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LLC Formation in Dubai- Laws and other relevant formalities to keep in mind

Owner's Profile

Ilina Devadhar

Published on August 30, 2023, 15:40:20

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UAE Laws, UAE Legal, Free Zone, flexibility, Commercial, Industrial, Professional, LLC FORMATION IN FREE ZONE, Memorandum, legal hurdles, capital, companies, minimum capital, licenses, General Authority for Pension,  Social Security, import-export duties,  corporate and income tax.

Want to start your own business? This article has got you covered!

There are some specific requirements for foreign investors which have been mentioned in detail. If you are new to the country, this article will help you in figuring out how to pass the legal hurdles and other prerequisites.

LLC stands for Limited Liability Company. LLC is a hybrid entity that is similar to a corporation with characteristics of a partnership or sole proprietorship. It is a corporate structure where the owners get protection from being personally pursued to repay the company’s debts, thereby acting as a corporate veil. It is a commonly favoured form of a business structure due to its streamlined accounting process, simple set-up and maintenance and more flexibility.

Further, LLCs do not get double taxation, and the profits are directly transferred to the members who report them on their individual tax returns. LLCs can conduct a variety of business activities except those belonging to the insurance, banking and investment sector.

BUSINESS IN DUBAI

The UAE, particularly Dubai, is a central hub of foreign direct investments. In the first nine months of 2021, Dubai attracted foreign investments worth 4.3 billion USD. Thousands of new businesses operate in Dubai, with new ones starting every month. Global investors are attracted by the numerous initiatives and policies introduced to meet the needs of modern-day businesses.

An LLC is the most common form of business found in Dubai. A Dubai LLC not only gives access to the broader UAE economy and the Free Zones but also the Gulf Cooperation Council. Factors that make LLC an extremely attractive form of business structure are:

The minimum capital clause has been removed, and
there is no restriction regarding the location on where a company can set up its office.
There is also no restriction on the number of visas that can be obtained.
There is no bar on real estate ownership, and the 5% customs duty on imported goods.
Paid-up capital requirements have been permanently waived by the government.

Three types of LLC licenses can be obtained, namely: Commercial, Industrial and Professional.

PROCEDURE TO FORM AN LLC IN DUBAI

All the mainland businesses must be licensed by the Department of Economic Development (DED) and governed by the UAE Commercial Companies Law. The DED is authorised to issue all licenses for LLC and regulates all economic activities.

There have many several amendments to the UAE Commercial Companies Law with the latest being the Federal Law No. 32 of 2021 on Commercial Companies which replaced certain provisions of Federal Law No. 2 of 2015 on Commercial Companies.The new law came into force on January 2, 2022.

The process involves:

Deciding a unique trade name.

 Choosing a location for the business, this may be the mainland or any Free Zone.

 LLC generally have 2 to 50 shareholders. Though an LLC can be formed with one shareholder, it is a common practice for the foreign investors to include at least 2 shareholders to meet the UAE foreign ownership requirements. If you are a foreign investor opening a business on the mainland then, you would need to get a local sponsor who would act as a local partner holding at least 51% shares. However, not all businesses on the mainland require a local sponsor. Small businesses and professional companies can enjoy 100% ownership. Moreover, UAE has recently relaxed its restrictions on foreign investors and now most business can be 100% owned by foreigners without a local partner.

 All the required documents must be submitted to the DED along with an accurately filled application form which includes the Memorandum and the Article of Association. The documents must be notarized and attested in both, the applicant’s home country as well as the UAE Consulate. It is important to note that the notarization process can take a while and hence it is encouraged to start it at the earliest.

 All the documents must also be translated into Arabic by an official translator before they are submitted to the authorities.

 The application will undergo scrutiny and if cleared, you would get your license. After obtaining the license, you must pay the required fees and register with the Dubai Commercial Register. The LLC formation cost depends entirely on the type of business activity and the size, location and other relevant parameters.

 Upon the company incorporation, registration of all employees with the Ministry of Labour & General Authority for Pension & Social Security.

LLC FORMATION IN FREE ZONE

Free Zone, also known as Free Trade Zones, are those areas where businesses operating in them are exempt from all types of taxation. LLCs in both the mainland and Free Zones offer the same protection with some perks of their own.

Establishing an LLC in a Free Zone is quicker when compared to a mainland LLC. Though Free Zones have a territorial restriction, LLC in the Free Zones can avail themselves of various benefits. As opposed to mainland LLC wherein employee visas need to be renewed after every 2 years, visa renewal takes place after every 3 years in a Free Zone LLC. LLC in Free Zones offer 100% foreign ownership, so there is no need to search for a local partner.

There is full repatriation of capital and profits to the origin country of business and an exemption from all import-export duties and taxes like personal, corporate and income tax.

Not all Free Zones offer an LLC structure. 45 Free Zones provide a structure for LLC in Dubai and other emirates. The process may be confusing and time-consuming. Plus, the legal hurdles make it quite a hustle, so it is encouraged to establish an LLC with the help of a law firm specialising in such areas.

 By Ilina Devadhar

For any enquiries or information, contact info@thelawreporters.com or call us on +971 52 644 3004

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