FAQ's

 

1. What is the Difference between On-shore (Main Land), Off-shore and Free Zone?

 

Onshore

The legal outline for an onshore company set up involves using a Local person as a partner or an agent, depending on the type of company you want to set up. This local partner or agent is entitled to a fixed fee paid every year. This fee is usually determined by the agreement made (contract). The advantage of Onshore Company set up is that it allows you to conduct business throughout the UAE and internationally.

 

With this setup, an office space is mandatory and residence visas are possible depending on the size of the office, amount of work and the premises being used. Accounting or auditing requirements for this kind of set up is also mandatory

 

There are 3 main categories of On-Shore corporate units:

​

Limited Liability Company (LLC)

The biggest legal requirement for an LLC is: That the major shareholder in the company MUST be a UAE National. For an expatriate to run an LLC company, he/she will have to partner with a UAE National and form a “joint venture”. The expatriate may then act as the company manager and run the company’s day-to-day activities. The company's liability is limited to the capital value of the company which as stated by law is a minimum of USD 81,750 equivalent to AED 300,000.

Shareholders in an LLC are not entitled to any of the company profits unless the company's directors decide to pay dividends to the shareholders.

 

Professional License

A professional License company is similar to what other countries refer to as a Sole- Proprietorship, Sole-Trader or Sole- Partnership Company. In a Professional License Company, the applicant is allowed to create a company partnership as long as the partner can prove that their formal professional qualifications are good enough to make them eligible to hold the said professional license.

 

These licenses are strictly given to a particular category of highly-skilled trades.  In Professional License Companies, a UAE national is not required as a partner although the company MUST appoint a UAE National to assist with administration, visas and so on.  The UAE national acts as an agent and a non-stock holding sponsor of the company.

 

Branch Office

A branch office is sometimes referred to as a Representative Office and foreign or Non-UAE companies can establish Branch Offices in the UAE. The Branch Office will then conduct business on behalf of the parent company within the UAE.  The licensed activities of the Branch Office will generally match the business activities of the parent company. Shareholding in the Branch office set up is 100% owned by the foreign company but this is subject to approval by the Government although a UAE National must be appointed as an agent to assist with administration duties, visas and so on. The foreign or parent company SHOULD be of good standing and MUST have a trade history of at least 2 years.

 

There are also other important things to consider when setting up an Onshore Company. When setting up any of the above On-Shore companies one must have a valid trade license showing all the licensed activities for the company.

For Instance: A company licensed under the General Trading Group consisting of companies that operate businesses like groceries, hardwares and clothing stores cannot operate a dental or medical clinic because these are different activities that should be licensed under a different category.

 

Some other activities like medical, legal, finance and management consultancy are restricted by law because these activities require qualified people within the company to demonstrate competency.

 

Companies are permitted to apply for their trade license with more than one activity but this is subject to approval by the Government. Please note that after the approval of the incorporation extra activities may also be added.

 

Free zone:  It is a concept established to help promote the growth and development of businesses. This concept is well known to the international business community. The United Arab Emirates developed the Free Zones concept with the aim of attracting companies that deal with trade export.

 

With the free zone concept, a company can have one of its branches inside the free zone. The branch office will not be considered an individual company but will be an extension of the main company.

 

When a company wishes to incorporate itself as a free zone entity, it will need to prove its creditworthiness. For this to happen, you’ll need to open a bank account under the name of the company. The account can be opened with any bank licensed to the United Arab Emirates. After opening the account you’ll need to deposit the share capital in the account and take the bank statement to the Free Zone Authority. After the setup of the company is satisfactorily completed, the capital will be released and can be used by the company.

 

When it comes to the initial share capital, there are certain requirements to be fulfilled before a company is registered in the Free Zone. These requirements vary from Free Zone to Free zone depending on the purpose of the company. Companies in the Free Zone require a physical office inside the designated area. However, virtual offices can be rented if a full-scale office is not required. A free zone company will have certain restrictions when conducting business inside the United Arab Emirates.

 

There are 2 main categories of Free-Zone corporate bodies

1. Free-Zone Establishment (FZE) 

2. Free-Zone Company (FZCO or FZ-LLC)

​

A Free Zone Company is a Limited Liability Company that can be incorporated in all Free Zones in the UAE but requires 2 or more shareholders. The main difference between a Free Zone Establishment and a Free Zone Company is the number of shareholders required. The Establishment is a single-shareholder whereas a Company is 2 or more shareholders.  Both the Free Zone Establishment and the Free Zone Company offer the same operating benefits but there may be differences in the share capital requirements depending on the Free Zone.

​

A Free Zone company might also be a branch office for another company. In this situation, the Branch Office will be an extension of the parent company which is based in the Free-Zone rather than a separate company.

​

Branch Offices can NOT be classified as either a Free Zone Establishment or a Free Zone Company/LLC.

