Starting a Business in UAE
Running a business is like running a marathon – it is a long and winding path and only the ones with the stamina and the discipline make it to the finish line. A good runner and a good business man has a set plan and a set goal and each milestone is calculated to achieve optimal success. For a business, expansion is a significant milestone for a company, whether it is domestic expansion or international expansion. International expansion, however, brings with it unprecedented challenges like incorporation of the business in an entirely new country with an alien legal mechanism which can prove a daunting task.
Today, the UAE is probably the most enticing country for a business looking to establish a global presence. The UAE has transformed into a global trade hub, especially its emirates of Dubai and Abu Dhabi, offering access to a truly international clientele and a myriad of business opportunities for entrepreneurs. However, incorporation of a company in the UAE can seem intimidating for first-time entrepreneurs as the choice between establishing a business in the Mainland or in Free Zone can be hard to make.
Here is a quick guide on starting a business in the UAE.
The Legal Mechanism
A company in the UAE has to be incorporated as per the Federal Law No. 2 of on Commercial Companies. This law governs the formation and management of companies as well as lays down forms that a company may take.
Article 8 of the law defines a company as “a contract under which two or more persons are committed to participate in an economic enterprise with the objective of profit realization by contributing a share in capital or work and dividing between themselves the profit or loss resulting from the enterprise.”
Article 9 of the law provides for the forms of Companies that may be incorporated under the law. These include:
- Joint Liability Company
- Simple Commandite Company
- Limited Liability Company
- Public Joint Stock Company
- Private Joint Stock Company
Companies are, therefore, required to adopt one of these forms. Otherwise, they shall be considered null and void.
The Process of Incorporation
The process of incorporation is fairly simplified in the UAE and can, for the most part, be completed online through the official portals. The process can be divided into 7 parts:
Before establishment of business, the legal form of business must be chosen. This depends on the forms of companies mentioned in Article 9 of Federal Law No. 2 of on Commercial Companies and all conditions therein will be applicable. Selecting a business activity requires thought as this business activity and legal form will further govern the rules and regulations applicable to the business and the process that the business may have to adopt for registration. The license type will depend on the business type.
Some business activities like establishing of legal consultancy services, hospitals, oil related services etc. require prior permission of the concerned ministries in the UAE.
The organization must select for itself a trade name which it shall use in its operation. The selection shall be made keeping in mind the trade name guidelines issued by the Department of Economic Development (DED). A few of these guidelines include:
- It should be a proper name and should not contain obscene or indecent words and should not be offensive to the general public.
- The name should not include Allah’s name nor God or His divine attributes.
- Family names, tribes’ names and other persons’ names should not be used as a trade name unless the name belongs to the licensee concerned.
- The name should not be the same as used by any of the active brands in the Emirate of Dubai or government projects, or those names used by any of the international brands.
After selecting a trade name, it must be reserved with the DED by filing an application. A trade name reservation costs AED 620 and the certificate issued by the DED is valid for a six (6) months. DED has the right to cancel or change a business name if it is found similar to another name.
- As mentioned above, all businesses in the UAE must either be completely owned by UAE nationals or 51% of share capital should reside with a UAE national who is known as a local sponsor.
- This requirement of ownership may not be applicable if:
- The company is established in any of the Free Zones in Dubai
- In cases where the law requires 100% local ownership.
- Where a company wholly owned by the Gulf Cooperation Council (GCC) enters into a partnership with another company wholly owned by UAE nationals.
- In certain activities, 100% ownership for GCC nationals or entities is permitted.
- In artisan or professional companies in which total foreign ownership is allowed.
- In the case of a foreign entity registering a representative or branch office in the UAE.
- In the case where a professional license is being applied for such professions such as architect, doctor, artist etc.
- However, even in cases where 100% foreign ownership is allowed, a local national must be taken as ‘service agent’.
- A local sponsor/agent can charge a sponsorship fee for the same.
- A 100% UAE company can also be a sponsor.
Initial Approval An Initial Approval Certificate is a document which says that the Dubai DED has no objection to the starting of the business. Documents required for the Initial Approval of all Legal Forms:
- Business registration and licensing form.
- Copy of the licensee’s passport/ ID.
