How to set up a business in the UAE

02 June 2016

How to set up a business in the UAE

Firstly, there are certain key questions to ask from the outset and these answers will dictate the best method of setting up a company in the UAE:

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 Free Zone?

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, and 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. However, 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. 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.

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 registered as 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 one and a maximum of 50 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 shareholder resolutions and certain related security documents.

Foreign Branch Office

Setting up a branch office of foreign company in Abu Dhabi or Dubai is straightforward 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.The business activities have to fall within its main objectives 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 are competent in the UAE.

To work directly with the UAE’s national Oil and Gas companies, it is necessary to be registered, onshore in Abu Dhabi with a Trade License issued by the Department of Economic Development (DED) and to have a special approval from the Supreme Petroleum Council (SPC).

What is Supreme Petroleum Council approval?

An approval is shown on a company’s Trade License as an additional activity called: Onshore And Offshore Oil And Gas Fields And Facilities Services. The Supreme Petroleum Council does not charge any fees for applications/approvals, although DED (Department of Economic Development) fees will apply. This activity is required for all activities in relation to oil and gas, from construction and drilling, through to catering and trading of equipment.

Supreme Petroleum Council approval will also be required for obtaining permits from the Critical Infrastructure and Coastal Protection ‎Authority (CICPA), to enable companies to access the oil fields.

How to get Supreme Petroleum Council approval?

This is somewhat of a mystery and grey area as far as availability of information is concerned. The published required documents for the application are as follows:

Original letter from the DED directed to the Supreme Petroleum Council
Original letter from the Abu Dhabi Chamber of Commerce and Industry (ADCCI) directed to the Supreme Petroleum Council

Traditionally, the application process could take some months; however during the last few years the speed of application has increased significantly to generally a couple of weeks; although it can also be a matter of days.

It is important that you choose the right local partner and set up in the correct way to enable your business to be SPC approved.

Although the full approval process requirements are not openly publicised, it is observed that to get SPC approval, that you must be partnered with an Abu Dhabi company or an Abu Dhabi born Emirati, that company/person must be also of good standing and also not an employee of the ADNOC Group of Companies. Pro Partner Group meets all of these requirements.

Can free zone companies get Supreme Petroleum Council approval?

Generally the answer is no. Freezone companies cannot get Supreme Petroleum Council approval.

PRO Partner Group is one of the leading company formation specialist in the UAE dedicated to helping foreign companies set up their UAE businesses correctly and cost effectively - we have a strong local presence and focus in Abu Dhabi and particularly assisting Oil and Gas and Engineering Companies.

By understanding our clients’ activities and goals for doing business in the UAE, PRO Partner Group helps them to understand the most suitable routes to market, including the risks, regulatory requirements, and ongoing commitments so that they can make an informed decision that is right for their business and its objectives.

We provide a professional, dedicated corporate sponsorship platform for onshore companies with a focus on providing the foreign party with security, control and 100% of the profits. We can also manage the incorporation process to ensure a smooth setup and following establishment of the trade licence we can assist with Resident Permits, Family Visa, Offshore Passes and all other Government Liaison, PRO and HR Services.