When setting up an incorporation of a Free Zone Company, the company is required to demonstrate its creditworthiness. Therefore, a bank account under the new company's name is opened in a UAE licensed bank. The share-capital amount is then deposited in this new account. A bank statement is then issued and used to satisfy the Free Zone Authority. Once the company setup is completed, the capital is released and can be used as working capital for the company or simply repatriated until needed in the future.

 

The initial share-capital required may vary between Free Zones depending on the stated purpose of the company but as a general rule, the paid-up capital amount for the majority of Free Zones can be from AED 50,000 an equivalent of USD $13,600 to AED 300,000 an equivalent of USD $82,000.

 

It’s mandatory for Free-Zone companies to have some form of a physical office in the Free-Zone area. Although hot-desks and virtual offices are acceptable for companies that are too small enough to require a full office. Most Free Zones have readily available space for new companies. However, some of the more established Free Zones have very limited vacancies.  Due to the popularity of their facilities.

 

There are Benefits to incorporating within a Free-Zone. The Key benefits include:

• 100% ownership by Expatriates

• No currency restrictions

• All capital and profits may be repatriated

• No corporate, personal or capital gains tax

• Excellent infrastructure & communications

• Wide variety of labor readily available

• Residency visas available

 

Offshore

 

An offshore company is a concept that is used to denote a corporate entity that is flexible enough to have a mixture of features. An Off-Shore company can only conduct business outside of the UAE but not within U A E with an exception for when investing in real estate in UAE or holding shares of other companies in UAE.

Offshore companies are usually used as holding or asset companies for other business organizations which operate inside or even outside the United Arab Emirates. There is no minimum capital required before incorporation and there are no accounting or auditing requirements for this kind of set up.

When registered within a Free Zone, An Offshore Company enjoys many benefits that an average Free Zone company gets. However, it cannot be used as a substitute for a Free Zone company.

 

The benefits include: Key benefits of the Off-Shore Company are:

• Short set-up time

• No requirement for an office in Free-Zone

• 100% ownership by Expatriates

• No currency restrictions

• All income and profits may be repatriated

• No corporate, personal or capital gains tax

• Strong corporate privacy

• Can have bank account in the UAE

• Able to own property in Dubai

• No residency visa without an office

• Can own investments inside and outside of the UAE

• Order an Off-Shore Company

 

In summary, Onshore Companies can have business inside UAE whereby Offshore Companies cannot.

Onshore Companies can have real offices in UAE whereas offshore companies are not permitted to have real office in the Emirates

 

With Onshore companies, it’s possible to residency visas but with offshore Companies, It’s not easy.

When it comes to costs it’s more expensive to set up an onshore free zone company as it costs 8,500 Dollars going up whereas offshore company Dubai free zone costs a lot less. With On show Companies it’s Mandatory to conduct Audits but with Offshore Companies, it’s not mandatory.

 

 2. Is it possible to convert the Free zone offshore Company into an Onshore Company?

 

No. It is literally impossible to convert the free zone offshore company into the free zone onshore company. Offshore Free Zone Companies have completely different statuses including legal documentations and applicable regulations. For Example, An Offshore Company can open and operate bank accounts with UAE-based banks, can own investments inside and outside of the UAE and can also own real estate in Dubai in certain areas approved only by the Free Zone registrar. The income derived from Off Shore Company investments including real estate can be held in the company bank account and repatriated thereafter.

There is also no minimum capital requirements for an Off-Shore company to incorporate. All it requires is a minimum of 2 directors and a maximum of 5. These directors must be all of whom must be natural persons and not corporate directors. Shareholders, on the other hand, may be either natural persons, corporate entities or expatriates (non-resident).

 

3. What are the requirements and procedures for establishing a limited liability company (LLC) under the UAE Commercial Companies Law?

 

The UAE Commercial Companies Law (CCL) is the main legislation governing the setting up of companies and carrying on of business in the UAE. Under article 22 of the CCL, all UAE registered companies must have a local majority (UAE Nationals) holding at least 51 per cent of the share capital subject to certain permitted exceptions. Some company activities require an even higher ownership threshold, but these ownership requirements do not apply to bodies established in the UAE’s free zones.

 

There are two major concerns to keep in mind when planning to establish a business in the UAE:

1. Selecting the appropriate business organization recognized under the CCL

2. Obtaining the necessary trade licenses and other governmental authorization documents.

With these in mind, you can begin the step by step approach.

 

Step 1: Trade name reservation and initial approval

The first step in registering an LLC is to reserve the trade name and obtain initial approval to proceed with an application. This is achieved by applying to the Dubai Department of Economic Development or the Abu Dhabi Department of Economic Development.

 

As part of the initial process of applying to the Department of Economic Development the following documents should be submitted:

 

• Trade name application form

• License application form

• Certificate of incorporation (If one or both shareholders are corporate entities) memorandums, articles of association, a board resolution approving the subscription in the LLC,  and a power of attorney authorizing an individual to act on behalf of the corporate shareholder.

• Passport copies of any individual shareholders, proposed directors, and general manager of the LLC.

 

After submission of the above documents, the Department of Economic Development will then issue an initial approval. Further approvals may be required from other governmental authorities depending on the proposed activities of the LLC.

