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Which Business Structure is Right for Your UAE Business?

Which Business Structure is Right for Your UAE Business

The United Arab Emirates, or the UAE, has always been fascinating for people looking to invest in or start or grow their business. Many different types of legal and business structures in UAE are offered to anyone to choose from based on the needs and requirements of their business. The UAE is known for its growing economy, creative environment, and many job opportunities. But before entering the business world, it is necessary to understand the various laws of companies in the UAE and choose the best target market for you.

Starting any business structure in UAE is not easy, but before entering the business world, an important decision awaits you in choosing the right business structure in UAE. This decision will affect your daily activities and determine your responsibilities, taxes, and legal rights.

5 simple tips to understand the right business structure in UAE:

Here are 5 simple guidelines one has to understand and navigate through before deciding which business structure in UAE is perfect for their Company.

1. Understand the Business Landscape:

There are many different types of business structures in UAE, each with its strengths and prospects. The most common forms include freeholds, limited liability companies (LLCs), and branches. Research and understand the meaning of each pattern to fit your business and marketing goals, and then proceed to the same business structure.

2. Assess Ownership Options:

Given the recent changes in the UAE LLC laws that remove the local partner requirement, investors now have more flexibility in choosing shareholders. Consider your business goals, business structure in UAE, interests, and whether you want to be a business owner or partner.

3. Assess Liability and Risk:

Different business structures in the UAE have different levels of personal responsibility. For example, in a limited company, liability is limited to capital and provides some personal protection. Participants leave their personal belongings under the responsibility of the Company. Analyze the nature of your business structure in UAE and the risks of your decisions.

4. Tax Implications:

Tax considerations play an important role in business structure planning. Free zones often provide tax relief for a certain period, while limited companies are subject to corporate tax. Understanding the tax implications of each business structure in the UAE is important for financial planning and blue mapping.

5. Flexibility and Future Growth:

Consider the scalability and flexibility of your chosen business structure in UAE. Free zones are known for their speed and ease of expansion, making them ideal for businesses with growth plans and business structures. In contrast, an LLC is more secure but may have stricter restrictions. Anticipate your future business needs and choose a business structure that suits your growth.

Choosing the right business structures in the UAE requires careful thought. The decision is based on data. With the right business structure in UAE, your business can create a solid foundation that will prepare you for success in a dynamic market.

Remember that every business is unique; what works for one business may not work for another. Take the time to evaluate your goals, interests, and unique business needs to make informed decisions that will pave the way for your business to grow in the UAE.

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Different types of Business Structures in UAE:

The UAE offers many opportunities to anyone looking to set up their business in the UAE as it has a wide range of business structures and provides ease and comfort in doing business.

  1. Sole proprietorship
  2. Partnership
  3. Limited liability Company (LLC)
  4. Public Shareholding Company
  5. Free Zone Company
  6. Private joint stock company
  7. Branch of a foreign company

Pros, cons, and requirements for setting up each Business structure in UAE:

1. Sole Proprietorship:

A sole proprietorship allows a member to own 100% of the business structure in UAE and record it as a separate entity from its owners.

It is not linked or identical to the owner in terms of tax and liability, and the owner is only responsible according to his/her resources.

As of January 2, 2021, the UAE proprietary rights have been abolished, and foreigners and legal entrants should be allowed to trade 100% alone.

Pros:

A sole proprietorship is the most public type of business structure in the UAE. One person is responsible for the ownership and management of the whole corporation. One person has all the liability.

-Ease of setup and low-cost registration.

  – Complete control over business decisions and operations.

– Direct access to profits without sharing with partners or shareholders.

– Flexibility in decision-making and adaptation to market changes.

Cons:

-it can be difficult to raise funds in this business structure in UAE

– Less financial protection

– Less legal protection

-High Self-Employment Taxes

-No Partners Allowed

-Limited access to certain benefits and government contracts

Requirements:

The business structure in UAE is similar in most aspects, except for changes in the documents. The registration of sole proprietorship business structure in UAE includes:

  1. Selection of a trademark for the business.
  2. Getting the preliminary approval from the Department of Economic Development
  3. Register the business and submit the application form.
  4. Once the business structure in UAE is registered, apply for the trade license.
  5. All the documents needed for Trade Registration in a sole proprietorship business structure in UAE.
  6. Application form
  7. Trade name
  8. Licensing application form
  9. Information about local agents
  10. A copy of the passport of the business owner
  11. Copies of proof of registered office address
  12. The residence permit
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2. Partnership:

A business structure in UAE in which two or more persons or organizations share ownership is called a partnership. Partners are liable to fund capital, share profits and losses, and share debts.

