ESTABLISHING A BUSINESS PRESENCE IN DUBAI This guide includes a high-level overview of the legal and regulatory environ- There are certain restrictions on foreign ment for establishing a business presence in the Emirate of Dubai (Dubai), ownership for investors wishing to establish a company in mainland Dubai. To facilitate United Arab Emirates (UAE). The overview describes the difference between foreign investment, a number of free zones establishing a presence in mainland (onshore) Dubai and establishing a have been established and provide an presence in a free trade zone (free zones). alternative to establishing a business under the Companies Law in mainland Dubai. Furthermore, the guide examines the List” (discussed further below), along with The main advantages for foreign investors various forms of commercial entities that the recent introduction of the Economic of operating in a free zone rather than in can be established and provides an over- Substance Regulations and recent amend- mainland Dubai are: view of the most commonly used forms ments to the UAE’s Anti-Money Laundering/ • There is generally no tax on profits, to establish a Dubai-based business by Anti-Corruption Legislation. subject to certain time restrictions foreign investors. It is a summary document This guide has been prepared during the relating only to Dubai and is not a substitute • In most cases, 100 percent foreign COVID-19 pandemic; as such, it does not for obtaining appropriate and tailored legal ownership is permitted seek to address the issues relating to the advice. impact of the ongoing crisis. • For the most part, the regulations Specific issues that may influence the type governing free zones are published in of business establishment and its location The Business and English including the nature of the business, the Legal Environment • There are no restrictions on foreign nationality of the person or entity establish- Federal Law No. 2 of 2015 concerning exchange or repatriation of capital (in ing the business, and whether the business Commercial Companies (the Companies certain free zones) Operational support is to be undertaken in Dubai, in other Law) sets out the five forms of companies and business continuity facilities are emirates of the UAE or abroad, are not dealt from which a party wishing to establish readily available with in detail in this guide. a business presence in mainland Dubai A significant disadvantage of operating from Businesses considering establishing a must choose. In addition, an appropriate within a free zone is that businesses are presence in Dubai should first discuss their commercial or industrial license must be restricted as to the type of activities they specific requirements with their legal and obtained from the relevant governmental may conduct outside of that free zone. An tax advisers to ensure the appropriate legal authority prior to the entity commencing overview of some of the major free zones in form is adopted and the required licenses commercial activities. Certain business Dubai is provided later in this brochure. are obtained. This guide reflects the posi- sectors (such as financial services and Having said that, in 2018, the UAE issued tion as of September 2020, following the petrochemicals) may also require further Federal Law No. 19 of 2018 Regarding introduction of the Foreign Direct Invest- approvals from various ministries and/ Foreign Direct Investment (FDI Law) aimed ment Law No. 19 of 2018 and Cabinet Res- or other authorities that regulate specific at opening up the UAE mainland market to olution No. 16 of 2020 issuing the “Positive sectors. foreign investors in certain sectors of the economy where up to 100 percent foreign 1 Limited liability company ownership of companies in mainland Dubai would be allowed. In July 2019, the UAE 2 Public joint-stock company introduced the relaxation of foreign owner- ship restrictions for 122 business activities, FIVE 3 Private joint-stock company specifically in the manufacturing, agricul- forms of tural and services categories, pursuant 4 Partnership company to the FDI Law. This was followed by the companies permitted by (general partnership) UAE Cabinet issuing Cabinet Resolution No. 16 of 2020 containing the full Posi- the COMPANIES LAW 5 Limited partnership company tive List of economic sectors and activities (simple liability partnership) and the requirements for establishing FDI companies in mainland UAE. Some of these requirements include (i) minimum share capital for some activities, (ii) obligations to certain activities in Dubai through a rep- then no need to have a UAE national major- employ advanced technology in respect of resentative office or a branch of a foreign ity shareholder. company as will be further explained in this certain activities; and (iii) compliance with Historically, a practice of entering into guide. certain Emiratization requirements (Emira- certain side agreements has developed tization is an initiative by the UAE govern- Non-commercial