This guide covers various corporate structures available for carrying out business activities in Emirate of Dubai. It also briefly provides details of some of the free zones located in Emirate of Dubai for setting up corporate entities. In order to maintain brevity, the incentives and procedure for incorporation of an offshore company in the largest free zone i.e. Jebel Ali Free Zone has only been covered. The guide also suggests the most popular and preferred form of corporate structure for carrying out the business activities in Emirate of Dubai.
Dubai-A Business Destination
- A leading regional commercial center across Middle East and North Africa Region;
- Strategic location at the heart of one of the richest region in the world;
- A diversified market–trading, manufacturing, real estate, construction and travel & tourism etc.;
- Highly developed transport and communications systems;
- Infrastructure and services of highest international standard;
- High quality office & residential space, reliable power and utilities etc.;
- Business friendly economic and trade policies;
- An open market - no exchange controls, quotas or trade barriers;
- No personal and corporate taxation;
- 100% repatriation of capital and profit; and
- Industry friendly labour laws.
Types of Companies
Federal Law No. 8 of 1984 (as amended by the Federal Law Nos. 13 of 1988 & 15 of 1988) governs the corporate entities in Emirate of Dubai. The proposed business entity must fall within one of the seven corporate structures stipulated herein:
- Public Joint Stock Company;
- Private Shareholding Company;
- Limited Liability Company;
- General Partnership;
- Limited Partnership;
- Partnership Limited by Shares; and
- Joint Venture.
1. Public Joint Stock Company (‘PJSC’)
- Corporate entities located in free zones; and
- Corporate structures which are not allowed to foreign investors.
- Mandatory to form PJSC for business ventures of insurance, banking and investment of fund on behalf of the third parties;
- Minimum share capital requirement-*AED 10,000,000 (Dirhams Ten Million);
- Minimum requirement of 10(ten)promoter shareholders unless a government entity is involved as co- promoter;
- A minimum 55% of the share capital must be offered to general public for subscription;
- Promoters are required to subscribe a minimum of 20% but subject to maximum of 45% of share capital of the company;
- Shareholder’s liability shall be limited to the extent of nominal value of shares held in the company;
- Shares shall be freely transferable provided 51% of the share capital of the company is held by UAE nationals; and
- Minimum requirement of 3(three) directors but limits the maximum number of directors to 15(fifteen). The chairman, as well as a majority of the board members must be UAE nationals.
2. Private Shareholding Company (‘PSC’)
- Minimum requirement of 3(three) promoter shareholders;
- Minimum share capital requirement- AED 2,000,000 (Dirham Two Million) 1USD=AED 3.67(Appx.);
- Shares of PSC can not be offered to general public for subscription;
- Permitted to covert into PJSC; and
- All other regulations as applicable to a PJSC shall also be applicable to a PSC.
3. Limited Liability Company (‘LLC’)
- A LLC may engage in any lawful activity except insurance, banking and investment of fund on behalf of the third parties;
- Minimum requirement of 2(two) shareholders but limits the maximum number of shareholders to 50(fifty);
- No prescribed minimum share capital. The promoters shall be free to determine the share capital and value of the shares. However share capital should be adequate to achieve the objectives of the company;
- Shareholder’s liability shall be limited to the extent of nominal value of shares held in the company;
- Minimum 51% of share capital must be held by UAE nationals;
- A LLC is prohibited to offer shares to the general public for subscription and accept deposits or loans from the general public;
- Profit and loss can be shared disproportionately to the shareholding pattern of the company;
- Minimum requirement of 1(one) director but limits the maximum number of directors to 5(five);
- Management of the company can be handled by maximum five designated managers, who need not be members of the company. The managers of the company could be from any nationality;
- Mandatory to appoint auditors on annual basis; and
- A LLC must allocate 10% of its net profit each year to the statutory reserve until reserve reaches to 50% of the share capital of the company.
4. General Partnership
- A general partnership can be formed by two or more partners, who shall be jointly and severally liable for all the liabilities;
- The name of the general partnership should consist of name(s) of one or more partners or it may have special trade name;
- All partners of the general partnership must be UAE nationals;
- No minimum prescribed share capital;
- Interest of a partner can be transferred in the manner as stipulated in the partnership agreement or with the consent of all partners; and
- All decisions in general partnership shall be taken with unanimous consent of all partners unless otherwise stated in memorandum of the partnership.
