Doing Business in the UAE

Your Ultimate Guide to Doing business in the United Arab Emirates – The United Arab Emirates (UAE) has continued to strengthen its position within the global market. The opportunities which are present which have seen further reinforcement due to the Expo 2020 win, along with the UAEs strong connections with some key financial and international markets, makes this a region of choice for dynamic businesses. Investment in the UAE reflects the continued growth of the region post the recent economic downturn experienced around the world.

Economic restructuring has been underpinned by efforts to strengthen the business climate, boost investment and foster the emergence of a more vibrant private sector. The UAE aims to be a regional financial hub and the present market conditions, external market feedback and optimism indicate a positive change in trends.

This guide will provide an overview of the financial, business and legal infrastructure, as well as a key insight into doing business within the UAE.

Doing Business in the UAE

The UAE has continued to grow to become one of the largest economies in the Middle East. The country offers endless investment opportunities to local and international investors and attracts trade due to a number of free zones located throughout the Emirate which offer lucrative incentives attracting investment. Currently there are over 20 free zones in the UAE which offer differing benefits throughout the region allowing investors to chose the favorable option for there needs.

Geographical Location – The UAE is a federation of seven emirates, the constituent emirates are Abu Dhabi, Dubai, Sharjah, Ajman, Ras al-Khaimah, Fujairah, and Umm al-Quwain.

The capital is Abu Dhabi, which is also the state’s center of commercial and cultural activities. Dubai is seen as the most attractive emirate for business. The UAE is located on the Eastern coast of the Arabian peninsula. It is within close proximity to Oman, Saudi Arabia and Qatar. It is located within the northern approach to the Strait of Hormuz, a pivotal point for world crude oil. The total area of the UAE is approximately 77,700 square kilometers, Abu Dhabi being the largest emirate and Ajman being the smallest.

Petroleum and natural gas are two of the predominant natural resources which encourage investment and trade. The UAE has close transport links internationally, with airports located in Abu Dhabi, Dubai and Sharjah. Dubai airport serves as one of the major international hubs in the Middle East, which allows it to contribute to the economy with current figures showing that it “supports over 250,000 jobs in Dubai and contributes over US$22 billion, which represents around 19% of total employment in Dubai, and 28% of Dubai’s GDP”. The aviation industry continues to grow, with expected figures in 2020 showing a significant increase to this industry.

UAE Population – The population of the UAE is 8.1 million according to united nations statistics. The region has a high migration rate and has one of the worlds largest growing populations specifically due to the migration. The region has a large expatriate community who come from the United States, India, Pakistan and the United Kingdom to name a few. This has supported the UAE in ensuring the highest skilled workforce is available to support the local community to continue strengthening the economy.

UAE Language – The native language of the UAE is Arabic which is widely spoken by the local community. English is the second language of the UAE, however due to the high levels of migration the region also benefits from a diverse language skill set with the following languages spoken across the UAE; Urdu, Hindi, Persian, Pashto, Malayalam, Bengali, Tamil, Balochi, Russian, Tagalog and Mandarin Chinese.

UAE Climate – Due to the UAE being mainly located on prior desert land, it lies in the arid tropical zone. The climate is characterized by high temperatures and humidity in summer with the temperature reaching above 50 degrees celsius. During the winter months, the region has irregular rainfall with the annual average rarely exceeding no more than 10 inches.

UAE Currency – The currency for the UAE is Dirhams, the currency abbreviation is AED. There are a number of international banks located within the region which makes foreign currency exchange easily accessible.

Business hours/time zone in UAE – The working week in the UAE is Sunday to Thursday with Friday and Saturday being the national weekend. The time zone is +4hrs GMT which allows the UAE to continue to respond to international business needs throughout the world, with many seeing the region as the MENA business hub.

Public holidays in UAE – The public holiday dates differ annually in the UAE dependent on the month that Ramadan falls. The government has confirmed the following public holidays for 2014 (dependent upon the moon the date may change):

  • 01 Jan New Year’s Day
  • 13 Jan Milad un Nabi (Birth of the Prophet Muhammad)
  • 27 May Lailat al Miraj (Night of Ascension)
  • 28 Jul Eid al-Fitr (End of Ramadan)
  • 04 Oct Eid al-Adha (Feast of Sacrifice)
  • 25 Oct Al-Hijra (Islamic New Year)
  • 02 Dec National Day

UAE Government – The UAE is a constitutional federation of seven emirates; Abu Dhabi, Dubai, Sharjah, Ajman, Umm al Qaiwain, Ras Al Khaimah and Fujairah. The federation was formally established in December of 1971. The term of elected office for the Vice President is five years, with the current Vice President of the UAE being Sheikh Mohammed bin Rashid Al Maktoum.

