In order to conduct business in the UAE, foreign investors must comply with the UAE laws on foreign investment and trade. Below is a summary of the various onshore set-up options.
International manufacturers and exporters may conduct business within the UAE by concluding transactions directly with importers and traders who are already established in the market. Imports into the UAE can only be undertaken by those importers who have the appropriate trade license. This relationship is distinct from a Commercial Agency, as there is no long-term contractual arrangement and the products are sold to the distributor who may then resell the products into the market or utilize the products for his own enterprise (in the case of raw materials or components). This type of arrangement is more suitable for low volume trade. However, for an on-going business relationship, foreign investors may need to consider a more permanent form of setup.
A foreign company wishing to supply goods and services from abroad, but without establishing a physical presence in the UAE, may find it advantageous to appoint a UAE agent. The main provision of the UAE Federal Commercial Agencies Law No. 18 of 1981, as amended, is that an agent must be a UAE national or a company 100% owned by UAE nationals. The UAE Commercial Agencies Law regulates and governs the appointment of commercial agents, sales representatives, and distributors in the UAE. This law defines a commercial agency as any arrangement whereby a foreign company is represented by an agent to “distribute, sell, offer, or provide goods or services within the UAE for a commission or profit” – Article 1 of the Commercial Agencies Law.
The Commercial Code (Federal Law No. 18 of 1993) arguments the Commercial Agencies Law and establishes the regulatory framework for the various types of commercial agencies permitted under the law. The most common type of agency is the contracts agency, whereby the agent undertakes “on a permanent basis and in a specific area of activity, the instigation and negotiation of the conclusion of deals, to the advantage of the principal and in return for payment” (Article 217 of the Commercial Code). Distributor contracts are treated like contracts agencies when they involve one agent as the sole distributor (Article 227 of the Commercial Code).
The primary requirements and characteristics of commercial agencies are:
A LLC shall have at least two and not more than fifty shareholders. A single natural or corporate person can incorporate a LLC, provided the person is of the UAE nationality. The name of the LLC shall be followed by the expression “Limited Liability Company” or in short “LLC”. The LLC shall have one or more UAE shareholders holding at least fifty one percent (51%) of the share capital. The Memorandum of Association of an LLC shall include the name of the company and its shareholders, objectives of the company, office address, capital and contribution of each shareholder, commencement date, management, financial year, distribution of profits and losses, name and address of its manager etc. The LLC is prohibited from issuing negotiable share instruments; carrying on the business of insurance, banking, investment of funds on behalf of third party; resorting to public subscription for raising capital; and accepting deposits or taking loans from the public.
Capital: The LLC shall have sufficient capital to achieve the purpose of its incorporation and the capital shall consist of shares equal in value. Shares shall be paid in full at the time of incorporation. The liability of the shareholder is limited to the extent of shareholding in the LLC. The capital of the company shall not be increased or decreased without the consent of 3/4th of the shareholders at the meeting of General Assembly.
Management: The management of the LLC shall be undertaken by one or more managers chosen from the shareholders or third parties. If the shareholders are more than seven, the parties shall appoint a supervisory board of at least three members. The Manager shall be liable for any fraudulent acts, or any losses or expenses caused by improper use of power. The General Assembly shall consist of all shareholders, and shall be held at least once in a year. The quorum of the General Assembly shall not be valid unless one or more partners holding at least 75% of the share capital of the company are present.
Accounts: The manager shall prepare the annual budget and the profit and loss account, and an annual report on the affairs and financial position of the company for the General Assembly. The LLC shall appoint auditors in the General Assembly each year, and the auditor shall issue a report on the accounts audited. The LLC shall set aside 10% of its net profit to form legal reserve, and the shareholders may decide to stop such deduction if the reserve reaches half of the share capital.
