BUSINESS OPPORTUNITIES IN THE UAEUnder United Arab Emirates (UAE) law, there are five types of business establishments applicable to foreign entities interested in establishing a formal presence in the UAE.
A company can create a permanent establishment, establish a branch office, create an entity in a UAE free zone, create a civil company (currently limited to Sharjah and Dubai), or enter into a commercial agency agreement. The UAE Commercial Companies Law requires that each company established in the UAE have one or more UAE national partner(s) who hold at least 51% of the company's capital. Companies that undertake certain activities are exempt from the 51% requirement, including oil companies with concession agreements, companies involved in the oil and gas industry, companies that produce electricity and gas, companies involved in treatment of water and transmission and distribution. Foreign banks are exempt from having to appoint a sponsor. Companies established in free zones are exempt from the 51% requirement, if the relevant free zone has special provisions regulating the company.
1. Permanent EstablishmentsThere are seven different methods by which this can be achieved: 1. General Partnerships: This entity may only be established between UAE nationals. A general partnership may be established between two or more general partners who are jointly and unlimitedly, to the extent of their personal assets, responsible for the company's liabilities.
2. Limited Partnerships: This entity is comprised of at least one jointly associated partner liable for the partnership's obligations to the full extent of their assets, along with at least one inactive partner liable for the partnership's obligations limited to this partner's capital contributions. This entity usually has one active partner who manages the company and a silent partner who does not participate in day-to-day management.
3. Joint Participation (Ventures): This entity is an association between at least two partners who will share the profit and loss in one or more commercial businesses conducted by one of the partners in his or her own name.
2. Limited PartnershipsThis entity is comprised of at least one jointly associated partner liable for the partnership's obligations to the full extent of their assets, along with at least one inactive partner liable for the partnership's obligations limited to this partner's capital contributions. This entity usually has one active partner who manages the company and a silent partner who does not participate in day-to-day management.
3. Joint Participation (Ventures)This entity is an association between at least two partners who will share the profit and loss in one or more commercial businesses conducted by one of the partners in his or her own name.
4. Public Joint Stock Companies:This entity comprises any company whose capital is split into publicly subscribed negotiable shares of equal value or any company in which a UAE public body holds any share capital. There is a minimum capital requirement of AED 10 million and that capital must adequately achieve the objectives of the company. This entity requires a minimum of 10 founding members. It is important for foreign companies to understand that anyone who signs the initial memorandum and articles of association will be regarded as a founding member and therefore liable. UAE businesses involving banking, insurance or investment of funds on behalf of third parties must take the form of a public joint stock company.
5. Private Joint Stock Companies:This entity requires a minimum of three founding members who, between them, fully subscribe to a minimum capital of AED 2 million. The shares of private joint stock companies may not be offered for public subscription. Private joint stock companies may be converted into public joint stock companies if (i) the company has operated for two or more financial years, (ii) the shares are fully paid up, (iii) the company has achieved net profits distributable to shareholders of an average of at least 10% of its capital during the two years preceding the application to convert, and (iv) a majority of the shareholders holding at least 75% of the company's shares adopt a resolution of the extraordinary general assembly to convert.
6. Limited Liability Companies:This entity is defined as an association with a maximum of 50 partners and a minimum number of two partners. Each partner's liability is limited to the extent of its share participation in the capital of the company. LLCs are no longer required to meet the minimum capital requirements of AED 300,000 (in Dubai) and AED 150,000 (in Abu Dhabi and the other Emirates). A new test of "sufficient capital" is to be adjudged by the Department of Economic Development of the relevant Emirate (including consideration of the size and planned activities of the company). Foreign companies wishing to establish an LLC in the UAE should seek guidance on the current practice of the relevant Emirate regarding minimum share capital.
7. Partnerships Limited with Shares:This entity is formed by general partners who are jointly liable to the extent of their personal assets and participating partners who are liable to the extent of their share participation in the company. General partners must be UAE nationals. The minimum capital required to form a partnership limited with shares is AED 500,000, and participating partners are prohibited from being involved with the day-to-day management of the partnership. They may, however, participate in its internal administrative affairs.
Branch Offices vs. Representative/Liaison Offices
A branch office has the same legal identity as its parent company and conducts business under the name of its parent company. While each Emirate has its own licensing rules for branch offices, this type of entity can carry out a variety of activities (as approved by the Department of Economic Development of the relevant Emirate). Branch offices are regarded as fully-fledged businesses permitted to perform contracts or conduct other activities as specified in its license.
For example, in order to open a Branch Office in Abu Dhabi, a foreign company must comply with points 1 and 2 from the following list:
1. Obtain the following documents in the home country of aforementioned company.
• Official document evidence that the company is duly registered and established in that country, indicating its legal form, paid up capital, as well as names, title, and powers of its representative.
• Resolution from the company's board of directors (or other competent administrative entity) regarding opening of its branch in Abu Dhabi and practicing its activity there.
• True copy of the memorandum of association of the foreign company, or its articles of association.
• The last two approved financial statements (balance sheet, statement of profit and loss, and notes to the financial statements) of the company, in addition to the auditor's report thereon.
• A declaration from the company addressed to the UAE Ministry of Economy in which it undertakes to bear any financial obligations caused by its branches in the United Arab Emirates.
• A notarized power of attorney for the person who will sign the agency agreement with the company's national agent in Abu Dhabi and who will represent the company before the Abu Dhabi authorities.
* *All of the above documents (except item d) must be attested at the Embassy of the UAE in the country of origin. In addition, all these documents must be translated into Arabic in the UAE and certified by a UAE-certified translator and attested by the UAE Ministry of Justice.
2. Obtain the following additional documents to be submitted by the company applying for a branch license. However, these documents do not need to be attested outside the UAE.
• Licensing application
• Details list of activities in which the company wishes to practice in the state.
• Agency contract concluded between the foreign company and the local agent.
• List of the major operations carried out by the company outside the UAE plus the previous experiences in the field of activity intended to be practiced, in addition to the countries where such activities are taking place.
• A statement showing the number of staff numbers expected to be appointed in the company's branch office in Abu Dhabi.
* * The working capital of the branch may not be less than AED 250,000 which may be required to be deposited in a bank in Abu Dhabi. Alternatively, the UAE Ministry of Economy may request an open-ended unconditional bank payment guarantee favoring the Ministry for AED 50,000 issued by a bank in the UAE. Alternatively, a representative/liaison office is limited to promoting its parent company's activities. This means that a representative office is only permitted to perform such activities as gathering information, soliciting orders, and marketing projects to be performed by the company's head office. This type of office is also limited in the number of employees that they sponsor (usually three to four).
In contrast, the UAE allows foreign businesses to operate within "free zones." Free zones allow for up to 100% foreign ownership and are subject to reduced or different trade barriers, tariffs, and quotas. However, free zone companies may only operate within the free zone boundaries and are generally limited to performing solely those activities listed in their license(s). If a free zone company chooses to operate outside these boundaries, it must adhere to the requirements of the UAE Commercial Companies Law in compliance with the licensing procedure in the applicable Emirate. Generally, free zones are designated by the government to a specific commercial sector. For a non-exhaustive list of free zones in the UAE, see below.