April 2021

Guideline to registering your business in the UAE Guideline to registering your business in the UAE

The country’s business-friendly regulations ensure a seamless approach to obtaining a trade license and starting a company.

Many people are attracted to the start-up world, despite the But before you ditch your day job, bear in mind that obtaining a inherent risks associated with going it alone. Indeed, entrepre- trade license – and in some cases, incorporating your company neurship offers rewards and opportunities, which are not – is a must before you can conduct business activities in the available to wage earners. UAE. There are a number of routes you can take in order to register your business. However, the procedures and fees In the UAE, several legislative reforms have been introduced in related to setting up a business will vary depending on the type recent years to support small and medium businesses. Across of business structure you choose; and the emirate or free zone the Middle East and North Africa, the country ranks first in terms in which your company is registered. of ease of doing business and 16th globally; and first in the GCC region in providing a regulatory environment that is conducive to starting a business, according to Bank’s 2020 Doing Business report. WHY REGISTER A BUSINESS

The answer is simple: in the UAE, no enterprise is allowed to engage in any form of commercial activity without first obtaining a trade permit. As part of the licensing process, companies have to register with the regulatory agency in its respective emirate, submit supporting documents and pay the required fees.

Operating your business within the confines of the UAE law will prevent your company from being slapped with fines, which could range between AED 5,000 and AED 50,000 (USD 1,360 and USD 13,605), depending on the violation.

Registering your company also presents other benefits:

• Intellectual property protection – As a commercial entity duly recognised by the UAE government, your business name is safeguarded. This is particularly important for start-ups that want to carve out a niche in a competitive market because your company name is what distinguishes you from other brands. However, it is worth noting that the protection you receive is limited. For example, your name will only be protected within the UAE and any company overseas can use it, without obtaining your consent, unless you opt to expand the scope of your IP protection.

• Protect your assets – For limited liability companies (LLCs), business owners can enjoy limited liability protection. Put simply, you, your managers and employees will not be held personally responsible for any debt or financial obligation incurred by the business, in the event the company is deemed insolvent. Sole proprietors, however, are personally liable for all the company’s obligations.

• Attract big-brand clients – Obtaining a trade license increases your company’s credibility. It also makes your business more attractive to both government-related entities and multinational companies, which are looking for contractors to fulfil major contracts.

• Attract lenders and investors – Similarly, financial institutions and investors, such as venture capitalists, would be more inclined to put their money in your business, if you are a registered company. Private equity firms, in particular, want the protection of incorporation when looking for companies in which to invest. TYPES OF BUSINESS STRUCTURES

Federal Law No. 2 of 2015 concerning Commercial Companies (also known as the new UAE Commercial Companies Law) – and the subsequent amendments which were introduced on 1 December 2020 and will take effect on 30 March 2021 – governs the operations of foreign businesses in the country. There are seven business structures that are legally recognised by the UAE government. Previously, the Commercial Companies Law required that each company set up in the UAE under these structures must have a UAE national shareholding of 51%. Companies established in free zones are exempt from this rule, more on that later. However, with the introduction of the amendments in 2020, onshore companies can now have full foreign ownership without the need for a UAE national shareholder or agent.

1. General Partnerships – Companies established only by UAE nationals. This may have two or more general partners who are jointly and unlimitedly, to the extent of their personal assets, responsible for the company’s liabilities.

2. Limited Partnerships – This structure consists of an active partner who oversees the business’ daily operations, and a silent partner whose involvement is limited to providing capital to the business.

3. Joint Ventures – An ideal solution for foreign companies seeking to explore a local market. Under the JV structure, a foreign company enters into a contractual agreement with a local company that is licensed to engage in a particular commercial activity.

4. Public Joint Stock Company (PJSC) – This is an organisation whose capital is divided into negotiable shares of equal value. A partner shall be liable only to the extent of his share in the capital of the company, in accordance with the UAE Commercial Companies Law, which requires the company to have a minimum capital requirement of AED 10 million (USD 2.72 million), of which 25% must be settled on subscription.

5. Private Joint Stock Companies – This entity requires a minimum of three founding members who, between them, fully subscribe to a minimum capital of AED 2 million (USD 544,200). The shares of private joint stock companies may not be offered for public subscription and can only be converted into public joint stock companies if (1) the company has operated for two or more financial years; (2) the shares are fully paid up; (3) the company has achieved net profits distributable to shareholders of an average of at least 10% of its capital during the two years preceding the application to convert; and (4) a majority of the shareholders holding at least 75% of the company’s shares adopt a resolution of the extraordinary general assembly to convert. 6. Limited Liability Companies (LLC) – An LLC is formed with a minimum of two and maximum of 50 partners. Each partner’s liability is limited to the extent of the amount of money that he or she has invested in the company. Currently, there are no minimum capital requirements under the Commercial Companies Law, but authorities will expect the LLC to be established with a sufficient level of capital to conduct its proposed activities.

