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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, for many companies there are distinct advantages in being on-the-spot to research market prospects, make contacts, liaise with customers, and see through the details of any transactions and orders secured. Having 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 licenses:
These licenses are all issued by the Dubai Economic Department. However, licenses 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. Practicing some trade activities (e.g. jewelers and insurance) requires the submission of a financial guarantee issued by a bank operating in Dubai. 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:
Where the law requires 100% local ownership;
In the past, each emirate followed its own procedures governing the operations of foreign business interests. In practice, however, Dubai and the other emirates followed the same general system, whereby foreign companies operated in one of three ways: with a local sponsor, through a partnership with a UAE national or company, or through a private limited company or public shareholding company incorporated by Rulers decree. Since 1984, steps have been taken to introduce a codified companies law applicable throughout the UAE. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 – the “Commercial Companies Law” – and its by-laws have been issued. In broad terms the provisions of the Law 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 organization 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 organization defined by the law are:
Partnership companies are limited to UAE nationals only. The Dubai government does not presently encourage the establishment of partnership-en-commendams and share partnership companies. Joint Venture Companies
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 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 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 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 companys capital. Such companies are recognized as offering a suitable structure for organizations 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 foreign or national partners or a third party. The following steps are required in establishing a limited liability company in Dubai.
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:
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 Economic Department is the authority in charge of licensing such branches or representational offices. 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 licenses, visas, labour cards, etc.
The Jebel Ali Free Zone was established in 1985 with the specific purpose of facilitating investment. Accordingly, the procedures for setting up in the zone are relatively simple. While Jebel Ali was established to complement and contribute to Dubais growth and development, its legal status is quite distinct. Companies operating there are treated as being “offshore” or outside the UAE for legal purposes. The option of setting up in Jebel Ali is therefore most suitable for companies intending to use Dubai as a regional manufacturing or distribution base and where most or their entire turnover is going to be outside the UAE. Jebel Ali Free Zone Incentives
Companies approved for operation in Jebel Ali Free Zone will be granted one of the following types of licenses: Trading, Industrial, Service or National Industrial. These licenses are renewable annually for as long as the company holds a valid lease from the Free Zone Authority. * Trading license will be granted to companies holding a valid license issued by the Dubai Economic Department or an equivalent authority in the UAE, and to companies incorporated outside the UAE. In each case, the permitted activities on the Free Zone license must conform to those on the existing license. Trading licenses are also issued to Free Zone Establishments (FZE).
conditions of having at least 51% AGCC equity and their local production accounting for at least 40% value added. Such companies must obtain the provisional approval of the UAE Ministry of Finance and Industry. A National Industrial license grants its holder the same rights as those of national and AGCC companies, and products exported to AGCC states will be exempted from customs duties. If a company wishes to practice more than one of the above mentioned activities, it must obtain a separate license for each category of activity. Companies holding a Free Zone licenses are permitted to operate in the Jebel Ali Free Zone and outside the UAE. Operation within the UAE can be undertaken either by a commercial agent, representative, distributor, or the mother company licensed by the relevant UAE authority. Any company holding a Free Zone license can itself purchase goods or services within the UAE. Setting Up a Branch of a Foreign Company
Any company wishing to set up a project in Jebel Ali Free Zone must first complete a simple questionnaire. From the information provided, the Free Zone Authority can make a first assessment of whether the companys needs can be met. After consideration of this questionnaire, the company will be provided with:
proposal. If provisional approval is given, the company will be asked to prepare and submit the documents called for in the appendix to the license application. After the checking of these documents, a meeting will be called to discuss and finalize the project details. If everything is satisfactory, the Authority will issue conditional approval for the project. Thereafter, a lease agreement and, if required, a personnel secondment agreement will be prepared by the Authority for signature by the company. At the time of signing, the applicant will be required to provide the insurance policies called for in the agreements and should pay the agreed rental and license fee prior to collection of the license. If the company wishes the Free Zone Authority to sponsor employees on its behalf, applications for entry permits may be submitted once the license has been issued. The bank guarantee called for in the personnel secondment agreement will be required at this stage together with visa charges. If the companys project involves the erection of a structure, detailed plans must be submitted after the lease has been signed. When the plans have been agreed, a building permit will be issued. Administrative work, such as importing equipment or engaging labour for installation of equipment, may proceed in parallel with construction work. But application for entry permits for operatives to be sponsored by the Free Zone Authority will not normally be accepted until a completion certificate for the construction has been issued. Setting Up a Free Zone Establishment
A Free Zone Establishment – or FZE – is an establishment formed and registered in Jebel Ali and regulated solely by the Free Zone Authority. Such establishments must have a capital of at least Dh 1 million and liability will be limited to the amount of paid-up capital. A FZE need only have a single shareholder and is an independent legal entity. Any company, organization or individual wishing to form a Free Zone Establishment must submit a completed application form to the FZE Department of the Free Zone Authority. A decision on whether permission has been granted will be given within 30 days of receipt of the application and any other information and documentation required. If permission is granted, the Authority will record all relevant details in the FZE Register and issue a Certificate of Formation. This will specify the date of registration after which the FZE will be free to conduct any such business as is permitted in its Special License.