Setting Up a Business in Dubai By Web Editor Jul 28, 2004, 05:44

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In the UAE, economic activity is regulated by individual emirates as well as the Federal Government. In Dubai, the authorities have deliberately sought to create an environment which is well ordered without being unduly restrictive. As a result, Dubai offers businessmen operating conditions that are among the most liberal and attractive in the region.

There are many options open to international companies seeking to establish a business relationship with Dubai. Apart from forming a trading relationship, many companies find that there are distinct advantages in having an on-the-spot presence in order to research market prospects, make contacts, liaise with customers, and see through the details of any transactions and orders secured.

Having such a presence can provide considerable business advantages in the Middle East. Businessmen in the region prefer to deal with someone they know and trust and personal relationships are much more important in doing business in the Arab world than they are in western Europe or America. Also, the buying patterns of some countries served by Dubai tend to be unpredictable, creating a need for first class market intelligence and information.

Licensing

The basic requirement for all business activity in Dubai is one of the following three categories of licences:

1. Commercial licences covering all kinds of trading activity;

2. Professional licences covering professions, services, craftsmen and artisans;

3. Industrial licences for establishing industrial or manufacturing activity.

These licences are issued by the Dubai Economic Development Department (with the exception of licences for hotels and other tourism-related businesses which are issued by the Department of Tourism and Commerce Marketing.) Also, licences for some categories of business require approval from certain ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health.

More detailed procedures apply to businesses engaged in oil or gas production and related industries.

In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.

Ownership Requirements

Fifty-one per cent participation by UAE nationals is the general requirement for all UAE established companies except:

1. Where the law requires 100% local ownership;

2. In the Jebel Ali and Airport Free Zones;

3. In activities open to 100% AGCC ownership;

4. Where wholly owned AGCC companies enter into partnership with UAE nationals;

5. In respect of foreign companies registering branches or a representative office in Dubai;

6. In professional or artisan companies where 100% foreign ownership is permitted.

Legal Structures for Business

Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 - the Commercial Companies Law - and its by-laws govern the operations of foreign business. In broad terms the provisions of these regulations are as follows:

The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organisation which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.
The seven categories of business organisation defined by the Law are:

1. General partnership company
2. Partnership-en-commendam
3. Joint venture company
4. Public shareholding company
5. Private shareholding company
6. Limited liability company
7. Share partnership company

Partnerships

General partnership companies are limited to UAE nationals only. The Dubai government does not presently encourage the establishment of partnership-en-commendam and share partnership companies.

Joint Venture Companies

A joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be prescribed. There is no need to license the joint venture or publish the agreement. The foreign partner deals with third parties under the name of the local partner who (unless the agreement is publicised) bears all liability.

In practice, joint ventures are seen as offering a suitable structure for companies working together on specific projects.

Public and Private Shareholding Companies

The Law stipulates that companies engaging in banking, insurance, or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, however, can establish a presence in Dubai by opening a branch or representative office.

Shareholding companies are suitable primarily for large projects or operations, since the minimum capital required is Dh. 10 million (US$ 2.725 million) for a public company, and Dh. 2 million (US$ 0.545 million) for a private shareholding company. The chairman and majority of directors must be UAE nationals and there is less flexibility of profit distribution than is permissible in the case of limited liability companies.

Limited Liability Companies

A limited liability company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the company's capital. Such companies are recognised as offering a suitable structure for organisations interested in developing a long term relationship in the local market.

In Dubai, the minimum capital is currently Dh. 300,000 (US$ 82,000), contributed in cash or in kind. While foreign equity in the company may not exceed 49%, profit and loss distribution can be prescribed. Responsibility for the management of a limited liability company can be vested in the foreor national partners or a third party.

The following steps are required in establishing a limited liability company in Dubai.

1. Select a commercial name for the company and have it approved by the Licensing Department of the Economic Development Department;

2. Draw up the company's Memorandum of Association and have it notarised by a Notary Public in the Dubai Courts;

3. Seek approval from the Economic Development Department and apply for entry in the Commercial Register;

4. Once approval is granted, the company will be entered in the Commercial Register and have its Memorandum of Association published in the Ministry of Economy and Commerce's Bulletin. The licence will then be issued by the Economic Development Department;

5. The company should then be registered with the Dubai Chamber of Commerce and Industry.

Branches and Representative Offices of Foreign Companies

Branches and Representative Offices of Foreign Companies


The Commercial Companies Law covers the formation and regulation of branches and representative offices of foreign companies in the UAE and stipulates that they may be 100% foreign owned, provided a local agent is appointed.

Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local agents (which should not be confused with the term commercial agent). Local agents - also often referred to as sponsors - are not involved in the operations of the company but assist in obtaining visas, labour cards, etc and are paid a lump sum and/or a percentage of profits or turnover.

To establish a branch or representative office in Dubai, a foreign company should proceed as follows:

1. Apply for a licence from the Ministry of Economy and Commerce, submitting an agency agreement with a UAE national or 100% UAE owned company. Before issuing the licence, the Ministry will:

forward the application to the Economic Development Department to obtain the approval of the Dubai government;

forward the application specifying the activity that the office or branch will be authorised to undertake in the UAE, to the Federal Foreign Companies Committee for approval;

2. Once this has been done, the Ministry of Economy and Commerce will issue the required Ministerial licence specifying the activity to be practised by the foreign company;

3. The branch or office should be entered in the Economic Development Department's Commercial Register, and the required licence will be issued;

4. The branch or office should also be entered in the Foreign Companies Register of the Ministry of Economy and Commerce;

5. Finally, the branch or office should be registered with the Dubai Chamber of Commerce and Industry.

Professional Firms

In setting up a professional firm, 100% foreign ownership, sole proprietorships or civil companies are permitted. Such firms may engage in professional or artisan activities but the number of staff members that may be employed is limited. A UAE national must be appointed as local service agent, but he has no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover. The role of the local service agent is to assist in obtaining licences, visas, labour cards, etc.