ACCORDING TO UAE COMMERCIAL COMPANIES LAW

Under 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.

STARTING A BUSINESS IN DUBAI

Starting a business in Dubai is becoming quicker and easier than ever, in line with the vision of the Department of Economic Development (DED) to help business owners launch and expand their operations without the need for lengthy processes and administration.

Broadly, there are two jurisdictions in Dubai for conducting business: Dubai “mainland” on one hand, and more than 20 Economic Freezones in Dubai on the other hand. Mainland and freezones offer different advantages depending on your business type and activities.

If you choose to conduct business in Dubai mainland, you will need to register with DED, who will issue you with a Dubai business license. Should you require assistance at any stage of getting a DED business license.

The types of businesses in Dubai

A foreign investor who wants to set up a company in Dubai must select one of the following types of legal forms:

• Joint Venture Company
• Public And Private Shareholding Company
• Limited Liability Company
• Branches And Representative Offices
• Branches And Representative Offices Of Foreign Professional Companies
• Sole Proprietorship

Joint Venture Company

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 publicized – 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 Company

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 a 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 Company

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 UAE, the minimum capital requirement law was abolished on 10th August 2009. 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 foreign or 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 Department;
2. Get initial approval for the activity from Economic Department;
3. Draw up the company's Memorandum of Association and have it notarised by a Notary Public in the Dubai Courts;
4. Seek approval from the Department of Economic Development and apply for entry in the Commercial Register;
5. 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.
6. Arrange the office renta contract [Ejari]
7. Licence will then be issued by the Department of Economic Development; 

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

Trade Names that cannot be reserved: Name of country, Name of Continent, Famous Regions and Towns, Colour (blue, red etc.).
Foreign words and short words will be charged extra fee of Dh2000 per year.

Branches and Representative Offices

Branches and Representative Offices of Foreign Commercial Companies

The Commercial Companies Law also 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 sometimes 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. In general, branches and offices of foreign commercial companies are not licensed to engage in importing activity except for re-export or in the case of products of a highly technical nature.

To establish a branch or representative office in Dubai, a foreign commercial company should proceed as follows:
Apply for a license 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 Department of Economic Development 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;
Once this has been done, the Ministry of Economy and Commerce will issue the required Ministerial licence specifying the activity to be practiced by the foreign company;
The branch or office should be entered in the Economic Department's Commercial Register, and the required licence will be issued;
The branch or office should also be entered in the Foreign Companies Register of the Ministry of Economy and Commerce;
Finally the branch or office should be registered with the Dubai Chamber of Commerce and Industry. read more

Branches and Representative Offices of Foreign Professional Companies

Branches and representative offices of foreign professional firms may be 100% foreign owned provided UAE nationals or 100% UAE owned companies are appointed as local agents. Such agents are not involved in the operations of the firm but assist in obtaining visas, labour cards etc and are paid a lump sum as remuneration. The Department of Economic Developmentt is the authority in charge of licensing such branches or representational offices.

Sole Proprietorship

For a Sole Proprietorship concern, an individual is issued a trade license in his/her own name and as such shall be liable for all assets and liabilities incurred by the business to the full extent. Only UAE Nationals and certain GCC Nationals are granted permission to form a Sole Proprietorship in Dubai. Certain foreign Nationals in selected fields can form Sole Proprietorship concerns if they reside in the UAE and such a firm would be referred to as a Professional Firm. Mostly these kinds of firms engage in medical services, auditing services, managerial and economic consultancies, engineering fields and technical services, legal profession, computer services, and other artisan activities. The firms which are registered as professional firms can only practice specific activities and does not extend to any commercial business. A UAE National should be the local service agent for a professional firm of foreign Sole Proprietorship concern and is paid a lump sum and/or a percentage of profits or turnover. This local service agent mainly assists in obtaining licenses, visas and labor cards and has no direct involvement in the business.