5. Limited Partnership
- A limited partnership shall be comprised of general and limited partners;
- General partners shall be jointly and severally liable for all the liabilities, whereas limited partners shall be liable to the extent of their capital contribution in the partnership;
- All general partners must be UAE nationals and limited partners may be expatriates;
- The name of the limited partnership should consist of name(s) of one or more partners;
- No prescribed minimum share capital;
- Prohibited to issue negotiable shares; and
- General partners shall take active part in management of the partnership. The limited partners may however take part in internal management of the partnership to the extent provided in memorandum of the partnership.
6. Partnership Limited by Shares
- A partnership limited by shares shall be comprised of both general partners with unlimited liabilities and the limited partners with limited liabilities;
- General partners shall be liable to the extent of their personal assets and limited partners shall be liable to the extent of nominal value of the share held in the company;
- General partners must be UAE nationals while limited partners may be expatriates;
- The name of the partnership should consist of name(s) of one or more partners;
- Minimum share capital requirement-AED 500,000 (Dirhams Five Hundred Thousand) and share capital shall be divided into shares of equal value;
- Management of the partnership must be entrusted with general partners; and
- Other provisions applicable to joint stock companies shall also be applicable to partnership limited by shares.
7. Joint Venture (‘JV’)
- A JV may be formed by an agreement between two or more partners to share profit and loss of the JV;
- A JV shall comprise active and dormant partners;
- JV agreement may be oral or written and it is not required to be registered in the commercial register for issue of license;
- Business activities under JV shall be carried out in the name of one or more active partners; the dormant partners shall remain undisclosed to the third parties;
- Active partners shall obtain the license for carrying out business activities of JV;
- Objectives, business modules and process of management of JV shall be specified in the JV agreement;
- JV is prohibited to issue negotiable shares; and
- Decisions in JV shall be taken with the consent of all partners unless otherwise stated in JV agreement.
Procedure for incorporation of corporate entities
1. The Promoters shall:
- Obtain approval for the proposed name and activities from the Department of Economic Development, Government of Dubai (“DED”);
- Draft Memorandum and Articles of Association (“MOA”) and get the MOA authenticated from the Dubai Court;
- Obtain certificate from the bank for cash and Auditor’s certificate for subscription of share capital in cash and in kind;
- Submit the application along with authenticated copy of MOA and other documents with DED for issue of commercial license;
2. DED will scrutinise the application and attached documents; if DED is satisfied, it will register the name of the proposed entity in the commercial register;
3. On registration of the entity, the DED will issue the license to the promoters to commence and carry on business activities. Primarily, there are three categories of licenses:
- Trade license for all kinds of trading activities;
- Professional license for professional and advisory services,craftsmen and artisan related works; and
- Industrial license for establishing industrial or manufacturing units.
4. License of the company is required to be renewed every year.
Other corporate structures available to foreign investors
- For carrying out business activities, the foreign investors may also set up:
- A branch, representative or liaison office; or
- A commercial agency.
- The foreign investors may also form a company in free zones (similar to Special Economic Zones in India), where corporate entities are exempted from most of the requirements applicable to the companies based in the regular Dubai jurisdiction.
1. Setting up of a branch, representative or liaison office:
- Foreign investors may establish a branch, representative or liaison office in Dubai after obtaining license from DED;
- The branch shall merely represent the parent company and carry out business only under the name of the parent company;
- A branch office is permitted only to promote and market the products and services of the parent company;
- A representative or liaison office shall only promote its parent company by gathering information, soliciting orders and works projected to be executed by the head office;
- Prerequisite to set up a branch, representative or liaison office, the parent company must appoint an UAE national as a local sponsor or agent under a written agreement; and
- Agent’s liabilities shall be limited to the rendering of services like obtaining licenses, visas and permits necessary for operation of a branch, representative or liaison office.