- Copy of the applicant’s residence permit/ visa (for non- GCC nationals).
- No Objection Certificate from the applicant’s sponsor (for non-GCC nationals) to practice a business activity (Not applicable for partner or investor).
- The company’s articles of association.
- Feasibility study of the project.
- The parent company’s board resolution to open a branch in Dubai.
- Letter of authorisation of the managing director.
- Copy of the parent company’s commercial registration certificate.
- Copy of the parent company’s memorandum of association (MOA).
- Copy of the parent company’s license.
To obtain a trade license, an Initial Approval Certificate is required. The Certificate contains details of partners, legal type and activities of the license. It is valid for six months and renewable with a cost of AED 120 provided that the required documents are valid.
Memorandum and Local Service Agent Agreement
Depending on the legal form of the company, there may arise the need to draft and sign a Memorandum of Association (MOA). In some cases, in place of an MOA, a Local Service Agent (LSA) / Corporate Agent agreement with a UAE national, who will represent the business with regards to licensing and compliance will need to be signed.
The MOA shall be drafted as per Article 42 of the Federal Law No. 2 of 2015 on Commercial Companies and any other guideline issued by the DED. It should be made keeping in mind the following:
- It shall be made in Arabic and attested by Notary Public.
- It shall be registered in the Commercial Register with competent authority.
- Any changes made must by communicated to the competent authority and the Registrar in writing within fifteen (15) days of occurrence of change.
- MOA shall necessarily include the following:
- The full name of each partner, his nationality, date of birth and domicile;
- The name, address and trade name, if any, of the company and the objective for which it was established;
- The head office of the company and its branches, if any;
- The capital of the company and the shares of every partner and the estimated value of such shares, the means by which they are assessed and the date of their falling due;
- The commencement date of the company and the date of termination, if applicable;
- The method by which the company is to be managed, with particulars of the names of those persons who may sign on behalf of the company and the extent of their authority;
To obtain a trade license the business must have a physical address. The business must enter into a tenancy agreement and lease office spaces. The contract must be registered and attested with Ejari. For this, the initial approval certificate and any other documents are to be submitted to any Real Estate Regulatory Authority (RERA) authorised centre. Once the tenancy contract has been attested by the RERA, the same must be submitted to the DED.
The above procured documents must be submitted to the DED along with an BR1 application form for a trade license. There are six types of license:
- Commercial – Commercial licenses are issued to the owners of businesses practising activities such as general trading, contracting, real estate, transportation, healthcare etc. it requires a national partner.
- Agricultural – Agricultural licenses are issued to the owners of arable and livestock farms, and fisheries.
- Occupational – Occupational licenses are issued to any person who independently practices a craft for profit, and is dependent on their physical effort, or use of tools and equipment, such as carpentry, blacksmithing, printing, etc.
- Industrial – Industrial licenses are issued to owners of factories, of whatever type, which manufacture products for the purpose of selling them for profit. Industrial license requires a national partner.
- Professional – Professional licenses are issued to individuals whose work depends on their mental skills, intellectual abilities, academic achievement and scientific talents, such as consultants, lawyers, auditors, etc. Professional License requires a local service agent.
- Tourism – A tourism license is issued to owners of facilities that specialise in tourist activities, such as hotels, travel agencies, restaurants, cruise boat rental, tourist camps, floating restaurants, etc.
Once a trade license has been obtained the business can start its operations
Business registration and licensing procedures cannot be started from outside UAE as they are associated with smart services which require Emirates ID. The procedure of issuing a license of all activities and legal forms is fairly straightforward. As an incentive to entrepreneurs, the UAE government has also introduced an Instant License feature for issuing the trade license in one-step without the need for either the MOA (Memorandum of Association) or an existing location for the first year only. All activities that don’t need external approvals can go for an instant license. It can be availed online or in person. The difference between Mainland and Free Zone law is miniscule with the Free Zone offering 100% ownership in some cases. Otherwise the process for starting a business remains the same in both.
Starting a business in the UAE brings with it innumerable opportunities that can prove profitable for businesses. The process has been simplified and can be completed quickly with the aid of an expert. Entrepreneurs must carefully select the type of business suited to their activity and accordingly move forward with the process. After all, running a business is like running a marathon – a good start determines the race.