activities (including profes- in the UAE in relation to the UAE national ment to employ its citizens in the public sional services) may be carried out through ownership requirements. Pursuant to such and private sectors). a civil company or a sole proprietorship, side agreements, UAE shareholders agree which both have unlimited liability. to assign their profits to the foreign share- Establishing a Business holders in an LLC in return for an agreed Limited Liability Company annual fixed fee. The enforceability of such Presence in Mainland side agreements is not certain, and the The limited liability company (LLC) is the prudent view is that a UAE court might con- (Onshore) Dubai most widely used form of company by sider such side agreements as an attempt The Companies Law applies to all compa- foreign investors looking to conduct com- to circumvent UAE ownership requirements nies, branch offices, and representative mercial activities in Dubai. An LLC is a in breach of the Companies Law and the offices of foreign entities established and private company and its shares cannot be UAE Federal Law No. 17 of 2004 concern- operating in mainland Dubai (i.e. outside offered to the public. Shareholders of an ing the Combating of Commercial Conceal- the free zones). LLC benefit from limited liability status. ment, as amended (the UAE Anti-Fronting The five forms of companies permitted by An LLC has a separate legal capacity that Law). The UAE Anti-Fronting Law techni- the Companies Law are: is independent of its shareholders. The cally entered into force on 31 December 1. Limited liability company liability of each shareholder to the other 2009 and criminalizes the practice of shareholders and to third parties is limited enabling a foreign national to conduct an 2. Public joint-stock company to such shareholder’s capital contribution economic or professional activity prohibited 3. Private joint-stock company to the LLC. The objects of an LLC must not or restricted by UAE laws and regulations. include insurance, banking, or investment 4. Partnership company (general The Companies Law, however, permits of funds for the account of third parties. partnership) shareholders of an LLC to agree on a An LLC must have an initial capital suf- disproportionate economic benefit split 5. Limited partnership company (simple ficient for it to achieve its objectives, and that deviates from their shareholding ratio. liability partnership) the founders of an LLC have the right to Profits and losses of an LLC may therefore determine the amount of such initial capital. Limited liability companies, public joint- be distributed disproportionately among the stock companies and private joint-stock An LLC is required to have at least 51 shareholders (including where the share- companies are the most commonly estab- percent of its shares held by UAE nationals holders are both UAE and foreign nation- lished types of legal entities in the UAE or companies wholly-owned by UAE nation- als). The ratio should be set out in the LLC’s and are also the most commonly used als. An LLC may also have 100 percent of memorandum and articles of association, or invested in by foreign investors. An its share capital owned by Gulf Cooperation provided that not less than 20 percent of overview of these three forms is provided Council (GCC) nationals; however, if any profits are distributed to the UAE national below. Partnership (general and simple non-GCC national becomes a shareholder shareholders. liability) companies are not commonly used in the LLC, the minimum 51 percent UAE The management of an LLC may be com- in the UAE for several reasons, including national ownership must be complied with. the restrictions on foreign ownership and prised of either a single manager or a man- The new FDI Law introduces an exception foreign management. agement board (functioning as a director to the above requirement by providing that and board of directors, respectively, would Alternatively, instead of establishing a local if the LLC can satisfy the requirements of in other jurisdictions). Generally, there are legal entity, a foreign business can carry out the FDI Law and the Positive List, there is no nationality requirements regarding the A public joint-stock company has a sepa- The scope of activities that may be carried composition of the board. rate legal capacity independent of its share- out through a branch of a foreign company holders. Like LLCs, 51 percent of the share is limited to those activities permitted by the Specific conditions may be required to form capital of public joint-stock companies must UAE Ministry of Economy from time to time, an LLC in mainland Dubai. These condi- at all times be held by UAE nationals. GCC which have traditionally excluded trading tions depend on the nature of activities to ownership also satisfies the UAE ownership of goods in addition to certain other service be conducted by the company. It should be requirements in public joint-stock compa- activities.