A valuable summary of company setup requirements, taxes, and zones in the UAE.
- The UAE provides an excellent opportunity for using it as your base to expand internationally of which the following reasons are most notable.
- The UAE is geographically very well situated and provides access not only to the UAE and the GCC but to the whole of Europe and the East. It is said that 1/3 of the world population is within a four-hour flight with 2/3 of the population being within an 8 hour flight from the UAE.
- Over recent years the government of the UAE, in particular Dubai, has made huge strides in ensuring the region becomes less oil dependent and more focused on service delivery. Dubai is a technology driven business hub with access to the world. The country provides state of the art infrastructure which includes ports, airports, roads as well as commercial office infrastructure. Traveling within the UAE is also very easy as transportation includes Uber, Dubai taxis, Dubai bus service as well as the Metro.
- Dubai is also the region's culinary and culture hub providing for a cosmopolitan atmosphere. It has state of the art amenities, world class restaurants and hotels and a large amount of activities to keep yourself busy. Popular areas include, Bur Dubai souk market, downtown Dubai, Dubai Marina, the Palms, Entertainment parks and many many more.
- The UAE also has two world class airlines. Both Emirates Airways and Etihad operates internationally and flies directly from South Africa and many other regions in the world. Dubai provides an excellent access point to both the Middle East as well as the rest of Europe and the Far East.
- The government of the UAE understands what is necessary to grow an economy. Regulations in the UAE makes it effective and enticing for foreigners and foreign entities to expand into the UAE and globally. Its economy and business structures are geared towards accommodating businesses wishing to provide services both locally and internationally.
- As part of your expansion you know that specific legal structures will provide specific outcomes. Knowing this you are well versed and understands your expansion can take either of the following legal forms:
- Mainland Company;
- Free Zone Company; or
- An Offshore Company.
- Your structure will be mainly focusing on Free Zones with Mainland operations and Offshore Companies being implemented as and when the need arises.
- WHAT IS AN OFFSHORE COMPANY STRUCTURE
- TBC
- MAINLAND VS FREE ZONE GENERAL FEATURE OVERVIEW
- FREE ZONE SPECIFICS
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Free Zone |
Mainland |
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Ownership |
Foreigners or expats can hold 100% of the issued share capital of the company. |
Foreigners can only hold 49% of the issued shares requiring a local sponsor to hold the remaining 51%. |
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Office space |
Primary office letting or ownership is advisable to be in the specific free zone. However alternative arrangements can be made. |
Must hold office space in the Mainland. |
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Business activities |
The company can choose from a listing of business activities specific to each Free Zone. Not allowed to sell physical items or do manufacturing in the Mainland without an additional license. |
Can do business anywhere in the UAE including Free Zones. No restriction on any business activities. |
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Audit |
Depending on the Free Zone this may be a requirement. |
Mainland Companies must prepare an audit at the end of the financial year. |
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Visas |
Residency visa are allocated depending on the size of the office space occupied. |
Residency visa are allocated depending on the size of the office space occupied. |
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Capital requirements |
This requirement is dependent on the Emirati as well as the specific free zone. |
This depends on the legal form of the business.
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Privacy/Secrecy |
In general Free Zones do not disclose company information. |
Upon request the general public may obtain details of a mainland company. |
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Govt Authorities for Company setup |
Free zones have their own rules for approval of any company inside its jurisdiction and they don’t require approvals from authorities outside of the free zone.
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Setting up a mainland company requires involvement of the DED, Ministry of Labor, Dubai municipality and ministry of interior amongst others. |
- FREE ZONE SPECIFICS
- Free Zones usually formed with the aim of providing a solution to a specific industry. For instance, the DMCC is focused specifically on international trading and started out as a minerals and commodities Free Zone (Dubai Minerals and Commodities Centre). However, Free Zones are open to all forms of business.
- You already know which Free Zone you have partnered with as your base in the region. Your strategy is clear and tangible your success is imminent.
- As there are so many Free Zones in the region to choose from a summary of the most pertinent Free Zones are including below which includes the workings of such a Free Zone.