Dissolution: If losses of the LLC reach half the capital, the manger shall refer to the general assembly to dissolve the company. If the losses reach 3/4th of the capital, the shareholder holding 1/4th of the capital may demand resolution of the company. The manager and the liquidator shall enter the dissolution of company in the commercial register, and publish the dissolution in 2 daily newspapers; one of it is in Arabic. The dissolution of the company shall not be effective against third parties until the date of registration.
UAE Commercial Companies Federal Law No. 2 of 2015, Article 332 provides that foreign companies can establish representative offices. The object of such an office shall however, be limited to market and production capabilities study without performance of any commercial activity. Hence, a representative office of a foreign company is legally distinct from a branch office in that it is only allowed to promote its parent company’s activities. Therefore, if a parent company deals in the sale and/or production of certain products and opens a representative office in Dubai, the office will only be able to promote and market the sale and/or production of such products and facilitate contracts in the UAE, as distinct from conducting their sale of production itself. It should be noted that in addition to the above limitation, representative offices have other restrictions in that they are not allowed to obtain credit facilities or put forward offers or tenders. Another distinct point is that the parent foreign companies and their branches need to prepare a balance sheet profit and loss accounts and the same is not applicable to a representative office.
The representative office must have the same name of the foreign company. However, the words “Dubai (or name of Emirate) Representative Office” must be added after the name, as it is legally regarded as part of the foreign company and does not have a separate legal identity from that of the foreign company.
As in the case of a branch office it is necessary when establishing a representative office to appoint a local services agent (the “Local Services Agent”), however, in some exceptional cases, a local services agent is not required. The Local Services Agent, however, will neither acquire any rights or interests in the business of the representative office. The Local Services Agent will merely provide services on matters that concern local government authorities (i.e., processing the representative office’s registration and licensing renewal requirements, processing visas and work permits for the representative office’s personnel). In return, the Local Services Agent usually receives a fixed annual fee to be agreed upon between the parties.
A very popular way for foreign companies to benefit from a 100% foreign ownership is to establish a branch office of the foreign company. Registration of a branch office for a foreign company is governed by the UAE Commercial Companies Law No. 2 of 2015, Articles 327 to 331 (inclusive).
The branch must have the same name of the foreign company. However, the words “Dubai (or name of Emirate) Branch” must be added after the name, as it is legally regarded as part of the foreign company and does not have a separate legal identity from that of the foreign company. The branch office does not have limited liability as a limited liability company; therefore, the liabilities of the branch extend to the parent company. The branch may only be engaged in activities similar to those of the foreign company. However, some activities may require specific approval from the concerned authorities in the Emirate concerned.
The branch is required to have a UAE national as a local sponsor (the “Local Services Agent”). The Local Services Agent, however, will neither acquire any rights or interests in the business of the branch nor interface in the substantive management of the branch. The Local Services Agent will merely provide services on matters that concern local government authorities (i.e., processing the branch’s registration and licensing renewal requirements, processing visas and work permits for the branch’s personnel). In return, the Local Services Agent usually receives a fixed annual fee to be agreed upon between the parties.
Shareholders being not less than two and not more than two hundred may incorporate a private joint stock company, which shares are not issued for public subscription, and those shareholders shall subscribe to the whole capital which shall not be less than UAE Dirhams 5,000,000 (UAE Dirhams Five Million), paid in full.
A Joint Venture Company is a type of company where two or more partners agree by contract to share in the profits or losses of one or more commercial enterprises, which will be carried on in the name of one of the partners. Joint venture contracts may be written or oral, are not notarized and shall not be subject to registration in the Commercial Register or to any publicity requirement. Third parties have recourse only against the partner with whom they are dealing with.
However, should the Joint Venture arrangement be disclosed to third parties, all of the partners shall be liable to such third parties. Existence of a joint venture arrangement may be proved by any method of proof.
If you are looking to setup onshore, please fill in our ‘Onshore Application Form’ and send back to us. One of our corporate team shall contact you shortly. If you wish to discuss other business setup options, please feel free to contact us at email@example.com to arrange for an appointment.