A Practical Guide to Establishment Planning in the UAE

The Emirate of Dubai is currently experiencing a period of unprecedented economic growth and prosperity. There is much interest from investors who wish to establish a presence in Dubai to take advantage not only of the economic growth but also of the first world infrastructure and stability that this Emirate provides.

Before taking the steps to establish a presence in Dubai, it is important to address the questions of where, why, and how.

According to the United Arab Emirates Ministry of Economy there are over 40 multi-disciplinary freezones in the UAE, of which at least 20 are situated in Dubai. Freezones are specifically declared geographical areas that have their own authority and in certain financial freezones like the Dubai International Financial Centre, their own laws and courts to hear civil matters.

Apart from freezones one has the additional option of incorporating an “onshore” limited liability company, which are companies incorporated in mainland Dubai outside of the geographical location of a particular freezone. In the past, freezone companies were in demand as previously any onshore company needed to be majority owned by a UAE national. However, this requirement has been eased, and as a general rule (apart from certain strategic activities) a foreign national/corporate can own 100% of an onshore company.

Here are some key considerations to bear in mind when establishing an entity in the UAE (please note this is not a comprehensive list).

Unlike other jurisdictions (particularly in common law countries) where an entity may carry out any lawful activity its shareholders wish, in Dubai the entity can only carry out the specific activity as authorised in its trade license. It is thus important to ensure that the investor or founders can form a clear idea of the exact activity to be undertaken and then make the necessary arrangements with the relevant authority to select the appropriate activity. Often, certain activities can only be undertaken in specific freezones or onshore. These activities need to be carefully checked with the relevant authorities.

Certain activities may be subject to requirements imposed by the relevant authority, and a no-objection certificate or other authorisation may be necessary. For instance, if you wish to sell watches, clocks, and jewellery, a no-objection certificate must be obtained from the Security Industry Regulatory Authority, which will have its own requirements that must be fulfilled.

Will the entity trade within the Emirate of Dubai (onshore), or will it trade outside the UAE? This decision has significant implications for the choice between freezone or onshore operation and may impact corporate tax considerations.

Recently, the federal government of the UAE has introduced corporate tax legislation. Under certain conditions, specific activities conducted in particular freezones can be zero-rated. Furthermore, a group of companies that are not freezone entities can, in certain circumstances, be grouped together for advantageous tax purposes.

It is important to consider what form of entity will be incorporated and, together with the potential tax grouping as set out above, how the investor’s holdings can be structured to minimise or isolate potential risks.

Another important consideration is whether the business model the investor wishes to utilise complies with UAE laws and what steps are necessary to ensure compliance.

We have in the past encountered many structures where clients have opted for the cheapest and most time efficient structure, without requesting legal advice. This has led to clients creating structures that are not fit for purpose and/or that unnecessarily expose clients to tax and other liabilities. 

While the Emirate of Dubai offers significant opportunities for investors, it is important to conduct thorough due diligence and carefully plan entry into this region to ensure a solid foundation.

It is advisable to seek legal advice to determine the appropriate structure before proceeding. Additionally, having local assistance is beneficial when dealing with the relevant freezone and government authorities.