ESTABLISHING A PRESENCE IN DUBAI

This guide includes a high level overview of the legal and regulatory environ- zones”, have been established and ment for establishing a business presence in Dubai, United Arab Emirates provide an alternative to establishing a business under the Law in (UAE). The overview describes the difference between establishing a presence mainland Dubai. in mainland (onshore) Dubai and establishing a presence in a free trade zone. The advantages of operating in a free zone rather than in mainland Dubai are: This guide examines the various forms of The Business and commercial entities that can be established • There is generally no tax on profits and provides an overview of those forms Legal Environment (subject to certain time restrictions). that are most commonly used to establish a Federal Law No. 2 of 2015 concerning • In most cases, 100% foreign Dubai-based business by foreign investors. Commercial Companies (the Companies ownership is permitted. It is a summary document relating only to Law) sets out the five forms of companies • For the most part, the regulations the Emirate of Dubai. that any party wishing to establish a busi- governing free zones are published ness presence in mainland Dubai must Specific issues which may influence the in English. type of business establishment and its loca- choose from. In addition, an appropriate • There are no restrictions on foreign tion including the nature of the business, commercial or industrial license must be exchange or repatriation of capital the nationality of the person/entity establish- obtained from the relevant governmental (in certain free zones). ing the business, and whether the business authority prior to the entity commencing is to be undertaken in the Emirate of Dubai, commercial activities. Certain business • Operational support and business in other emirates of the UAE or abroad, are sectors may also require further approvals continuity facilities are available. from various ministries and/or other authori- not dealt with in detail in this guide. The main disadvantage of operating from ties that regulate specific sectors. considering establishing a pres- within a free zone is that businesses are ence in Dubai should discuss their specific The largest potential disadvantage for restricted as to the type of dealings they requirements in detail with their legal and foreign investors wishing to establish a may conduct outside of that zone. An over- tax advisers first to ensure the appropriate in mainland Dubai (i.e. the view of some of the major free zones in the legal form is adopted and the appropriate Emirate of Dubai outside of its free Emirate of Dubai is provided in the following license is obtained. This guide reflects trade zones) is that foreign ownership pages of this guide. the position as of July 2015, following the restrictions apply. coming into force of the new UAE Commer- To facilitate foreign investment into Dubai, a cial Companies Law, which has made some number of free trade zones, known as “free significant changes to the UAE’s business and legal landscape.

To facilitate foreign investment into Dubai, a number of free trade zones, known as “free zones” have been established. Establishing a Business 1 Limited liability company Presence in Mainland Public joint-stock company (Onshore) Dubai 2 The Companies Law applies to all compa- FIVE 3 Private joint-stock company nies, branch offices, and representative forms of offices of foreign companies established 4  company and operating in mainland Dubai (i.e. companies permitted by (general partnership) outside the free zones). The five forms of companies permitted the COMPANIES LAW 5  company by the Companies Law are: (simple liability partnership) 1. Limited liability company 2. Public joint-stock company 3. Private joint-stock company 4. Partnership company of funds for the account of third parties. An that deviates from their shareholding ratio. (general partnership) LLC must have an initial capital sufficient This means that profits and losses of an for it to achieve its objectives, and the LLC may be distributed disproportionately 5. Limited partnership company founders of an LLC have the right to among the shareholders (including where (simple liability partnership) determine the amount of such initial capital. the shareholders include both UAE and Limited Liability Companies, Public Joint non-UAE nationals). The ratio should be set An LLC is required to have at least 51% of Stock Companies and Private Joint Stock out in the LLC’s memorandum and articles its shares held by UAE nationals. An LLC Companies are the most commonly estab- of association provided that not less than may however have 100% of its share capital lished types of legal entities in the UAE 20% of profits are distributed to the UAE owned by Gulf Cooperation Council (GCC) and are by extension the most commonly national shareholders. nationals (namely citizens of Bahrain, used or invested in by foreign investors. Kuwait, Oman, Qatar, Saudi Arabia and the The management of an LLC may be An overview of each of the three forms is UAE), but if any non-GCC national becomes comprised of either a single director or provided below. The other two entities are a shareholder in the LLC, the minimum a board of directors. Generally, there are not commonly used in the UAE for several 51% UAE national ownership must be no nationality requirements regarding the reasons, including restrictions on foreign complied with. composition of the board. ownership and foreign management. Historically a practice of entering into Specific conditions may be required for Alternatively, a foreign business can certain side agreements has developed forming an LLC in mainland Dubai. These carry out certain activities in Dubai in the UAE in relation to the UAE national conditions depend on the nature of activi- through a representative office or a branch ownership requirements. Pursuant to ties to be conducted by the company. It