Company Formation in Dubai - An Overview

The United Arab Emirates (UAE) is a federation which was formed in December 1971 between Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Umm al-Quwain and Ras al Khaimah.

Dubai is one of the largest cities in the Middle East having multitude of opportunities to allow foreign investors to set up different forms of companies. This city has expanded its opportunities to ensure that there is constant development. Apart from this, the Middle East is one of the largest oil exporters in the world. There is no amount of tax levied either directly or indirectly on citizens and individuals living in Dubai. Hence all these opportunities attract more individuals to go for the process of company registration in Dubai.

In Dubai there is a designated area to carry out different form of registration activities related to compliance. This area is known as the Dubai International Financial Centre (DIFC). Not only in Dubai, but all over Middle East there are different forms of financial centres which allow ease of carrying out different activities in Dubai.

In the DIFC there is no form of restriction when it comes to foreign ownership in the company. Hence the directors and shareholders of a company registered in Dubai can have 100% ownership of a company. The Federal Commercial Companies Law No. 2 of 2015 (Companies Law) states that company which is outside the jurisdiction of the DIFC has to comply with the requirements of foreign investment. This means 51% of ownership has to be under a individual who is a resident of UAE.

The ownership aspect with reference to the company would be categorised based on the citizenship. 51% has to be controlled by the UAE national. This would also include any form of entities which are controlled by a UAE national. These foreign investment restrictions have been removed from various sectors in 2018.

When it comes to the taxation aspect, then indirect taxes such as VAT present in Dubai. This would be considered as a value added tax which is charged at the rate of 5% on the amount of goods and services which are provided in Dubai. There is no form of individual income tax which is charged on employees working in Dubai. Hence all these advantages would be a promising opportunity for an investor to go for company registration in Dubai.

Main Regulatory Authority for Company Registration in Dubai

The main regulatory authority for company formation in Dubai is the Registrar of Companies. This registrar would act as a unified authority for carrying out different forms of compliances and registrations related to companies. Usually an application for company registration in Dubai goes to the registrar of Companies.

Areas related to Company Registration in Dubai

The following areas can be chosen for company registration in Dubai:

Inside DIFC
DIFC is a suitable option for an investor to consider for company formation. There are different benefits of choosing this area which is not just inclusive of company registration process or ease of compliance. In the DIFC there is no form of restriction when it comes to foreign ownership in the company. Hence the directors and shareholders of a company registered in Dubai can be 100 % foreign owned.
Outside DIFC
This is the jurisdiction or area which is outside the DIFC. A company can also be incorporated outside the DIFC. The Federal Commercial Companies Law No. 2 of 2015 (Companies Law) states that company which is outside the jurisdiction of the DIFC has to comply with the requirements of foreign investment.

The ownership aspect with reference to the company would be categorised based on the citizenship. 51% has to be controlled by the UAE national. This would also include any form of entities which are controlled by a UAE national. These foreign investment restrictions have been removed from various sectors in 2018.

Benefits of Company Registration in Dubai

The following are the benefits of company formation in Dubai:

Regulatory Environment Offered
The courts in Dubai follow the common law system. However precedents from court cases are handled by lawyers in Dubai who have US and UK legal qualifications. In Dubai there is a unique way of regulation.
100% Foreign Ownership Allowed
The amount of foreign ownership allowed for a company registered in the Dubai DIFC is 100%. Hence a foreign investor or shareholder can have 100 % equity ownership of the company.
Ease of Compliance
There is less compliance in Dubai when compared to other form of jurisdictions.
Less Tax Burden
The amount of direct tax levied on an individual would be less when compared to the amount of indirect tax. Indirect taxes such as VAT are present in Dubai. This would be considered as a value added tax which is charged at the rate of 5% on the amount of goods and services which are provided in Dubai. There is no form of individual income tax which is charged on employees working in Dubai.

Types of Company Structures Utilised in Dubai

The following structures would be utilised for company registration in Dubai

Company which is limited by shares
Usually this form of company is known as a private limited company which is limited by specific amount of shares.
Limited Liability Company
The liability of these companies is usually limited to the amount of shares.
Branch Office
Usually this form of company is formed outside Dubai. However, the office is opened in Dubai to carry out operations.
DIFC transferred Company
Usually this company is transferred from the non-free zone to a free zone. An example of this would be the transfer from non DIFC centre to a DIFC centre.
Limited Liability Partnership
The limited liability partnership or more known as an LLP is a partnership entity which is managed by different partners. The liabilities of the partners are limited.
Foreign Limited Liability Partnership
This type of partnership entity is usually foreign owned company which is controlled by shareholders who are majority foreign citizens.

Eligibility Criteria for Company Registration in Dubai

The following eligibility criteria are required for company registration in Dubai:

Licensing Requirement
A company is formed with the basic purpose to carry out some activity. There are three forms of licenses which are provided for a company which is registered in Dubai. The licenses are as follows:

• Commercial licences covering all kinds of trading activity;

• Professional licences covering professions, services, craftsmen and artisans;

• Industrial licences for establishing industrial or manufacturing.
Free Zone Business carried out
Usually a local sponsor would be required for company registration in Dubai. This is a mandatory requirement for an individual to find a local sponsor. As the local sponsor has to be a UAE national who has more than 51% control over the company. Usually an individual would enter into some form of profit sharing arrangement with the local profits and agree on some sharing ratio which has to be decided by the parties.
Choose the Form of Business Structure- When the applicant goes for company registration in Dubai the form of business structure which has to be utilised by the applicant has to be selected. There are lot of advantages and disadvantages of choosing the form of business structure.

Procedure for Company Registration in Dubai

First and foremost the applicant has to select a sponsor who is a UAE national. This requirement has to be carried out mandatorily in order to satisfy the needs related to Federal Commercial Companies Law No. 2 of 2015 (Companies Law). 51% ownership controlling stake by a UAE national if the applicant wants to set up a company outside the DIFC. However, if the applicant wants to set an office within the DIFC, then the requirement of a sponsor would not be required. However, it would be always beneficial to find a sponsor. Later on the applicant can either transfer the company.
In the next step, the applicant would have to go for the process of reserving the name of the company with the Department of Economic Development. In order to reserve the name of the company, the application along with requisite fee must be paid.
After the above step, the applicant would have to draft the memorandum of association and articles of association of the Company. The document dealing with the MOA and the AOA would be downloadable form the Companies Registry.
When the drafting of the application is complete, the documents along with the application must be forwarded to the Department of Economic Development and the Companies Registry. The Companies Registry would process the documents related to this.
Under the Companies registry, the company would receive the certificate of incorporation to carry out the prescribed activities in Dubai. After this process is carried out, the applicant would have to select the form of license which is required to carry out the business. The following licenses are present in Dubai:
• Commercial licences covering all kinds of trading activity;

• Professional licences covering professions, services, craftsmen and artisans;

• Industrial licences for establishing industrial or manufacturing.
Hence if the company wants to carry out any form of trading activities, then an application related to the commercial license must be made. However, if the applicant wants to start the business related to professional lawyers then the professional license must be applied for.
The applicant for company registration in Dubai would have to appoint management, directors and shareholders in order to manage the activities as per the requirements of the companies act. Once this step is complete the applicant would go ahead to open a business bank account in Dubai.

Documents required for Company Registration in Dubai

As there are different forms of businesses in Dubai, there would be different set of documents for each business. The following documents would be required for company registration in Dubai: