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Setting up Business in Dubai
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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 licences:
- Commercial licences covering all kinds of trading activity;
- Professional licences covering professions, services, craftsmen and
artisans;
- Industrial licences for establishing industrial or manufacturing activity.
These licences are all issued by the Dubai Economic Department. However,
licences 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.
Practising some trade activities (e.g. jewellery 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 Jebel Ali Free Zone;
- In activities open to 100% AGCC ownership;
- Where wholly owned AGCC companies enter into partnership with UAE
nationals;
- In respect of foreign companies registering branches or a representative
office in Dubai;
- In professional or artisan companies where 100% foreign ownership is
permitted.
Legal Structures for Business
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 Ruler's 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 organisation 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 organisation defined by the law are:
- General partnership company
- Partnership-en-commendam
- Joint venture company
- Public shareholding company
- Private shareholding company
- Limited liability company
- Share partnership company
Partnerships
Partnership companies are limited to UAE nationals only. The Dubai government
does not presently encourage the establishment of partnership-en-commendam and
share partnership companies.
Joint Venture Companies
A 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 publicised -
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 company's capital.
Such companies are recognised as offering a suitable structure for
organisations 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.
Select a commercial name for the company and have it approved by the
Licensing Department of the Economic Department;
- Draw up the company's Memorandum of Association and have it notarised by a
Notary Public in the Dubai Courts;
- Seek approval from the Economic Department and apply for entry in the
Commercial Register;
- Once approval is granted, the company will be entered in the Commercial
Register and have its Memorandum of Association published in the Ministry of
Economy and Commerce's Bulletin. The licence will then be issued by the
Economic Department;
- The company should then be registered with the Dubai Chamber of Commerce and
Industry.
Branches and Representative Offices of Foreign Commercial
Companies
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:
- Apply for a licence from the Ministry of Economy and Commerce, submitting an
agency agreement with a UAE national or 100% UAE owned company. Before issuing
the licence, the Ministry will:
- forward the application to the Economic Department to obtain the approval of
the Dubai government;
- forward the application specifying the activity that the office or branch
will be authorised to undertake in the UAE, to the Federal Foreign Companies
Committee for approval;
- Once this has been done, the Ministry of Economy and Commerce will issue the
required Ministerial licence specifying the activity to be practised by the
foreign company;
- The branch or office should be entered in the Economic Department's
Commercial Register, and the required licence will be issued;
- The branch or office should also be entered in the Foreign Companies
Register of the Ministry of Economy and Commerce;
- Finally the branch or office should be registered with the Dubai Chamber of
Commerce and Industry.
Branches and Representative Offices of Foreign Professional
Companies
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 licences, visas, labour cards, etc.
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