7. Sole Proprietorship – A legal entity owned by one individual, who is personally liable for his or her company’s liabilities. This type of establishment can conduct commercial activities or professional activities in the emirate where it is registered. Under existing laws, there are certain business activities that only UAE and GCC national are allowed to conduct, such as trading, import-export, real estate development and manufacturing. However, expatriates can form Sole Proprietorship only for providing professional activities, such as medical and educational services, as well as certain types of consultancies – engineering, architecture, management, auditing, accountancy, IT, and legal.

Free Zones

Free zones (FZ) have cemented the UAE’s status as a commercial hub in the Middle East. Currently, there are more than 30 FZs, or special economic zones, across the country and more than half of which are located in . These zones specialise in a wide range of sectors including aviation and logistics, media, ICT, gold and jewellery, finance, healthcare, clean energy, automotive, floriculture, education and biotechnology.

An FZ license offers several financial incentives, such as:

• 100% foreign ownership • zero import and export taxation • fast-track business set-up and licensing • 100% repatriation of capital • immigration services and low-cost operations • zero corporate tax for 15 years, which is renewable for another 15 years • zero income tax

However, FZ companies may only operate within the boundaries of the special economic zones and are generally limited to performing only the activities listed in their trade license. If an FZ entity chooses to operate outside these areas, it must adhere to the requirements of the UAE Commercial Companies Law. TYPES OF LICENSES AND HOW TO REGISTER

Trade licenses in the UAE fall under three categories. These licenses are dependent on the nature of the business activity your company plans to undertake.

1. Commercial – issued to companies that will engage in any kind of trading activities;

2. Industrial – issued to companies that will engage in manufacturing or any industrial activity; and

3. Professional – issued to service providers, professionals, artisans, and craftsmen.

Business registration

All onshore (non-free zone) companies must submit their commercial license application to the Department of Economic Development in the emirate they plan to register. However, business licenses for specific industries must obtain approval from the concerned ministry. Banks and financial institutions, for example, are regulated by the UAE Central Bank; insurance and financial services industry companies must get the approval of the Ministry of Economy and Commerce; firms in the fields of pharmaceutical and medical products have to be licensed by the Ministry of Health; and manufacturing companies must be approved by the Ministry of Finance and Industry.

Each emirate follows its own process and set of requirements for business registration. When planning your trade license application, it would be in your best interest to check the following government websites for the supporting documents required and registration procedure involved:

• Abu Dhabi Department of Economic Development • Dubai Department of Economic Development • Sharjah Economic Development Department • Ras Al Khaimah Department of Economic Development • Fujairah Department of Industry and Economy

Different free zones also have different requirements. Free zone authorities provide business set-up services, following the submission of the required documents and the payment of fees. These agencies can arrange for the registration of the company, the trade license acquisition and the visa and immigration documentation. Such services prove to be popular among entrepreneurs looking to start their business, but may not be familiar with the bureaucracy involved. Here is a rundown of all the free zones located in each emirate:

Abu Dhabi • Abu Dhabi Airport Free Zone • Abu Dhabi Ports Company • Khalifa Industrial Zone • Masdar City • twofour54 • ZonesCorp

Ajman • Ajman Free Zone Authority

Dubai • Dubai International Academic City • Dubai Airport Freezone • Dubai Auto Zone • Dubai Science Park • Dubai Flower Centre • Dubai Healthcare City • Dubai International Financial Centre • • • Dubai Maritime City • • Dubai Multi Commodities Center • Dubai Outsource Zone • Dubai Silicon Oasis • • Enpark • Gold and Diamond Park • International Humanitarian City • • Free Zone

Fujairah • Fujairah Creative City • Fujairah Free Zone

Sharjah • Hamriyah Free Zone • Sharjah Airport Free Zone

Ras Al Khaimah • RAK Free Trade Zone • RAK Ports

Umm Al Quwain • Umm Al Quwain Free Zone

The UAE government’s commitment to providing an enabling environment that promotes entrepreneurship is vital to its sustainable economic agenda, as small and medium enterprises (SMEs) account for more than 60% of the nation’s non-oil GDP and 90% of employment in the private sector.

By 2021, when the UAE celebrates its 50th founding anniversary, SMEs will have a more significant economic impact, representing 70% of the country’s economy.

Disclaimer: This Guide is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.