 Dubai has two types of partnerships: general partnership (GP) and limited partnership (LP). In a general partnership, each partner has unlimited liability for the debts and obligations of the business. Limited partners include both general partnerships and limited partnerships. Forming a partnership business structure in the UAE can be your gateway to success in one of the world’s most dynamic economic environments. In 2024, entrepreneurs and investors will find a variety of partnership options ready to meet the ever-growing needs of this dynamic market. Whether local sponsorship, joint ventures, professional collaboration, or favourable free zone conditions, many opportunities for joint venture business structure in the UAE are offered.

Types of Partnerships Business Structure in UAE

Local Sponsorships

– Local support can be difficult and sometimes necessary if you are a foreign investor looking to enter his business structure in the UAE mainland market. Local sponsors often act as silent partners in such business structures in the UAE, provide legal support when needed, and are hired to work for commissions or income. This rule is important because local regulations may require such a sponsor depending on your business structure in UAE. A local partner or sponsor can help you navigate the UAE’s complex business environment to ensure harmony and efficiency. To ensure good and effective collaboration, partners need to be clear about their roles, responsibilities, and financial arrangements, including how profits and losses will be shared and reinvestment strategies.

Partnerships Within Free Zone Companies

To energize outside ventures, the UAE has made free zones to permit financial specialists to hold full possession of their companies. Free zone collaborations are very common and are primarily done by similar or complimentary business structures in UAE collaborating on ventures or administrations. These accomplices are fascinated by free zones and, in particular, biological systems. They can use their shared aptitudes, information, and money-related assets to drive trade development in the particular business structure in the UAE. The free zone business structure in UAE gives an awesome way to organize and discover accomplices who share your interface and objectives.

Joint Ventures

A joint venture business structure in the UAE is an important public provision where two or more companies cooperate for a particular organization or business activity. This type of organization is well known in projects that require courage and skill (real talent, foundation, dynamism). A joint venture business structure in the UAE combines assets, expertise, and promotional activities to achieve a common goal. Collaboration, responsibility, discretion, etc. Jianxing’s terms must be carefully designed to avoid conflicts and ensure that the Company wins.

Professional Partnerships

Professionals such as lawyers, consultants, and doctors often collaborate to provide services in UAE. These collaborations/business structures in UAE allow people to share their skills and reputations to cover a wider range of clients and do larger projects than they could do alone. In the collaboration of such a business structure in the UAE, clear agreements must be made on important issues such as business management, financial support, revenue sharing, and management. Protection of trade secrets of each business structure in UAE. As with all partners in UAE, monitoring partners carefully, including their business history, financial stability, and conflicts is important. Building relationships through face-to-face meetings or social events can help build trust and understanding. Before forming a partnership, you should seek legal advice to resolve administrative issues and draft a partnership agreement that includes everything you need to do, including resolving conflicts, forming new partnerships, and options for separation or retirement.

Pros:

  1. Increased Networking Opportunities
  2. Varied Expertise and Knowledge
  3. Sharing Expenses
  4. Local Knowledge And Business Network

Cons:

  1. Unlimited Liability
  2. Abrupt Dissolution of the Company
  3. Distrust of the General Public
  4. A maximum of 20 members can be partners in a partnership business structure

Requirements:

  1. Select a trading name for the general partnership following all the guidelines for naming the Company.
  2. Complete the application for the registration form through the register.
  3. Each partner must sign the application form.
  4. Obtain an office space for the preferred business structure in UAE.
  5. Submit all the required documents and complete the payment to the Department of Economic Development.

3. Limited Liability Company (LLC):

LLC is a type of business structure in the UAE. It is a discrete legal entity from its owners, which means that the owners have partial liability. The number of shareholders in an LLC can range from anywhere between 2 and 50 members and must have at least one local partner who owns at least 51% of the Company. The cost of registering a limited liability business structure in the UAE ranges from AED 20,000 to 30,000. However, the fees vary depending on the industry type and services. The investor visa cost is between AED 4,000 and AED 5,500.

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There are many tax benefits linked with establishing a limited liability company (LLC) business structure in the UAE. No corporate taxes are charged on companies, excluding corporations in the oil and petroleum industries. However, a recent modification to the tax law has introduced the value-added tax (VAT), which is collected at a very low rate. 5% VAT is applicable in UAE. Aside from the tax, benefits of an LLC include free repatriation of earnings for overseas investors and falling under UAE double tax treaties. This specific business structure in the UAE has a favourable tax structure that draws an enormous number of entrepreneurs each year.