2. Professional/Service Establishments:
- The foreign investors may also set up professional or service establishments to provide professional or vocations services such as legal consultancy, auditing, medical services, architectural services, managerial & economic services, research and artisan activities etc;
- 100% foreign ownership is allowed;
- Limitation on employment of persons ;
- An UAE national must be appointed as local service agent; he shall be paid a lump sum amount and/or percentage of profit or turnover; and
- The role of the local service agent shall be limited to provide assistant in obtaining licenses, permits and visas etc.
3. Commercial Agency
- Foreign Investors may also carry out business activities by appointing a commercial agent;
- UAE nationals or a company owned by UAE nationals are only permitted to act as commercial agent;
- The agent shall have territorial exclusivity either for entire UAE or for one or more Emirates; and
- Agency agreement can not be terminated without the agent's approval or on justified grounds.
4. Setting up of Business in Free Zones:
There are various free zones in Emirate of Dubai. These free zones have been set up to achieve specific objectives. Investors can carry out activities in line with the goals of the respective free zone. Some of the prominent free zones in Dubai are:
1. Jebel Ali Free Zone (“JAFZ”);
2. Dubai International Airport Free Zone (“DAFZ”)
3. Dubai Technology and Media Free Zone (“TECOM”)
4. Dubai Outsource Zone (“DOZ”]
5. Dubai Silicon Oasis (“DSO”)
6. Dubai International Financial Center [“DIFC”]
7. Dubai Knowledge Village [“DKV”]
8. Dubai Internet City (“DIC”).
There are various free zones situated in Emirate of Dubai and accordingly facilities and incentives also differ among various free zones depending upon their objectives and policies of the Government of Dubai.
The JAFZ is the largest free zone in Emirate of Dubai. It provides world class Infrastructure, quality driven value added services and incentives to the investors to do business with greater ease and facilitate them to capitalize on huge business opportunities available in the region.
JAFZ offers following incentives:
- 100% foreign ownership;
- No corporate tax for a period of 50 years;
- No personal income tax ;
- No restriction on repatriation of capital and profit;
- No import or re-export duties;
- No foreign currency restrictions;
- No restriction on hiring of foreign employees; and
- Extend facility to mortgage owned premises on leased land.
Procedure for incorporation of an offshore company in JAFZ
For incorporation of an offshore company in JAFZ, a natural or juristic promoter shall be required to:
- Obtain availability of name of the proposed company;
- Draft MOA of the proposed company;
- Submit an application along with MOA of the proposed company with the office of Registrar of offshore companies (“ROC”). The application must provide, full name and address of the promoters, share capital of the company, the number of shares proposed to be taken by each promoter, the names and addresses of the first directors and secretary etc.;
- The following documents shall also be annexed with the application;
- Individual promoters are required to provide their personal profiles, copy of passports, specimen signatures, bank reference letters and proofs of address ( e.g. utility bills).
- Corporate promoters are required to provide following documents along with the application:
(a) Certificate of Incorporation;
(c) The board of directors or shareholders resolution authorizing for incorporation of an offshore company;
(d) Bank reference letters; and
(e) Proof of addresses of directors and secretary (e.g. utilities bills)
- ROC will scrutinize application and all annexed documents and if finds satisfactory and complete in all respect, it will issue a certificate of incorporation;
- Additionally, an offshore company, in order to conduct a trade or business within the JAFZ or elsewhere in the UAE, is required to obtain appropriate license from the competent licensing authorities; and
- The license is required to be renewed periodically as per the terms and conditions of the issuing authorities.
Please note that for incorporation of offshore companies, the promoters can avail the services of duly recognized Registered Agents. Various Legal and Chartered Accountants firms act as Registered Agents for incorporation of offshore companies in free zones.
- The guide has briefly covered various corporate structures available in Emirate of Dubai. Liberal economic and financial policies, transparent systems and convenient business environment of Dubai offer immense opportunities for growth and development of business.
- Limited Liabilities Company is most preferable corporate structure for carrying out business activities in Dubai as it enables the entrepreneurs to share the profit in mutually determined ratio regardless to the shareholding pattern of the company and also allows them to maintain control over the management of the company.
- The investors may choose any of the corporate structure depending upon the necessity and preference for the proposed business activities.
RUPENDRA K. PORWAL , B.A., B.Com., FCS, LL.M (University of Manchester) is the Head (Legal & Statutory), Sobha Group of Companies, Dubai, United Arab Emirates.