Company Structures in UAE: Foreign Branch vs Limited Liability Company

Company Structures in UAE: Foreign Branch vs Limited Liability Company

- Greg Hastings

Choosing the right location and company structure in the UAE is dictated by the activities a business wishes to carry out, who its target customers are, and where they are located.

If your activities, products, services and target customers dictate that you must establish a Mainland UAE entity then as a Foreign Company you have two options: to set up as a Limited Liability Company (LLC) or as a Foreign Branch.

What are the main differences between an LLC and a Foreign Branch?

  • A Foreign Branch is owned 100% by the Foreign Mother Company and it will need to appoint a National Service Agent (NSA), sometimes known as a Local Service Agent (LSA) – the NSA/LSA must be a local UAE individual or a Company 100% owned by UAE Nationals.
  • An LLC must have a UAE National (individual or corporate) as the majority (51%) shareholder. This means that the Foreign Investor(s) may hold no more than 49% of the shares in the Company.
  • A Foreign Branch is a direct extension of the Mother Company and as such has no separate legal standing. This means the Mother Company bears full legal, financial and technical liability for the Foreign Branch Office.
  • An LLC is a separate legal personality which limits the exposure of the Mother Company. If a Foreign Company establishes a new LLC in the UAE then new LLC’s Liability is separate from the Mother Company. Shareholder liability in a LLC is, in most cases, limited to the value of their subscription to the Share Capital

What dictates if my company can be a Foreign Branch or an LLC in UAE?

As a general rule this is dictated by the company’s activities. There are some activities in which either company structure is acceptable. Below are some of the main categories and the related rules:

Activity

Limited Liability Company

Foreign Branch

Trading

Must be an LLC

Cannot be a Foreign Branch

Industrial Activities / Manufacturing

Must be an LLC

Cannot be a Foreign Branch

Importing

Must be an LLC

Cannot be a Foreign Branch*

Installation / Maintenance / Repair

Can be either but note that should the company need to import spare parts for their work then they must be an LLC.

Can be a Foreign Branch but cannot import parts. If the company can source the parts from the local market then a Foreign Branch structure is fine

Contracting

Can take either form

Can take either form

Architectual Engineering

Can take either form

Can take either form

consult PRO Partner Group on the correct activity on the licence and the specific requirements

General Consultancy

Can take either form

Can take either form

ADMINISTRATIVE Consultancy

Can be either LLC or Branch in Abu Dhabi but cannot be an LLC in Dubai. Consult with PRO Partner Group for more details on this

Can be a Foreign Branch in Abu Dhabi


* Note that previously Foreign Branches in UAE were able to import spare parts or samples and to make ‘Temporary Imports’ of equipment for movement to other countries from the UAE, this is now not possible and can now only be done using an LLC.

Can I convert a UAE Foreign Branch into an LLC?

There is a process to covert a Foreign Branch Office into an LLC with the DED and other UAE Government departments. The process this involves an effective share transfer, termination of NSA, reconstitution of new legal documents (MOA) and engagement of a UAE Local Partner. For more details on this process please Contact Us [Link to Contact Form Below].

What are the cost differences between a UAE Foreign Branch and an LLC?

  • Government fees: The government fees for a Foreign Branch are marginally higher than the government fees for an LLC, as the Foreign Branch requires registration with the Ministry of Economy.
  • Ministry of Economy Deposit: For a Foreign Branch a bank guarantee of AED 50,000 is required to be deposited with the Ministry of Economy. This guarantee must remain in place for the lifetime of the Branch and may be returned upon deregistration.

What are the tax differences between a UAE Foreign Branch and an LLC?

  • A Foreign Branch will have to account for its profits to the Mother Company and its income may therefore be taxable under the laws of the local tax jurisdiction of the Mother Company.
  • An LLC is a UAE company and therefore is taxable under UAE tax which is currently 0% Corporation Tax and 0% Income Tax.
  • Note that if the income from a UAE LLC is repatriated by a foreign shareholder as part of a group then the income may be subject to the prevailing tax rate in that foreign country if the income is taken as dividend. Profit generated in the UAE will be taxed at 0% and will not be taxed again if a double taxation treaty agreement exists between the two countries concerned.
  • We recommend seeking professional advice on your tax position before committing to either structure.

How can PRO Partner Group help?

For assistance with queries on setting up and LLC or Foreign Branch in UAE, or converting a Foreign Branch to an LLC and for any other assistance in setting up in UAE or entering the market in Dubai or Abu Dhabi please contact a member of the team at PRO Partner Group by completing the contact form below or call us on +971 (0)4 456 1761 in Dubai or +971 (0) 2 448 5120 in Abu Dhabi.

Get in touch with Greg Hastings

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