A foreign company that wishes to establish a presence in the UAE and sell its products or services within the UAE must enter into a contractual agreement with a UAE national. This is a requirement by the UAE Commercial Companies Law which in addition, specifies that the UAE national must own at least 51% of the company. Companies in the oil and gas industry, producers of electricity and gas and companies involved in water treatment and companies established in one of the free trade zones are exempt from this, however other requirements may apply.
The time, procedures, fees, minimum capital and number of shareholders required will depend on the type of business structure chosen.
Certain company types can only be established by UAE nationals. These include:
General Partnership: Can be established by two or more partners who are fully responsible for the company’s liabilities.
Limited Partnership: Similar to a general partnership with the difference that in addition to two or more fully liable partners, it also includes one or more limited partners. Their liability is limited to their contribution to the partnership’s capital.
Partnership Limited by Shares: Similar to a limited partnership however the limited partners’ liability only extends to the value of the share capital they have subscribed. The minimum capital the company must have is 500,000 AED.
The types of business a foreign company may establish in the 49/51 structure are:
Limited Liability Company: Can be formed with a minimum of 2 and maximum of 50 partners. The liability of each partner is limited to their shares in the company’s capital. This is a popular option for foreign investors who have a view of establishing a long-term presence in the local market. A minimum share capital may be required depending on the size and activities of the company. The Department of Economic Development of the emirate the company will be established in must be consulted with regards to the minimum share capital required.
Public and Private Shareholding (Joint Stock): The chairman and majority of directors must be UAE nationals and as a large minimum capital is required they are mostly suitable for large projects or operations. For a public company 10m AED is required (~$2.72m) and for a private 2m AED (~$545,000). Local banks, insurance and generally companies offering financial services must be run as public shareholding companies. Foreign ones however may open a branch or representative office.
Joint Venture Company: This is formed when a foreign party and local party are bound by a contractual agreement where the local party is licensed to engage in the activity agreed upon. Although the local participation must be at least 51% the profit and loss distribution can be prescribed.
The following structures may be set up with 100% ownership by a foreign entity. However they must appoint a local service agent (which is different to a commercial agent) and sometimes referred to as a sponsor. The service agent must be either a UAE national or a company owned 100% by a UAE national. The service agent is either paid a lump sum or a percentage from profits but does not have any managerial authority in the company’s operations. The agent does not vote or make decisions as far as the company’s operations and is not liable for any of its obligations or liabilities. The service agent’s role is to assist in practical matters such as interacting with the local authorities, sponsoring the foreign company for its license application, its employees, obtaining entry permits and employment visas, labour cards, etc.
Branch Office of a Foreign Company: This is an extension of a parent company and is not considered a separate legal entity. It may only engage in the same activities as the ones of the parent company. The branch office may also carry out as part of its business the import of its parent company’s products only if the parent company is also involved in the manufacture.
Representative Office of a Foreign Company: A representative office is similar to a branch with the difference that it is not allowed to engage in income earning activities. Its role is to promote the parent company’s activities and sales, gather information, facilitate contacts and market the parent company. Usually only three to four employees may be sponsored.
Sole Proprietorship (Civil Company): Reserved for establishing professional firms or companies with artisan activities. Again the number of employees can be limited.
Generally, the following types of business licenses are available in the UAE:
Trading or Commercial license: For any and all kind of trading activity where profit is gained through buying and selling of goods and services. The holder is allowed to import, export, store and distribute the items specified in the license.
Industrial license: Industrial and manufacturing activities where the objective is either discovering natural resources or transforming raw materials into manufactured or semi-manufactured products.
Professional license: Professions, services and craftsmen where practice of the profession depends on physical and mental efforts rather than the need of monetary capital.