Six Things to Know Before Starting a Company in UAE.
- 1. What are the various licenses available in the UAE?
In general, historically the licenses in UAE were grouped into following categories:
- Commercial License (known also as Trading License) – to carry out trading, import, export activities in specific products.
- Industrial License (known also as Manufacturing License) – to carry out manufacturing activities
- Service License (known also as Professional License) – to carry out services or consultancy or professional activities
- General Trading License - to carry out trading, import, export activities in unlimited products.
The above listed license categories are the backbones of license categorization throughout the UAE, both in the mainland and free trade zones.
However, with the development of information technology, developments in media and creative sectors, the way of doing business in UAE has changed drastically in recent years. Due to that reason, some other new license types have been introduced by several Free Zones in the past few years, such as:
- E-Commerce License – to sell products or services using online portal and to accept payments online.
- Freelancer License – enables sole practitioner to provide consultancy or professional services as a freelancer
Therefore, when you read online sources, you may come across with so many different types of licenses, which may create a confusion sometimes.
Also, one must be aware that the legal entity type and license type are completely different things. I will explain more about legal entity types in the next questions.
- 2.What are the main ways a person can set up a company in the UAE?
A person can setup three different types of companies in the UAE: These are:
- Mainland (On-shore) Companies;
- Free Zone Companies;
- Offshore Companies.
Mainland (On-shore) Companies. Mainland companies are established in the mainland (on-shore) and registered and licensed by the Department of Economic Development (DED) in each Emirate. It requires to have a UAE national partner holding at least 51% shares or local service agent. Nationals of GCC countries can establish mainland companies without having a UAE partner or an agent.
Go for a Mainland Company, if:
- You want to establish a retail business;
- You want to do business mainly in the local market;
- You want to have more credibility;
- You want to participate in government projects;
- You want less restrictions and wide options for office locations.
Free Zone Companies. Free Zone companies are established within the Free Zone areas. There are almost 40 Free Zones operating in the UAE. The number one benefit that every Free Zone offers is that foreigners can establish a company with full (100%) ownership. One should be aware that not all business activities are available in the Free Zones.
Go for a Free Zone Company, if:
- You want 100 % ownership;
- You want to carry out a consultancy or professional services;
- You want to do business as a freelancer;
- You want a cost-effective business setup and residence visa solution;
- You want to (re-) export products from UAE;
- Your business leans more in international or regional trade.
Offshore Companies (or International Business Companies)
. Offshore companies can conduct business activities only outside the UAE. However, they are eligible to acquire assets, buy real properties in its name, and own shares in UAE. Shareholders and employees of offshore companies are NOT entitled to rent office in UAE or to get UAE residency visa under the company. A corporate bank account may also be opened under its name.
Go for Offshore if,
- You want to open a corporate bank account in the UAE;
- You want to own assets and real properties under the company’s name;
- You want to acquire shares under the company’s name;
- You want to have a holding company;
- You want to do international business including trading, consulting and investment activities.
- 3.Could you give us an idea on the costs of setting up a LLC company and a free zone entity?
Costs of setting up vary from Emirate to Emirate and from Free Zone to Free Zone. In average, setting up a Mainland Company (LLC) would cost AED 30,000 + office rent. You can setup a Free Zone Company in Northern Emirates for as low as AED 13,500 with Flexi Desk options. In Dubai and Abu Dhabi setting up a Free Zone Company can cost around AED 30,000 with Flexi Desk options.
- 4.What are the various categories of business organisations defined by UAE law?
Following types of legal entities can be established in the Mainland (On-shore):
- Sole Establishment/Proprietorship
- Civil Company
- Joint Liability Company (only for UAE nationals)
- Simple Commandite Company (only for UAE nationals)
- Limited Liability Company (foreigners can own up to 49% shares)
- Public Joint Stock Company (foreigners can own up to 49% shares)
- Private Joint Stock Company (foreigners can own up to 49% shares)
- Branch Company (both foreign and local companies can register their branches)
- Representative Office (both foreign and local companies can register their representative offices)
Following types of legal entities can be established in the Free Zones:
- Free Zone Establishment – FZE (with only one shareholder)
- Free Zone Limited Liability Company – FZ-LLC or FZCO
- Branch Company
- Representative Office
- Public Listed Companies (only in JAFZA)
A trade name is the legal name of a business used to distinguish it from other businesses and it is registered with the relevant DED or Free Zone Authority. However, a trade name is different than a trademark or a brand name. Many business owners mistakenly assume that once they have registered a trade name with the relevant authority, they have unlimited rights to the name in conjunction with their business. A trade name does not give any brand name protection or provide exclusive rights for the use of that name. To protect your brand name and to have exclusive rights for the use of that name you need to register a trademark separately.
- 6.What are the key criteria for hiring employees?
The key criteria for hiring employees in UAE are:
- Office Space: Companies in UAE can employ staff proportional to the office space of the premises rented for the business operations. There are no set guidelines, but in practice one employment visa is granted for every 9 sq.m of the office space.
- Nature of Business: However, depending on the nature of business, more employment visas quota can be granted regardless of the office space. For instance, nature of business requires employees to be outside the office most of the time, then such companies can hire as many employees as needed.
- Medical Fitness: The UAE visa is granted to expats after undergoing medical examination. Patients of tuberculosis, HIV AIDS, syphilis, leprosy etc. are banned to enter the UAE/GCC.
- Emiratization: In certain business sectors and based on the company’s size, there are conditions for giving preference to Emarati nationals to be hired at various positions.
The article was published on Gulf News newspaper on March 20, 2017.
Author: Mirazizbek Makhamatzhanov