of a foreign company as will be further such side agreements, UAE shareholders should be noted that certain activities explained in this guide. agree to assign their profits to the foreign will be restricted to those companies Non-commercial activities (including profes- shareholders in an LLC in return for an that are fully owned by UAE nationals or sional services) may be carried out through agreed annual fixed fee. The enforceability GCC nationals. a civil company or a sole proprietorship, of such side agreements is not certain, and In most cases, the licensing and registra- which both have unlimited liability. the prudent view is that a UAE court might tion procedures of an LLC will entail, consider such side agreements an attempt amongst other things, (i) obtaining a trade to circumvent UAE ownership requirements Limited Liability Company name reservation certificate and an initial in breach of the UAE Companies Law The limited liability company (LLC) is approval from the Dubai Department of and UAE Federal Law No. 17 of 2004 the most widely used form of company Economic Development; (ii) executing and concerning the Combating of Commercial by foreign investors wishing to conduct notarizing the memorandum of association Concealment, as amended (the UAE Anti- commercial activities in Dubai. An LLC is a of the company before the notary public; Fronting Law) which technically entered private company and its shares cannot be (iii) obtaining a commercial or an industrial into force on 31 December 2009. The offered to the public. Shareholders of an license and a registration certificate from Anti-Fronting Law prohibits and criminalizes LLC benefit from limited liability status. the Dubai Department of Economic Devel- the practice of enabling a non-UAE national opment; and (iv) obtaining a membership An LLC has a separate legal capacity that to conduct an economic or professional certificate from the Dubai Chamber of is independent of its shareholders. The activity which is prohibited or restricted by Commerce & Industry. Each of these liability of each shareholder to the other UAE laws and regulations. steps will require the shareholders to shareholders and to third parties is limited The Companies Law, however, permits submit certain documents and to carry to such shareholder’s capital contribution shareholders of an LLC to agree on a out certain procedures. to the LLC. The objects of an LLC must not disproportionate economic benefit split include insurance, banking, or investment Additional approvals from other local or of directors must be UAE nationals. At least Generally, foreign companies must appoint federal authorities may be required before two thirds of the directors must be share- a local service agent as a requirement for obtaining a license from the Dubai Depart- holders of the company. licensing and registration of a branch or a ment of Economic Development, depending representative office in the UAE. The local A public joint stock company cannot on the nature of the activities that are to be service agent must be a UAE national or a provide financial assistance to any carried out by the company. company wholly owned by UAE nationals. shareholder. Unlike a shareholder, a local service agent Public Joint-Stock Company Private Joint-Stock Company has no equity or management interest in Public joint stock companies are required to the branch office or the representative A private joint stock company requires have at least five founding members (unless office and does not bear any of its liabilities at least two founding members and a founded by the UAE federal government or or obligations. The compensation of a local minimum initial capital commitment of the government of one of the seven Emir- service agent is typically an annual fee stip- AED5 million. As an exception to the rule, ates that make up the UAE or unless it is ulated in an agreement (the Local Service the law permits the incorporation of sole the result of a conversion of any company Agency Agreement) between the local shareholder private joint stock companies, into a public joint stock company), and an service agent and the foreign company, in known as ‘sole proprietorship - private initial capital commitment of AED30 million consideration for certain administrative and joint stock” entities. A private joint stock (approximately US$8.2 million). The articles licensing assistance that the local service company may not have more than 200 of association of the company may provide agent may perform for the branch office or shareholders. Shares in private joint stock for an authorized share capital, which may the representative office. companies may not be offered for public be up to two times the issued share capital subscription. In all other respects, provi- The licensing and registration of a branch of the company. The capital of a UAE sions of the Companies Law applicable to or a representative office of a foreign public joint stock company is required to a public joint stock company also apply be divided into negotiable shares of equal to a private joint stock company. A private value. The nominal value of each share joint stock company may be converted must not be less than AED1 (approximately into a public joint stock company. Private US$0.27) or exceed AED100 (approxi- joint-stock companies with more than 75 mately US$27). All of the company’s shares shareholders must comply with corporate must have equal rights and must be subject governance rules which will be issued to equal obligations. Part paid shares are pursuant to a Ministerial Resolution. permitted, provided that at least 25% of their value is paid upon their issue and the Branch (or Representative Office) remainder of their nominal value is paid up of a Foreign Company within three years of such issue. Between 30% and 70% of shares must be offered Foreign companies are permitted to to the public. With the exception of shares establish wholly owned branches and in public joint