- DMCC is the foremost and most prestigious Free Zone and is situated at Jumeirah Lake Towers in New Dubai right next to Dubai Marina. It has been voted the best Free Zone in the world numerous times and provides excellent facilities to its clients.
- Its focus is on international trading and started out as a Free Zone to enhance the trade in Commodities such as Diamonds and other minerals. Although this was the main focus it now provides trading licenses in all categories including services, trading, manufacturing etc.
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Company type |
Free Zone Limited Liability |
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Authority |
DMCC Free Zone |
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Disclosure |
Director details are not disclosed |
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Confidentiality |
Completely confidential |
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Accounting and auditing |
Annual audit is required |
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Taxation |
No taxation may be subject to VAT at 5% |
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Legislation |
DMCC regulations |
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Currency |
Dirhams pegged to USD |
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Capital and profit repatriation |
Yes |
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Local Sponsor requirement |
No |
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Foreign ownership |
100% |
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Residence Visas |
Yes, number dependent on office space. Flexi Desk provides up to 3 Visas. |
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Number of directors required |
Minimum one |
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DMCC license types |
Trade license Industrial license Service license As a standard one activity from any of the three license types can be chosen. Can purchase additional licenses as required. |
- The IFZA Free Zone was originally situated in Fujairah which is strategically placed on the Gulf of Oman, in the Fujairah Emirate, with excellent port facilities as well as being close to Fujairah International Airport.
- In recent developments the IFZA authority has partnered with Dubai Silicon Oasis Authority (DSOA) to provide setup of IFZA companies in the Emirate of Dubai. IFZA licenses issued from 2020 is based on the requirements of the Dubai authority and allows for greater access to this Free Zone with local address to partner.
- Strategically situated within one of the UAE’s dynamic business gateways, IFZA Dubai is your single point of contact for all Free Zone business formation and administration services. IFZA Dubai provides local and international businesses the ideal platforms, infrastructure and location that optimize the benefits of the UAE’s strategic geographic position, world-class infrastructure and business- and tax-friendly environment.
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Company type |
Free Zone limited liability Sole owner: Free Zone Establishment (FZE) Two to five partners: Free Zone Company (FZC) |
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Authority |
Fujairah Free Zone Authority |
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Disclosure |
Director details are not disclosed |
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Confidentiality |
Completely confidential |
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Accounting and auditing |
No accounting or auditing requirement |
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Taxation |
No taxation may be subject to VAT at 5% |
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Legislation |
Fujairah Free Zone Law |
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Currency |
Dirhams pegged to USD |
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Capital and profit repatriation |
Yes |
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Local Sponsor requirement |
No |
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Foreign ownership |
100% |
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Residence Visas |
Yes, number dependent on office space |
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Number of directors required |
Minimum one |
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IFZA license types |
Professional license (services and consultancy) For businesses providing professional consultancy and multiple types of services, for example technical, lifestyle and similar types of services. Commercial license (trade) Authorizes the import, export, distribution & storage of specified items. Industrial license Allows the import of raw material, manufacture, process, packaging, and export of specified products Branch Foreign incorporated companies may also register a branch at IFZA Dubai. The activity of the proposed branch needs to correspond to the activity conducted by the parent company.
Certain activities are subject to third party approvals. 3 Business activities may be chosen and from the 4th additional charges will apply. Combining licenses between Professional and Commercial will incur additional cost. |
- Set up in 2005, DSO is a government owned Free Zone, spanning 7.2 million square meters. The infrastructure is state of the art and it offers strong incentives for businesses. The Free Zone boasts a three-tier data center. There is also a good access established for technical and engineering professionals.
- Designed as a hi-tech ecosystem in Dubai, DSO offers a wide range of benefits. It is considered to be the only technology park in the region that provides both a living and working integrated community.