The list of businesses in which an LLC can engage is practically limitless. The only exception is in banking or insurance activities.

The following commercial license categories are available to LLCs:

  • Trading
  • Professional services
  • Manufacturing
  • Tourism and hospitality

Pros:

  1. Ability to engross in a wide range of business actions.
  2. Attractive to foreign investors. 100% foreign ownership is allowed.
  3. Limited liability protects shareholders’ assets in case of business debts or liabilities. All members of an LLC enjoy limited liability.
  4. Ability to conduct business in the local market and bid for government contracts.
  5. Greater credibility and perceived stability in the eyes of customers, suppliers, and banks.
  6.  Flexibility in profit distribution and management structure.
  7. A double taxation avoidance treaty with many countries helps the investors with the profits and capital gains not being taxed twice.
  8. There is no limit on the amount of money that can be transferred.
  9. There are no limitations on the type of commercial activity an LLC can undertake.
  10. The government proposes a wide range of sustenance services to businesses, including licensing, visa applications, and more.

Cons:

  1. Minimum capital requirements vary by emirate.
  2. Complex setup and compliance process.

Requirements:

  1. Determine the type of legal entity.
  2. Choose a trading name.
  3. Apply for an LLC license.
  4. Choose an office space.
  5. Get pre-approvals, register your business, and get your license.

4. Public Joint Stock Company:

Several business structures in UAE are offered to instigate a business. A PJSC or a Public Joint Stock Company is a business structure where the capital is divided into equal shares, and the shareholders’ obligation is limited to the number of shares in the Company. A Public Joint Stock Company is often denoted as a Public Shareholding Company. Banking, insurance, or other financial companies should be run as public shareholding companies as per the law of the land. A business structure in UAE with the subsequent characters is stated to as PJSC:

  1. The chairman and majority of the directors necessarily be UAE nationals.
  2. A minimum of ten founding members are required.
  3. Administration should be given to a board of directors with a minimum of 3 to 15 members.
  4. At least a capital of AED 10 million is required.
  5. Banking, economics, or indemnity businesses must typically be run as PJSCs, whereas overseas businesses affianced in similar manoeuvres may open branches or representative offices in Dubai.
  6. Prime shareholders or the founding members are entitled to 35% of share capital, offering the residual 75% to the public.

Pros:

  1. The PJSC is the ideal business structure in the UAE to use when executing substantial projects/assets.
  2. Conduction of business increases as this business structure in UAE gathers money in particular locations only.
  3. The fact that the joint stock company in UAE gives a great deal of freedom in the distribution of profits is a significant benefit.
  4. Additionally, a joint stock corporation business structure in the UAE makes it easier for loans from banks.

Requirements:

1. Select a Trade name for the business.

2. Get Preliminary Approval from the Department of Economic Development for this particular business structure in UAE

3. Submit the Paperwork Necessary for the Licence

Some official papers must be acquiesced after receiving approval:

  • Founder’s Contract along with Registration and Licensing Application
  • Government Approval
  • Prospectus of Invitation for Public Subscription
  • UAE Securities and Commodities Authority Approval for Public Shareholding
  • Auditors Certificate
  • Resolution from Ministry of Economy for Public Shareholding
  • Copies of the Due Diligence Survey
  • Two copies of the Project’s Feasibility Study
  • Four copies of the Memorandum and Articles of Association
  • Copies of Office Space Contract and Registered Plot Number
  • Appointed Board of Managers and Directors Written acceptance
  • The Original Documents include the director’s Name, Date and Place of Birth, Occupation, and Sample Signature.

4. Payment of the legal fees. The license cannot be obtained until the fee has been paid.

5. Free Zone Company:

Various UAE free zones are establishments where business structures in the UAE can benefit from special advantages. These include 0% income tax, 0% customs, and 100% foreign ownership without the need to find a local partner. UAE free zone businesses can do business with other companies in their free zone and around the world, but they are not allowed to do business directly with customers in the UAE and the UAE mainland.

There are more than 50 free zones in the UAE. Each free zone has its own rules and regulations. Free zones offer foreign investors a good option to set up any business structure in UAE-free zones. Key benefits include 100% foreign ownership, no personal taxes, no business restrictions, 100% import and export tax exemption, and access to international markets. A free zone company can be established as a single-shareholder free zone company (FZE) or a multiple-shareholder free zone company (FZC).