stock companies which are representative offices in Dubai. The primary wholly owned by the UAE federal govern- difference between a branch office and a ment or the government of one of the Emir- representative office is that a branch office ates, shares in all public joint stock compa- may carry out activities similar to those of its nies must be listed on a securities market in parent company and to generate revenue in the UAE (the Dubai Financial Market or the the UAE. In contrast, a representative office Abu Dhabi Securities Exchange). may only promote its foreign parent compa- ny’s activities by gathering information and A public joint stock company has a soliciting orders but may not carry on its separate legal capacity independent of its parent company’s activities. There are also shareholders. Like LLCs, 51% of the share restrictions on the number of employees the capital of public joint stock companies representative office can sponsor. must at all times be held by UAE nationals. GCC ownership will satisfy the UAE The scope of activities that may be carried ownership requirements in public joint out through a branch of a foreign company stock companies, although the articles and are limited to those activities permitted by memorandum of association of a particular the UAE Ministry of Economy from time public joint stock company are capable of to time, which has traditionally excluded providing otherwise. trading activities of goods and products in addition to certain other service activities. A public joint stock company is required to have an odd number of directors, which A branch or a representative office is not may be between three and 11; each direc- considered to be a separate legal entity tor is elected for a term of three years and from its parent company. The liabilities of may be re-elected for further 3-year terms. a branch or representative office therefore The chairman and a majority of the board attach to the foreign parent company establishing it. company in Dubai requires the following • Dubai International Financial The type of business activity to be under- steps: (i) obtaining a trade name reservation Centre (DIFC) taken will dictate which free zone is certificate and an initial approval from the Primarily for financial services provid- appropriate in light of both commercial and Dubai Department of Economic Develop- ers. The DIFC has its own legal system, regulatory considerations. Further informa- ment; (ii) obtaining an initial approval from courts, financial services regulator (the tion on these and other free zones can be the Ministry of Economy; (iii) executing Dubai Financial Services Authority), provided on request. and notarizing the Local Service Agency and stock exchange (NASDAQ Dubai). Agreement; (iv) obtaining a commercial, a • Dubai Technology and Media Free Zone professional, or an industrial license and Establishing a Business Principally for business activities that a registration certificate from the Dubai are related to information technology, Presence in the Free Zones Department of Economic Development; (v) e-commerce, media, printing and pub- The free zones operate independently of obtaining a certificate of registration of the lishing, media production, broadcast- each other and each has its own Free Zone foreign company in the register of foreign ing, information agencies, training and Authority (FZA), responsible for issuing companies maintained by the UAE Ministry education. This free zone acts as an the necessary licenses for operating in its of Economy; and (vi) obtaining a member- umbrella to a number of smaller and respective free zone. As each free zone is ship certificate from the Dubai Chamber of more specialized free zones such as different, it will be necessary to liaise closely Commerce & Industry. Additional approvals Dubai Media City, Dubai Internet City, with the relevant FZA in order to determine (external approvals) from other authorities Dubai Knowledge Village, Dubai Media its particular requirements. may be required before obtaining a license Production Zone, Dubai Studio City, and a registration certificate from the Dubai An individual or entity wishing to operate and Dubai Outsource zone. Department of Economic Development, in a free zone will need to establish an oper- depending on the nature of activities to be • Dubai Health Care City ating entity to carry out its business in the carried out by the branch. Provides quality healthcare and an free zone. The type of legal entity that may integrated center for clinical and be established differs from free zone to free In general, annual fees will be due to the wellness services, medical education zone. Broadly, however, the following are relevant authorities for the renewal of and research. the most common types of entities that may licenses and certificates of registration (in be established in the free zones: addition to the one-time establishment fees • Dubai Multi Commodities Centre (DMCC) paid at the outset). There will also be other A commodity market place, providing • Free Zone Establishment (FZE) incidental fees relating to the issue and industry specific market infrastructure An FZE may have only one shareholder maintenance of immigration, labour and and a full range of facilities for the and holds separate legal capacity from residency permits. In addition, office gold and precious metals, diamonds its shareholder. space needs to be leased within mainland and colored stones, energy, and other • Free Zone Company (FZCO or FZ-LLC) Dubai in order for a license to be issued commodities industries. DMCC is also A FZCO or FZ-LLC is very similar to by the Dubai Department of Economic home to a general free zone for non- an FZE with a separate legal capac- Development to any entity operating in commodities related business that ity independent of its shareholders. mainland Dubai. has become increasingly popular in However, in contrast to an FZE, it may recent years. As noted above, it will