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The growing importance of the UAE as an economic hub of the region and its business-friendly policies along with the absence of federal income taxation prove to be an incentive for setting up new enterprises. Nevertheless, there are certain considerations, which startup founders need to keep in mind before leaping establishing and running their businesses successfully.
When establishing a new business in the UAE, entrepreneurs must make numerous choices. Starting with the right location, type of company, the structure of a company and its ownership, employing people, entering into contractual arrangements with customers and suppliers, resolving disputes, and so on.
Depending on the location and target audience, business owners can choose from a mainland company, a free zone company or an offshore company.
Mainland companies
A mainland corporation is essentially an onshore organization that is registered with the government agency of the relevant emirate. The commercial license is issued by the Department of Economic Development (DED) of the Emirate. There are no restrictions on mainland company's commercial activities.
The law also sets out requirements for companies regarding shareholders, directors, minimum capital levels and incorporation procedures.
An important consideration when establishing a mainland company is that it should have one or more UAE partners holding at least 51% of the share capital of the company. Due to the requirement of local participants, the maximum foreign equity participation for mainland companies is 49%. Nevertheless, agreements can be drafted so that the foreign partner receives the majority of the earnings. Another consideration to keep in mind - is the mandatory existence of a physical office on the mainland.
Free zone companies
The major advantage of free zone establishment is 100% foreign ownership. Expat business owners may look to the free zones as base locations. Trading, distributorship, warehousing, manufacturing and many other activities may be performed in these zones, and there is no duty for the import and export of goods into and from the free zone except for exports into mainland UAE.
In accordance with the rules governing free zones, businesses situated within them are managed and overseen by regulatory bodies within each free zone. Typically, free zones are industry-focused and are tailored to particular industries and therefore, only authorise specific types of activities. There are a large and growing number of free zones within the UAE, some of the best free zones in UAE are:
Offshore companies
An offshore company is your best option if you do not need to set up a physical office, there is no requirement to issue residency visas, and all activities of the business are outside of the UAE. Offshore companies should operate their business from abroad and are not permitted to conduct business within the UAE. However, they can interact with local banks and set up their local legal representatives. Currently, there are two free zones in the UAE, where offshore companies can be established:
JAFZA (Jebel Ali Free Zone Authority);
RAKICC (Ras Al Khaimah International Corporate Centre).
Before starting your business, it's crucial to have a clear understanding of the business type you intend to establish. With a multitude of opportunities in the UAE, it stands out as an ideal destination for business startups. Seeking guidance from the best business setup companies in UAE is highly recommended to ensure a successful business establishment.
For any enquiries or information, contact ask@tlr.ae or call us on +971 43493428. Follow The Law Reporters on WhatsApp Channels.