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Pros:

  • No need to seek help from local supporters. Complete foreign ownership in the UAE business structure.
  • Tax benefits include corporate exemptions and temporary income.
  • Simplify installation with a simple management process.
  • Access to state-of-the-art infrastructure, business services, and professional facilities.

Cons:

  • Limited to operating within the free zone or internationally.
  • Restrictions on doing business outside the free zone.

6. PRIVATE JOINT STOCK COMPANY

A business structure in UAE with the subsequent mannerisms is referred to as a Private Joint Stock Company (PrJSC):

  • The ownership of such a business structure in UAE is with the NGO
  • Shares of a PrJSC cannot be accessible to the public.
  • A minimum of three members in a PrJSC is required.
  • A PrJSC in the UAE must have a minimum capital of AED 2 million. A private shareholding business must go by all the same rules as a public shareholding corporation.

7. BRANCH OFFICE OF FOREIGN COMPANIES/REPRESENTATIVE OFFICE

Foreign companies seeking to establish a business structure in the UAE can opt for a branch office. A branch office is reflected as an extension of the parent company and is subject to the same legal entity and obligation.

Any business structure in UAE will be referred to as a branch office of a foreign company/ representative office if:

  • It does not involve sales, services, or any type of commercial activity but only endorses the undertakings of its parent company.
  • A National Service Agent (NSA) is required. The NSA has no equity contribution or accountability to the business.
  • A bank guarantee of AED 50,000/- for the duration of your license, which is refundable, needs to be deposited, and this cannot be withdrawn or used as working capital.

Pros:

  • Allows foreign companies to operate in the UAE under their established brand and reputation.
  • No minimum capital requirement for branch setup.
  • Full control over the operations and strategic decisions of the parent company.
  • Easier access to local markets and potential clients.

Cons:

  • Limited liability depends on the parent company’s structure.
  • Must appoint a local service agent.

Conclusion:

When setting up a business structure in the UAE, one must understand every aspect of the landscape and the country’s law. With the knowledge of the same, any person can make decisions based on the tax policies, infrastructure, profits, and consumer consumption relating to their goods and services of the product of the business structure in UAE and the requirements of the same business structure in UAE and move forward in the same direction.

FAQs:

  1. How much does it cost to set up a business in UAE?

    A company set up in a Free Zone can start at a mere AED 4000. From AED 10,000 to AED 50,000 per year for a Trading, Service, or Industrial Licence. However, the high renewal fees for a trade license range from AED11,000 to AED 13,000 (US$ 3,000-3,500).

  2. What are the forms of business in the UAE?

    Partnership, limited partnership, Limited Liability Company, private joint stock company, public joint stock company.

  3. What is the legal structure of the UAE?

    The legal system in the United Arab Emirates is based on civil law and Sharia law in the personal status matters of Muslims. Personal status matters of non-Muslims are based on civil law.

  4. What is the most common business in UAE?

    ·         Travel and Tourism.
    ·         Real Estate Agency.
    ·         Healthcare Sector.

  5. What is Ltd vs LLC in Dubai?

    Limited firms (.ltd) are owned by their shareholders, who also designate directors to oversee the Company's operations. The owners of an LLC are referred to as members, and they may choose a more flexible structure for ownership and administration.

  6. What is the difference between LLC and LLP in UAE?

    An LLC is more flexible and sorted in its tax regimes, and a business management structure is more sorted in an LLP.

  7. How much does it cost to register an LLC in Dubai?

    Approximately starts from AED 18,500

  8. Is there a minimum capital for an LLC in UAE?

    No, there is no minimum capital for LLCs in UAE.

  9. Can you own 100% of a company in UAE?

    Yes, expats are now allowed to have 100% ownership of a business in the UAE.

  10. Is audit mandatory for LLCs in UAE?

    UAE Commercial Companies Law:
    (32) of 2021 or Commercial Companies Law, every Joint Stock Company (also shall comply with Articles 245 and 238) or Limited Liability Company (also shall comply with Article 102) shall have one or more auditors to audit the accounts of the Company on a yearly basis.

  11. Is it legal to work in 2 companies in UAE?

    The UAE's Labour Law permits working for two employers.

  12. Is UAE easy to do business with?

    The UAE is an ideal place to do business

  13. How do you apply for an LLC in UAE?

    Visit the Department of Economic Development in UAE, where you plan to start the business. Digital platforms are also available to obtain a commercial license, where applying with the necessary documents will lead to a license within minutes.

  14. Who can audit a company in the UAE?

    Auditors must now have a bachelor's degree in accounting, finance, or a related field.

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