Key Questions to ask from the outset that will dictate the best method of setting up your Company:
– What is your activity and where are your target market?
– Do you need a physical presence, are you selling products or services?
– Do you want access to Government Companies or Oil and Gas?
Should I set up in a Freezone?
The Free Zone vs Onshore question is a key issue that new companies in the UAE often deliberate.
The Free Zones are a very popular route to market for many foreign companies wanting to operate in the UAE (there are circa 40 Free Zones throughout the Emirates). These dedicated areas offer a foreign company 100% ownership and the set-up costs are often cheaper in the early stages. However, Free Zone companies can only operate within that Free Zone they cannot legally trade with Onshore companies or government entities.
Many companies are not told this and are encouraged to set up in a Free Zone when they actually should be based Onshore within the UAE. Many companies can often ‘get away with’ this kind of set up but be aware there can be heavy sanctions in found in breach, you will not pass pre-qualification checks if you are looking to work with government organisations and other counterparties may seek to use this as an excuse not to pay invoices or contracts if they realised you do not have the correct trade licence to work Onshore.
Free Zone can be the right choice for many businesses but the key question will be ‘where are your clients’ and ‘where is your target market’ as this will dictate which Free Zone, or Emirate you should establish in.
If you are undertaking services outside of the Free Zone – for example providing consultancy services at a client’s place of work, selling products to UAE residents or services to UAE Companies and if you want to target government or quasi-government organisations then you need to be an Onshore company, such as an LLC (Limited Liability Company) or a Foreign Branch.
LLC vs Foreign Branch?
Limited Liability Company (LLC)
A Limited Liability Company (LLC) is the most commonly used vehicle for setting up in the UAE as a foreign investor and is often the only choice for many business activities.
An LLC can be formed by a minimum of two and a maximum of fifty shareholders whose liability is limited to their shares in the company’s capital. At least 51% of the share capital of the company should be owned by UAE National(s) or a 100% owned UAE Company (Sponsors).
Profits can be allocated in different percentages as agreed by the Sponsors and Foreign Shareholders of the company. With the approval of the Sponsors, it is possible for the legal documents of an LLC to contain the following provisions designed to protect the interests of a foreign minority shareholder; appoint all directors, appoint the general manager and through a power of attorney the entire business operations of the company can be exclusively managed and controlled by the foreign shareholder(s).
As far as further safeguarding of the Foreign Shareholders interest is concerned, this can be done by way of shareholders resolutions and certain related security documents.
Foreign Branch Office
Setting up a branch office of foreign company in Abu Dhabi or Dubai is straight forward and an attractive prospect for clients in that it can be 100% foreign owned. A branch office is not a separate legal entity, but rather an extension of the parent company abroad. As such, a branch office will, when conducting business in the UAE, be acting on behalf of the foreign parent and as such be linked to all contracts entered into in the UAE. Depending on the parent companies tax jurisdiction, profits earned by the branch will be taxable in the home country.
In order to establish a branch office, a National Service Agent (NSA) will need to be appointed. The NSA must be a UAE national (or a 100% UAE owned company). The NSA is normally in charge of dealing with local, and Federal authorities for the purposes of obtaining necessary documentation for the branch office and its staff; such as approvals, licences, labour cards and visas.
The NSA is not a shareholder and does not have any rights in the company. The NSA will enter into a service agreement with the branch office, under which the agent will provide services in consideration of the payment of a fixed annual fee, or percentage of the profits or transactions undertaken by the branch office. This is a matter for negotiation.
The Branch can only undertake certain business activities and of those which fall within its main objects and scope of business as outlined in the foreign company’s articles of association to ensure that the business activities that the foreign company is intending to carry out, and that it is competent to carry out the activity in the UAE.
PRO Partner Group provide advice in the early stages of the company formation decision process. We can assist clients looking at a Free Zone set up and also assist with Onshore formation.
We provide Onshore clients with a corporate entity sponsor rather than an individual local sponsor. This offers added protection under Companies Law and we ensure that the foreign company has one hundred percent beneficial ownership, management and financial control and assets and intellectual property is protected.
Our local partnership fees are based on risk, activity and number of personnel – they are an agreed fixed flat rate to give clients security and visibility and we have a break clause for clients to transfer away if they wish at any time.
As well as formation of companies we also undertake PRO work obtaining the relevant licences, visas, approvals and renewals etc.
We have formed over 200 Limited Liability Companies, Representative Offices and Branch Offices and we collectively have over 40 years of experience in the region.