The UAEs political system, which is a unique combination of the traditional and the modern, has underpinned this political success, enabling the country to develop a modern administrative structure, whilst ensuring that traditions are maintained, adapted and preserved.

Investment and Business Opportunities in UAE

There are many options open to international companies seeking to establish a business in the UAE. Apart from forming a trading relationship through commercial agencies, for many companies there are distinct advantages in having an on-the-spot presence. This makes it easier to research market prospects, make contacts, liaise with customers and see through the details of any transactions.

Having a presence is also important in the context of the commercial culture of the Middle East. Business owners and people in the region prefer to deal with someone they know and trust by building personal relationship. Another regional factor that adds to the importance of having a physical presence is that the buying patterns of some countries served by the UAE are unpredictable, creating a need for first class market intelligence and information.

UAE Direct trade – International companies wanting to trade directly with the UAE by supplying goods and services from abroad should appoint a commercial agent who is already established in the market. The agent must be a UAE National, or a company solely owned by a UAE National. The foreign principal and the agent in the UAE are required to enter into a commercial agency agreement specifying the products and the territories to be covered by the contract. They should also comply with the relevant provisions of the Federal Commercial Agency Law and the procedures and conditions prescribed therein. It should be noted that a commercial agent can not carry out activities in the UAE unless the name is entered in the Commercial Agency Register maintained at the Ministry of Economy and Commerce.

UAE Business Entities – Under UAE law, foreign entities interested in establishing a formal presence in the UAE have five options: create a permanent establishment, of which there are seven different types; establish a branch / representative office; create an entity in a UAE free zone; create a civil company (only in Sharjah and Dubai); Furthermore, Limited Liability Companies (LLCs) are more commonly used by the foreign investors. Federal company 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.

Structure of business organizations

The types of companies in which foreign equity participation is permitted under Federal Law No. 8 of 1984 concerning Commercial Companies, as amended (the “Companies Law”), and compares and contrasts the material provisions applicable to such companies. A branch established by a foreign entity under the Companies Law is not considered a separate company but rather a part of the foreign entity. Thus, the foreign entity is considered to be directly doing business in the U.A.E. and has unlimited liability for the operations of the branch.

Business entities

The Companies Law recognizes seven types of companies for formation under its provisions and permits foreign equity participation in all but one (the general partnership). The companies in which foreign equity participation is permitted are as follows: the public and private joint stock company (the “JSC”, which references hereafter is both the public and private variety unless otherwise indicated), the limited liability company (the “LLC”), the limited partnership company (the “LPC”), the share partnership company (the “SPC”) and the joint venture company (also known as a contractual venture or consortium company) (the “CC”). Of these, the LLC has been the vehicle of choice for foreign companies forming companies under the Companies Law.

Capital and shareholders

Capital requirements under the Law varies for each type of company. A company in which the State or any other public body hold any share capital, irrespective of its amount, shall be incorporated only as a public joint stock company. Public joint stock company capital must adequately achieve the objectives of its incorporation, and in all cases may not be less than ten million dirhams. In all cases the company’s capital shall comprise only cash. It is a requirement for the establishment of a company to have one or more national partner(s) whose share in the company’s capital is not less than 51%.

Filing requirements

Under the Companies Law the auditor is obliged to submit a report of his finding to the General meeting, which is required to be convened within four months of financial year end and the auditor must deliver copies of his report to both the Ministry and the Concerned Authority.

Dissolution

The company should be dissolved in the event of expiration of the company’s term without renewal, completion of the company’s purpose, adoption of a resolution to dissolve by the extraordinary general assembly or merger, and, if the losses of the LLC to one-half of the capital, the general assembly or the extraordinary general assembly, respectively, must vote on dissolution. Dissolution of the LLC requires the approval of partners representing three quarters of the capital. If the LLC’s losses amount to three quarters of the capital, partners owning one quarter of the capital may demand dissolution. The LLC cannot be dissolved by the withdrawal or death of, or by adjudication of distrait, bankruptcy or insolvency against, one of the partners unless the articles of association of the company (the “AOA”) provides otherwise. The LLC dissolution must be made public by informing the relevant authorities and by publication in two local Arabic daily newspapers.

