Types of company formation in the UAE and key considerations

Once you have decided to form your company in the UAE, the number of choices can be daunting. As with all business essentials, it is imperative that your choice of business structure is determined by the exact requirements of the business. Given below are the types of business structures available in the UAE

1. Free Zone Entities – allow 100% foreign ownership of the companies, and are exempt from corporate and personal taxes for a specified number of years. They are most commonly used to import/re-export or for industrial and/or manufacturing companies. Many service-related companies also use the free zones as their base of operations.

 The key point to note is that these entities are not licensed to do business outside of the free zones.

2. Mainland Company: It is compulsory to nominate a ‘local sponsor’ in this form of business. This is only to ensure that there is a liable person, in the country, who is able to provide answers and direction in any event where the foreign owner is unable or unwilling to assist. The limited liability company is set up with the local sponsor owning 51% of the shares, however, under companies law, the profits of the corporation need not be distributed in proportion to the shareholder holdings. In essence, the local sponsor is paid a yearly fixed fee to use his name while the resident director/owner and the foreign owner manage and distribute the profits at their will.

3. The professional license: Allows 100% of the shares to be allocated in the name of a foreigner and the local sponsor is only designated a ‘local service agent’ role. This entitles him to a yearly fixed fee for his role as a sponsor in the trade license. The owner of the license must be educationally qualified in the professional service, which they intend to provide.

4. A representative office license: This allows the company to engage in marketing and gathering information on behalf of a parent company. In this case, there is a requirement to have a local service agent, who is not, however, obliged to be a shareholder of the company.

5. Offshore entity: This type of entity helps you to run your business or asset ownership in the Middle East in the most profitable manner. Especially because you avoid the cumbersome process of having the offshore incorporation company documents attested by various embassies and Ministries of Foreign Affairs. All UAE offshore incorporations require an agent. The offshore package offered by any service provider stipulates that the agent representing the service provider would act as a link between the newly formed offshore enterprise and the local government.

All companies registered in the UAE except an offshore entity require a physical office, we at ECA are able to assist you in finding an office or to arrange for a lease for the incorporation process.