following is a description of the operating licences issued by
the JAFZ:

a Trade licence: This licence is available to companies who wish to import,
export, sell, distribute or store items identified on their licence. Sales
cannot be made directly to the UAE. Any company wishing to sell goods
from the JAFZ into the UAE must appoint a distributor or agent in the
UAE.

b Industrial licence: Industrial licences are intended for companies
wishing to carry out manufacturing activities. Restrictions on selling
products into UAE also apply to industrial licensees and a distributor or
agent must be appointed in the UAE in order to sell products into the
UAE.

c Service licence: A service licence permits the licensee to provide services
within the free zone. Services provided by the free zone licensee must be the same as those stipulated in the parent company’s licence in the UAE
or abroad.

d National Industrial licence: A national industrial licence permits the
holder to import raw materials, manufacture specified products and
export the finished products. However, a minimum 51 per cent of the
shareholding must be owned by Gulf Co-operation Council (GCC)
nationals. In addition to this restriction, a minimum 40 per cent of the
value of the final product must have been added in the free zone.

6.7 From the above description of the relevant licences, it should be noted
that a licence holder cannot operate outside the free zone using its free
zone licence. A distributor or agent must be appointed within the
UAE. However, potential customers from the UAE may visit the
premises of the licence holder to view the goods.

Free Zone business entities

7.1 In general, three options exist for those wishing to set up in a free
zone. A business wishing to operate from a free zone can either
incorporate a free zone establishment (FZE), a free zone company
(FZC) or operate through a branch office of a foreign or local
company. Branch offices are designed to be opened with a limited
amount of administrative formality.

7.2 An FZE in the JAFZ requires a minimum capital of AED1,000,000.
The minimum capital requirement represents one share and it can
only have one shareholder.

7.3 The minimum capital required to incorporate an FZC is AED500,000
and an FZC can have between two and five shareholders. Each share
must have a minimum value of AED100,000 or multiples thereof and
there can only be one class of share.

7.4 The FZC must have a board of directors, consisting of a minimum of
three people and having at least two directors and one secretary
(although a person may hold both the offices of director and secretary
within a company simultaneously). These individuals must be resident
in Dubai.

Ownership

8.1 One hundred per cent foreign ownership and full repatriation of
profits and capital is permitted.

Tax

8.2 Exemption from corporate and income taxes for a determined period,
regardless of subsequent changes to local laws.

8.3 Goods may be imported into the free zone, free of duty. 

Incorporation

8.4 It is relatively straightforward to set up a company in a free zone. The
first step is to complete a questionnaire issued by the relevant FZA.
Once the questionnaire has been considered by the FZA the company
will be required to provide the FZA with information on individual
and corporate shareholders.

8.5 Individual shareholders are required to provide a personal profile
which may include a business background, specimen signatures,
domicile and address.

8.6 Corporate shareholders are required to provide:

a certificate of registration or good standing;

b memorandum and articles of association;

c board resolution authorising the incorporation of the FZE or FZC;

d powers of attorney in favour of the FZE/FZC managers; and

e audited financial statements for the last two financial years.

Employment

8.7 Companies operating within the free zone are generally entitled to
employ who they wish. However, various administrative requirements
must be complied with such as providing the FZA with certain details
of the licence holder’s employees.

8.8 While rates of pay are not specifically regulated, a minimum salary is
stipulated in the JAFZ. Overtime rates are regulated by the FZA and
shift working must be notified to the FZA.

8.9 Working hours are regulated and these are shortened during the Holy
Month of Ramadan. The shortened hours apply to all employees,
regardless of religion.

8.10 Employee numbers are restricted according to various criteria,
including office area and machinery installation.

Tecom

The TECOM requirements are slightly different as the regulations only
provide for limited liability companies, composed of between one and
50 shareholders. The current minimum share capital for a TECOM limited
liability company is AED50,000 and the share capital may, upon the
appropriate approvals being received from the authorities, be divided into
different classes of shares. Each TECOM limited liability company is
required to have at least one director and may have a maximum of four
directors.