The UAE is always considered an ideal investment destination. The country encourages private sector growth and competition and has strict monopoly regulations.
With a favorable business environment and excellent infrastructural facilities, the UAE ranks high globally for the ease of doing business. The country’s political and social stability and attractive investment incentives make it a global free economy that appeals to companies interested in UAE company setup and business expansion.
There are a variety of options available to international companies and individuals to set up and operate their business in the UAE.
Key Considerations for Business Setup in UAE
When setting up a business in the UAE, investors should take into account several critical factors to ensure successful UAE company registration:
Licensing Jurisdiction:
The UAE primarily has 2 different kinds of licensing jurisdictions- Mainland and Free Zone. Choosing the right UAE business licensing jurisdiction depends on how you intend to conduct your business within the UAE.
- Mainland: Mainland is basically a licensing area outside the free zone and is regulated by the Department of Economic Development in each Emirate. Previously foreign investors were not permitted to own more than 49% of limited liability companies in the mainland and required 51% UAE local partnership. However, further to the dynamic amendments to the Commercial Companies Law in 2021, the UAE now permits foreign investors to own 100% shares in companies for more than 2000 business activities in the mainland.
- Free Zones: By and large a free zone is classified based on the activities they permit. Free Zones are not required to comply with UAE local ownership requirements. Most of the free zones are administered autonomously. Although free zones permit 100% foreign ownership, there are certain restrictions for companies trading on the mainland.
Business Activity:
It is important for companies to obtain appropriate UAE business licensing for their specific activities. It is illegal to carry out business activities for which one is not licensed, and this can also lead to penalties.
Business Structure:
A subsidiary or branch or a standalone company- one must finalise what kind of business structure they would like to incorporate in the UAE for their immediate and future needs. Although most licensing jurisdictions permit the conversion of an entity type, it may not always have the exact desired effect, especially from a tax point of view.
Office Space:
Office space is another factor that affects business setup in the UAE. Some companies would like to have a full-fledged operational base in the UAE and would like to have proper office space. However, smaller businesses which are here to test the market would prefer to have a small or serviced office. The main consideration with office space is that the company’s visa quota is dependent on the office space. In addition to this, most banks in the UAE prefer to open accounts for companies that have a proper office in the UAE.
Bank Accounts:
Although opening a bank account for a business is not a mandatory requirement, it is essential for operational purposes and completing the UAE company setup process . For an international company opening an account with their overseas bank’s UAE Branch or an associate bank is always the preferred option. Alternatively, businesses can open an account with one of the local banks in the UAE. Opening a bank account in the UAE can sometimes be a challenging and time-consuming process
Employment regulations:
Employers are required to have a clear understanding of UAE Labour regulations and requirements. Apart from certain free zones (eg: DIFC, ADGM) which have their own employment regulations, the UAE Labour Law governs the rights of the employees working in the private sector.
Tax:
As part of the UAE’s commitment to international standards for tax transparency and cementing its position as a global hub for business and investment the UAE introduced Corporate Tax. Businesses will become subject to UAE Corporate Tax from the beginning of their first financial year which starts on or after 1 June 2023 and the Corporate Tax rate currently stands at 9%. It is thus advisable for international companies to obtain specific tax advice prior to opening their businesses in the UAE.
Setting up a company in the UAE requires careful consideration of licensing, business structure, employment laws, and tax obligations. For personalized guidance on UAE business licensing and company registration, contact our Corporate and Commercial Department.
This article does not constitute legal advice and should not be relied upon as such. For any further information or any queries, please contact our Corporate and Commercial Department by clicking here.
Senior Legal Consultant, Corporate & Commercial