invariably be neces- have more than one shareholder. sary to engage a local service agent or a • Dubai Airport Free Zone (DAFZ) • A branch office of a foreign local equity partner when establishing a A general trading, import and export or local company business presence in mainland Dubai. The free zone located next to Dubai A branch office of a foreign or local level of involvement of such local service International Airport. company is not considered to be a agent or partner will depend on the type of • Dubai Silicon Oasis (DSO) separate legal entity from its parent. the entity to be established. A high-tech free zone for The liabilities of a branch of a foreign the microelectronics and the or local company attach to the parent The Free Zones semiconductor industries, amongst company establishing the branch office. other IT and technology sectors. • A Limited Liability Company Over 20 free zones have been established • Dubai Logistics City in the DIFC (LLC) in Dubai, each with its own individual (part of Dubai World Central) An LLC holds separate legal capacity industry focus and regulatory environment. A logistics-oriented free zone and it may have one or more share- Businesses operating in the free zones catering to all transport modes, holders. There is no minimum capital are not subject to many of the restrictions logistics businesses, and value requirement for the establishment imposed by federal and local laws and added services, including light of an LLC. The capital of an LLC is regulations. The following are some of the manufacturing and assembly divided into interests, each of which more well known free zones established located near Dubai’s new airport (Al may be of a different value and class. in Dubai: Maktoum International Airport). Such interests may not be represented • Jebel Ali Free Zone (JAFZ) by shares. Located next to the largest port in the Middle East, JAFZ is primarily targeted at import and export businesses. • A company limited by shares The types of license that will be granted ABOUT K&L GATES in the DIFC (Ltd) by the relevant free zones authorities will A company limited by shares holds depend on the type of industry serviced by K&L Gates delivers legal services on separate legal capacity from its share- the free zone. The licenses include trade an integrated and global basis, with holders and may have one or more licenses, industrial licenses, retail licenses, lawyers located across the Middle East, shareholders. There is no applicable service licenses, warehousing licenses, and Asia, Australia, Europe, South America, minimum capital requirement. The professional service licenses. and the United States. capital of the company is divided into Annual fees will be due to the relevant FZA K&L Gates’ Dubai office is located transferable shares. for these licenses together with a one-off in the Dubai International Financial • An offshore company in JAFZ set up fee. There will be other incidental Centre. The office advises local and An offshore company may have one or fees relating to immigration and, of course, international corporations active more shareholders and holds separate an annual rental payment for office or in the United Arab Emirates and legal capacity from its shareholders. industrial space. These licensing fees are throughout the Middle East, North An offshore company cannot carry on subject to change by the relevant authority Africa and South Asia, with particular business with companies or individuals and will be dependent on the free zone and emphasis on corporate and commercial resident in the UAE, and no residency the type of license applied for. A discussion transactions, mergers and acquisitions, permit or any kind of visas can be with the relevant FZA regarding the type of investment funds, financial services issued to an offshore company. There license required and any applicable fees regulatory advice, banking and finance, is no minimum capital requirement should be held at the outset. infrastructure projects, construction; for the establishment of an offshore dispute resolution including arbitration. company. While it is not required that Finally The lawyers in our Dubai office have an offshore company maintains a considerable experience and industry physical existence or office in JAFZ Businesses considering establishing a connections and can also leverage the or Dubai, it is permitted to do so. It presence in Dubai should discuss their proven capabilities of their colleagues is also permitted to maintain a bank specific requirements in detail with their based in Doha, Qatar and throughout account in Dubai (inside or outside legal and tax advisers first to ensure that the firm’s extensive network of offices. the free zone). An offshore company is the appropriate structure is adopted and With strong presence in key capital required to appoint a registered agent licenses obtained. cities and world commercial and finan- approved by the free zone authority. The structure to be used by a business cial centers, our global network of legal Setting up a free zone branch is likely seeking to establish in Dubai is dependent resources allows us to offer strategic to be the simplest option to establish a on a number of legal, licensing, and tax counsel on a variety of issues around business presence in a free zone, although considerations, and the level and location the world. Please contact us directly consideration should be given to the of the business that is likely to be for more information on how we may be desirability of ring fencing liability within transacted in the region. The above is only able to assist you or your business. a new company with limited liability. As a brief summary of the key considerations. noted above, depending on the particular We are happy to provide more specific free zone, there are minimum capital advice on request. requirements for incorporating free zone establishments and companies.

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