In this regard however, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai recently issued a new law that aims to, among other things, organize the conducting of economic activities in the Emirate of Dubai and streamline the licensing process by facilitating coordination between the various government entities in Dubai.

 

This new law, also known as the “Law of the Organization of Economic Activities Practice in the Emirate of Dubai” No. (13) Of 2011 under the Licensing Law, provides that all Dubai based submissions will be dealt with by the Department of Economic Development which will act as a window to the other applicable government departments.

In addition, the Department of Economic Development will be responsible for classifying and regulating the types of economic activities undertaken in Dubai. The introduction of the Licensing Law is likely to be a welcome development for many businesses wishing to establish their presence in Dubai.

 

In previous years, applicants had to obtain a number of different approvals from various authorities before being able to conduct business - the Licensing Law seeks to offer a streamlined approach to this process. However, given its fairly recent introduction, the full effects and actual implementation of the Licensing Law is yet to be seen.

 

Step 2: Signing the Contract of Establishment

Once the initial approval has been issued, and required approvals from any other applicable authorities have been obtained, the proposed shareholders (or a duly appointed attorney) should sign the Contract of Establishment before a notary public in the relevant Emirate. The Contract of Establishment must be written in Arabic.

 

Step 3: Completing the administrative tasks

After the initial approval of step 1 and the notarized Contract of Establishment in step 2 (Above), the authorized representative of the LLC is required to arrange for:

• A lease for office space in the appropriate Emirate

• A bank account under the LLC incorporation in the UAE with a deposit of the share capital NOTE: There is no minimum capital requirement under the CCL but authorities will expect the LLC to be established with sufficient capital to conduct its proposed activities. After an opening of the account, anti-money laundering and verification documents will be required.

• A certificate by the bank confirming the deposit of the share capital

• Appointment of an auditor, a copy of the auditor’s license and a certificate from the auditor confirming this appointment

• Publication of the Contract of Establishment in the Companies Gazette issued by the Ministry of Economy.

 

Step 4: Obtaining the Commercial License

Now that steps 1, 2 and 3 have been successfully completed, the LLC is in a position to obtain its Commercial License from the Department of Economic Development. But before this license is issued you will require the following documents:

• The initial approval (See step 1 above) and any additional authority approvals depending on the LLC’s proposed activities

• The duly notarized Contract of Establishment (See step 2 above)

• The corporate documents referred to in step 1 (above) if the shareholders are corporate entities.

• Passport copies of any individual shareholder, proposed director and general manager (See step 1)

• The bank certificate confirming the deposit (See step 3)

• The auditor’s certificate confirming the appointment (See step 3)

• A copy of the office lease agreement (See step 3)

• Receipt from the Ministry of Economy indicating publication of the Contract of Establishment in the Companies Gazette.

 

The Department of Economic Developing will then issue the LLC’s Commercial License, specifying the activities that may be undertaken by the company. The Commercial License is usually valid for a year, therefore, it’s renewable annually.

Step 5: Becoming a member of the Chamber of Commerce and Industry

All LLCs registered in Dubai must also register with the Dubai Chamber of Commerce and Industry (DCCI). Those LLC’s registered in Abu Dhabi must register with the Abu Dhabi Chamber of Commerce and Industry (ADCCI). The procedure for registering is the same for both DCCI and ADCCI.  It involves the completion of an initial membership application involving the submission of the following documents:

• A copy of the LLC’s Commercial License

• Passport copies of the LLC‘s authorized signatories

• A copy of the office Lease Agreement.

You’re also required to pay an annual membership fee.  The LLC will then be registered as a member and required to renew its membership every year.

 

4. How long does it take to set up a business in UAE?

 

What is the indicative time frame for all the registration/licensing process?

Setting up a business in the UAE depends on the Free Zone and whether the company will have an individual or corporate shareholder. Even though it is often stated that a company can be formed within 48 hours, in our experience, it is best to keep in mind that it can take between 3 to 6 weeks to have your business up and running.

5. What are the categories of licenses issued in UAE?

 

Depending on the nature of activity a business entity plans to undertake, one of these license categories will be issued by The Department of Economic Development (also known as DED). The DED is the government agency responsible for issuing these license and it operates from several locations in the U A E delivering the licensing services. The licenses include:

1. Commercial License – Issued to a company that will engage in any kind of trading activity.

2. Industrial License – Issued to a company that will engage in manufacturing or industrial activity.

3. Professional License – Issued to service providers, professionals, artisans, and craftsmen.

 

6. Do I require a residence visa? 

In order to live and work in the UAE, you will need a residence visa. In order to employ staff in your organization, a manager of the entity must have a residence visa because without the visa the company will not be able to recruit staff. For Offshore incorporations, on the other hand, a residence visa is not mandatory. This is because with offshore incorporations you’re not entitled to do business in the UAE. The free zone incorporations, however, allows for the issuing of residence visas depending upon the size of the rented or purchased premises of the establishment.