Legal and other reserves

Dubai’s rise to one of the most dynamic business hubs in the world has made the city an immensely attractive commercial destination. To ensure that this growth and success continue, it is essential that each new business venture complies with a standard set of directives and regulations.

You need to be fully aware of what is considered to be breaking these rules and what the penalties are : for not sticking to them. The fines range from AED 250 for failing to renew a license within the specified time limit, to AED 20,000 for using Dubai Summer Surprises or Dubai Shopping Festival logos without permission.

Business Licensing and Registration Officers make regular random checks to ensure that companies licenses are up to date, that they are complying with all regulations and that they have not changed any aspects of their business without approval from DED.

Establishing a Sole Proprietorship Company in UAE

A business owned by a natural person to practice economic activity in the emirate of Dubai, inseparable of its owner personality and financial standing, being fully responsible for all financial liabilities against others, and,

  1. A sole proprietorship can only be owned by an individual, not a company. This person will own 100% of
    the business control all of its operations and keep 100% of any profits.
  2. A professional-type sole proprietorship can be owned by an individual of any nationality
  3. A sole proprietorship that is industrial or commercial can be owned only by UAE Nationals or GCC

Nationals.

  1. A sole proprietorship that is a commercial or industrial business must be owned 100% by a UAE
    National.
  2. A sole proprietorship requires a Local Service Agent (LSA) if the owner is not a UAE-National.

Establishing a Foreign Company Branch in UAE

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 service agent is appointed.

A branch office, legally regarded as part of its parent company, is a full-fledged business, permitted to perform contracts or conduct other activities as specified in its license. A branch office may only be engaged in activities similar to those of its parent company.

A representative office, on the other hand, is limited to promoting its parent company’s activities, i.e. to gather information and soliciting orders and projects to be performed by the company’s head office. Representative offices are also limited in the number of employees that they may sponsor. The local service agents are not involved in the operations of the company but assist in obtaining visas, labour cards, etc. and are paid a lump sum fee per annum.

Taxation

The UAE has no personal income, corporate or withholding taxes. The country is characterised by an almost
complete absence of taxation.

Bank and Petroleum Taxes – With the exception of banks and oil companies no corporate income tax is payable by businesses in the UAE. Oil companies’ pay up to 55% tax on UAE sourced taxable income whereas foreign banks pay 20% tax on taxable income generated in the Emirate. The taxable income of banks is as per the audited financial statements whereas that of oil companies is as per the concession agreement. Oil companies also pay royalties on production.

Customs Tax – Imports into the UAE can only be undertaken by those importers who have the appropriate trade license. Import duties have been largely standardised at 5%, but there are many exemptions, including food, building materials, medical products and any item destined for a free zone. Cigarettes are the exception to the general rule with the federal government approving 100% tax, a 50% tax is levied on alcohol.

Free Trade Agreements – The UAE is under an agreement with the GCC (Gulf Cooperation Council) and therefore required to levy 10%
duty on all luxury goods. By law, approximately 70 goods have been exempted from tariffs, including medicines, agricultural machinery, un-worked silver and gold, iron and steel for use in construction, and raw or partially worked materials for use by local manufacturers. Goods produced within the GCC are also exempt from duties as are goods destined for a Free Zone.

Municipality Taxes – Municipality service charges are levied on individuals living and working in the UAE. Service charge percentages vary among the emirates. A service charge of five to ten per cent is charged on food purchased in restaurants. Furthermore, hotels charge a ten to fifteen per cent service charge per night on room rates. These charges are usually included in the customer’s bill, which the municipality will collect from restaurants and hotels.

UAE Free Zone Taxes – Free Zones contain financial incentives to establish manufacturing industries in the UAE. These are primarily focused on exemption from all taxes and duties levied on profits or production. The major incentives offered by the UAE Free Trade Zones are:

  • 100% foreign ownership with 100% repatriation of capital and profits.
  • No corporate taxes for 50 years
  • No personal income taxes.
  • Exemptions from customs duties.
  • Absence of currency restrictions.

