PRO Partner Group article in Abu Dhabi Week about How to setup a business
Whether you have an idea in your head, or already have a business plan, our guide to the first steps can get you started on the path to being your own boss.
Small to medium businesses are vital to the UAE economy with official figures last year stating that the sector contributes more than 60 percent to the UAE’s non-oil GDP. If you’ve had your one million dirham idea, and even though times are tough, plan to start your own business - where do you begin? Here’s our quick guide:
Your first step in setting up a business is to determine the nature of what you want to do. James Swallow, director of PRO Partner Group, a company formation and support services firm, says, “There are key questions to ask from the outset and these answers will dictate the best method of setting up in the UAE.”
- What is your activity and where is 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?
The question of setting up in a Free Zone area versus Onshore is a hot topic. James explains, “The Free Zones are a very popular route for many foreign companies wanting to operate in the UAE. It offers a foreign company 100 percent ownership and the set-up costs are often cheaper. However, Free Zone companies can only operate within that zone, and cannot trade with Onshore companies or government entities.
“You will not pass prequalification 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. The key questions to ask here are: ‘Where are my clients?’ and ‘Where is my target market?’ as this will dictate which Free Zone or emirate you should establish in,” continues James.
“If you are undertaking services outside of the Free Zone – for example providing consultancy services at a client’s place of work or if you want to target government organisations – then you need to be registered as an Onshore company, such as an LLC (Limited Liability Company) or a Foreign Branch.”
Nature of business
A large part of setting up is determining the nature of activity, which will determine the requirements, fees and type of licencing. Two common types of business are LLC and Foreign Branch.
Limited Liability Company (LLC)
An LLC is the most common set up for foreign investors and often the only choice for business activities.
“An LLC can be formed by a minimum of two and a maximum of 50 shareholders whose liability is limited to their shares in the company’s capital. At least 51 percent of the share capital of the company should be owned by a UAE national(s) or a 100 percent UAE-owned company (sponsors),” says James.
He explains that profits can be distributed as agreed upon by the sponsors and shareholders. To protect the interests of the foreign minority shareholder, it is possible to obtain legal documents that appoint power of attorney to the foreign shareholder to allow them to exclusively manage operations.
Foreign Branch Office
Setting up a foreign company branch here – an extension of a parent company abroad – is a fairly straightforward process, and it can be 100 percent foreign owned.
James says: “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 company’s tax jurisdiction, profits will be taxable in the home country.” In order to set up such an office, you’ll need to appoint a National Service Agent (NSA) that must be a UAE national or a 100 percent UAE-owned company. The NSA does not have any rights within the company but is instead in charge of dealing with authorities to obtain documents for the office and staff including licences.
Be aware that a foreign branch can only undertake certain business activities. These must fall in line with the company’s main objectives and scope of business, as specified in the foreign company’s articles of association. This ensures that company is competent at carrying out these relevant activities in the UAE.