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Company type |
Free Zone Company |
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Authority |
Dubai Silicon Oasis Authority |
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Disclosure |
No names are disclosed |
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Confidentiality |
Completely confidential |
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Accounting and auditing |
Every company shall keep accounting records, which are sufficient to show and explain its transactions |
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Taxation |
No taxation may be subject to VAT at 5% |
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Legislation |
Free Zones Companies Regulation |
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Currency |
Dirhams pegged to USD |
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Capital and profit repatriation |
Yes |
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Local Sponsor requirement |
No |
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Foreign ownership |
100% |
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Residence Visas |
Yes, number dependent on office space. Flexi Desk provides up to 3 Visas. |
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Number of directors required |
Minimum one |
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DSOA license types |
Trade license practice activities which are related to import, export, and distribution of items and goods as specified in the license. Industrial license import raw material, manufacture, and process, assemble, package and export the finished product. Service license Allowing only specific services as per your license. |
- Dubai South is a rather new addition to the Free Zone family. It is located at the Al Maktoum International Airport and aims to be the worlds largest airport withing a 10 year horizon. It aims to include an international airport, logistics district, business park, commercial district, residential as well as golf course.
- Identified as the emirate's flagship urban project, Dubai South is centered on the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai. The royal vision is reflected in the themes of Dubai Plan 2021.
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Company type |
LLC |
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Authority |
Dubai South |
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Disclosure |
Director details are not disclosed |
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Confidentiality |
Completely confidential |
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Accounting and auditing |
Accounting and auditing are mandatory |
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Taxation |
No taxation may be subject to VAT at 5% |
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Legislation |
Dubai South |
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Currency |
Dirhams pegged to USD |
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Capital and profit repatriation |
Yes |
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Local Sponsor requirement |
No |
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Foreign ownership |
100% |
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Residence Visas |
Yes, number dependent on office space and requirement |
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Number of directors required |
Minimum one |
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Dubai South license types |
Commercial specified commercial services including general trading and logistics services Service license carry out services specified in the License within the DWC Free Zone and elsewhere in the UAE Industrial License carry out specified light manufacturing activities |
- Everything at Jafza has been designed with the unique needs of manufacturing and trading companies in mind. It is closely located to the ports and the Dubai South Al Maktoum Airport.
- The Free Zone has evolved into a trade catalyst and a smart business community that offers unprecedented growth opportunities and market access.
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Company type |
Free Zone limited liability |
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Authority |
Jebel Ali Free Zone Authority |
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Disclosure |
Director details are not disclosed |
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Confidentiality |
Completely confidential |
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Accounting and auditing |
Accounting and auditing are mandatory |
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Taxation |
No taxation may be subject to VAT at 5% |
|
Legislation |
Fujairah Free Zone Law |
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Currency |
Dirhams pegged to USD |
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Capital and profit repatriation |
Yes |
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Local Sponsor requirement |
No |
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Foreign ownership |
100% |
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Residence Visas |
Yes, number dependent on office space |
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Number of directors required |
Minimum one |
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JAFZA license types |
General trading license Service license Industrial license |
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- Your understanding of the Taxes in the region your are expanding into is vital. Policy certainty by the local governments allows for planning and tax risk management.
- The Federal Tax Authority (FTA) was established in 2016 with the main aim of
- Achieving economic variety;
- To enhance the UAE’s economic stability;
- To increase UAE’s non-oil income;
- Reducing dependency on oil resources.
- As it currently stands the FTA only administers VAT, Import and Export taxes as well as Excise duties. You are aware that tax policies are evolving and that changes and updates may occur at any time and therefore you are pro-actively managing your tax and tax exposure.
VALUE ADDED TAXATION (VAT)
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- VAT was imposed as of 2018 at a rate of 5%. All companies either in the Mainland of situated in a Free Zone are subject to the requirements of the VAT Act. Many sections and areas of the VAT Act was “borrowed” from other countries in which VAT has been long standing. The UAE VAT Act also makes provision for standard and Zero rating of sales and services with Input VAT available on purchases.
- VAT remains a consumption-based tax and therefore VAT at a standard rate is only imposed on goods and services which are consumed in the UAE. VAT is charged at each step of the supply chain where end consumers bear the VAT cost while professional entities collect and act in a way as a tax collector on behalf of the Federal Tax Authority.
- You are aware of your obligations to adhere to the local requirements ensuring that regular filings and payments of VAT due are complied with.
NORMAL INCOME TAX
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- Zero per cent on corporate and personal income tax is levied in the UAE. In managing your global tax risk you know that although this is the case many other global tax related matters may arise which can impact your business.