UAE Business & Commercial Regulatory Environment

The UAE has over 20 free zones, each of which have there own licensing body. Free zone companies can be owned by 100% foreign ownership, as can civil companies in Dubai which can be owned by 100% professional partners of any nationality. If the owner is a national of a country other than the UAE or GCC, they require a local service agent. A branch of a foreign company or a representative office is 100% owned by the parent company but should have a local service agent.

Government approvals and registration – To start your business in UAE whether in Dubai land or free zone, first you should be licensed to be able to trade or doing any business in UAE. At the onset you should apply for the provisional approval to confirm that the UAE Government has no objection to you starting a business, this will allow you to take the next steps to obtain any other approvals if required for specific activities to obtain a business license such as engineering, contractors, schools and banks.

All businesses in the UAE must have a physical address whether office or warehouse (dependent on the activity). Each license category in different emirates and different free zones have various requirements inorder to obtain the license. FZE and FZCO should deposit the share capital in a local bank before issuing the company license. Once the company has been fully incorporated and the license has been issued, you can start your business activities listed in company’s license according to UAE laws and regulations.

Competition rules/consumer protection – The Consumer Protection Section at the Department of Economic Development (DED) is responsible for protecting the consumers and raising awareness of their rights and responsibilities. The Consumer Protection Section, which is part of the Commercial Protection Department at DED, implements a series of measures and policies aimed at creating a safe environment for consumers of various products and services in the Emirate.

UAE Import and export controls – UAE Federal Law No. 13 of 2007 on Commodities that are Subject to Import and Export Control Procedures (the 2007 Law) which was issued by the President of the UAE, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, on 31st August 2007. This law essentially sought to harmonise the rules and standardise the procedures relating to the import and export of certain identified commodities throughout the UAE and bans the export or re-export of strategic commodities, including arms and military hardware, chemical and biological materials, and dual-use items without having first obtained a special license to do so.

Import Restrictions in UAE – The importer must obtain a valid importer code from Custom and goods must be in conformity with the activity of the licensed company. Import permission from the competent authority is required depending on the type of the goods.

Export Restrictions in UAE – Owners of the means of transportation of goods, loaded or unloaded, will be need to submit to the customs office the manifest according to the rules and regulations and will need to obtain exit permission. Exporters of goods shall proceed with the goods to be exported to the competent customs office and will be required to declare them in detail.

Custom duties in UAE- Customs duties are levied in most goods imported into UAE at the rate of 5% of the value in CIF (Cost Freight Insurance) terms except for alcohol and cigarettes, 50% Duty payable for alcohol while 100% for cigarettes. Goods are imported from outside the country for use in exhibitions, seasonal markets and similar events or in construction projects and scientific researches and has to be returned in the same condition at which they have been imported. A letter showing the purpose of entry, period, total quantity, description and detailed value of each individual item is required from the licensed company. Payable customs tariff for such goods are collected (excluding tires, spare parts and batteries) in the form of cash deposit or a bank guarantee to be refunded to the company upon re-exporting the goods outside the country or taken into free zones.

UAE Government Incentives – The UAE economy is proving to be extremely resilient in a difficult global economic climate and opportunities to do business in the country are many. The UAE’s currency, the dirham, which is pegged to the US dollar, is
secure and freely convertible; there are no restrictions on profit transfer or capital repatriation; import duties are low (less than 4 per cent for virtually all goods) and, in the case of items imported for use in the free zones, non-existent; labour costs are competitive; corporate tax and personal taxes are nil and numerous double taxation agreements and bilateral investment treaties are in place. In addition, the financial risk is minimal.

These factors, combined with a strategic, accessible location for major regional markets, an excellent reliable infrastructure and an extremely pleasant, stable and safe working environment are key elements in attracting foreign investment. The UAE is a contracting party to the General Agreement on Tariffs and Trade (GATT) since 1994 and a member of the World Trade Organization (WTO) since 1996. It is also a member of the Greater Arab FreeTrade Area (GAFTA) in which all Gulf Cooperation Council (GCC) states participate.

The UAE concluded Free Trade Agreements with Singapore and the AFTA bloc in 2008 and 2009 respectively, and is now cooperating with the GCC’s negotiating team to conclude Free Trade Agreements with the EU, Japan, China, India, Pakistan, Turkey, Australia, Korea and the Mercosur bloc comprising Brazil, Argentina, Uruguay and Paraguay.