EXCISE DUTIES
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- Certain goods which are deemed harmful to your health or the environment are subject to indirect taxes referred to as excise duties. These generally include tabaco products, energy and carbonated drinks).
These regulations require companies registered in the UAE that carry on one or more “Related Activities” to have economic substance in the UAE in relation to these activities and to comply with notification and return filing obligations.
These regulations apply equally to mainland or Free Zone companies which provides the following related activities:
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- Banking
- Insurance
- Investment Fund Management
- Lease-finance
- Headquarter companies
- Shipping business
- Holding company
- Intellectual property
- Distribution and service center
- The first step is therefore to determine whether your company falls in the ambit of providing a Related Activity. If your business is providing a relevant activity you have to determine whether the company is exempt from these requirements, whether it earns income from such Related Activity or not, whether the Related Activity is a Holding Company Business or whether the Related Activity is a High Risk IP Licensee. If none of these requirements apply one has to move to the next step which is to proof that you comply with the ESR in the UAE.
- The ESR are cumbersome and require detailed attention. Addressing each of these Related Activities in detail does not form part of this policy document and therefore an general overview is provided. In most instance your business would fall in the category “distribution and service center” and therefore this Related Activity will be address in more detail.
- Evaluation of Related Activities should take a substance over form approach requiring not only to consider the activity as per your license but any supporting or ancillary services. Similarly, passive income from a lease would also classify as a Related Activity as it is not required to only be actively trading. It is also required that the Core Income Generating Activity (CIGA) which relates to the relevant activity be situated in the UAE.
In relation to the Related Activity and whether your company has economic substance in the UAE one should consider the following when evaluation the ESR:
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- Whether the entity is directed and managed in the UAE;
- Whether adequate number of staff involved in the CIGA are physically present in the UAE.
- Whether adequate operating expenditure are incurred in the UAE.
- Whether there are adequate physical assets in the UAE.
- In Making such evaluation the entity may outsource some of these requirements. If this is the case the entity has to ensure that the service provider has is complying with the ESR.
The requirement relating to whether an entity is directed and managed in the UAE has to take into account the following:
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- The board of directors should meet frequently in the UAE;
- The board of directors should have the relevant qualifications and experience to act as Board members;
- The board of directors meeting should have a quorum and be properly minuted;
- The company manger should ideally be situated in the UAE.
- In complying with the ESR a company should therefore be able to objectively proof the requirements stated before in that:
- The company is directed and managed from the UAE having conducted the board meetings and direction of the company, minuting the meetings and archiving such in the UAE (also refer to place of effective management under the section dealing with taxation) as well as (preferably) having a resident manager in the UAE.
- Ensure the company has an adequate number qualified staff, physical presence and expenses proportional to the level of activity exercised in the UAE.
With relation to “Distribution and Service Center” business the Related Activity requires that whether products or services are procured from foreign connected persons:
- “Distribution Business” if the Licensee purchases raw materials or finished products from a foreign group company, and distributes those raw materials or finished goods.
- “Service Centre Business” if it provides consulting, administrative or other services to a foreign group company,and those services are in connection with the foreign group company’s business outside the UAE.
- Licensees that only purchase goods from or distribute goods to third parties are not considered engaged in a Distribution Business. Likewise, Licensees that are engaged in the business of providing services to third parties are not considered as carrying on a “Service Centre Business”. If this is the case and all other ESR are in place your will ensure that your business complies with local ESR legislation.
- Complying with the ESR is therefore imperative in ensuring that the licensee is not subject to exchange of information with a foreign competent authority.
In an effort to combat corruption and in particular Anti Money Laundering your up to date documentation (both directors and shareholders) will include at least:
- Color copies of passport
- Clear photo-copy with a white background
- Copy of your latest UAE entry stamp or latest UAE residency VISA
- Proof of residence
Documentation may also include:
- Attested and notarized copies of highest degree or qualification
- Attested and notarized copies of holding company license and MOA
- Attested and notarized copies of directors resolution relating to forming a branch or acquiring shares of an local entity
- Business plan for your newly established business
