This document is provided as information only and should not be used as a substitute to proper research.
Foreign enterprises wishing to conduct business in the U.A.E. may do so either by establishing a formal, permanent presence in the U.A.E., or by using a commercial agent. There are several methods pursuant to which a foreign entity may be licensed on a permanent basis in the U.A.E, including:
By establishing a presence under one of these methods, a foreign entity is permitted to engage in all activities as licensed in the U.A.E. While the scope of activities that may be conducted through these vehicles can include contracting, providing services and possibly manufacturing, foreign entities operating pursuant to these alternatives may engage only in those activities licensed by the relevant U.A.E. authorities. Such foreign entities also will remain subject to the relevant restrictions that reserve certain activities, such as commercial agency activities, for wholly U.A.E. owned enterprises.
Each of these business forms is discussed in detail below.
Foreign investors are permitted to hold an equity ownership in U.A.E. companies as long as 51% of the equity is held at all times by U.A.E. nationals. The preferred company form for foreign investors is the Limited Liability Company (“LLC”) due to, among other factors, its flexible management structure, and protection of minority shareholders. The L.L.C. requires a minimum of two and a maximum of 50 members and in all cases must have a minimum of 51% U.A.E. ownership. The minimum capitalization is Dh150,000. Management of the L.L.C. is vested in the “managers” (up to five natural persons).
Through either a liaison office or a branch office, foreign entities may establish a presence with significantly less U.A.E participation than is required to establish a Limited Liability Company. Foreign companies are permitted to establish wholly owned branches and representative offices in the U.A.E.; however, these offices are limited in the activities they may conduct within the U.A.E. (Article 314 of the Commercial Companies Law).
The primary difference between a representative office and a branch office is that a representative office theoretically is limited to gathering information and soliciting orders and projects to be performed by the company’s head office. In this regard, representative offices also are limited in the number of employees they may sponsor (typically three or four). In essence, a representative office acts merely serves as an administrative and marketing center for the foreign company. By contrast, a branch office is a full-fledged business, permitted to perform contracts or conduct other activities as specified in its license.
A foreign entity must appoint a U.A.E. national “service agent” for the branch or representative office. A service agency should not be confused with a commercial agency discussed below. The service agent is not permitted to own equity in or participate in the substantive management of the representative or branch office. In practice, a foreign entity typically contracts with the service agent to provide specific services such as assisting in communications with government departments (e.g., facilitating visas for foreign company personnel) or undertaking other administrative matters. The compensation of the service agent is a purely contractual matter between the service agent and the foreign entity, usually measured by the level of services provided or in some instances by the level of activity or turnover of the branch or liaison office.
Due to the interaction between the U.A.E. federal government and the government of the particular Emirate in which the branch office is to be located (e.g., Abu Dhabi or Dubai), it should be noted that registration entails submitting a number of applications and obtaining a number of approvals from several government departments. After the application is approved by the government of the Emirate where the branch is to be established, the approval of the federal government approval is then required.
The U.A.E. has established ten Free Trade Zones (“FTZ”), and two specialized FTZ targeting IT, e-business, and the media. These Free Trade Zones are in various stages of development. The primary benefit of establishing a branch office in a Free Trade Zone is 100% foreign ownership; however, conducting business in the U.A.E. market itself is prohibited. The FTZ’s were established to attract foreign capital and investors by offering incentives such as:
An independent Free Zone Authority
governs each free zone, and is the agency responsible for issuing
FTZ operating licenses and assisting companies with establishing
their business in the FTZ.
Most of the free zones are tailored to meet the needs of industrial, shipping and manufacturing enterprises. As such, the FTZ’s tend to be located near major ports and have large warehousing and storage facilities available. The exception is Dubai Internet City (“DIC”), which is a unique free zone dedicated to IT and e-business companies wishing to set up bases in the Middle East. Dubai Media City (“DMC”) is a FTZ based on the same concept as DIC, but with a focus on media rather than IT.
Foreign investors may decide to have an agent represent their
interests in the U.A.E. instead of establishing a permanent
presence. The U.A.E. Commercial Agencies Law (Federal Law No. 18 of
1981, as amended by Federal Law No. 14 of 1988) regulates and
governs the appointment of commercial agents, sales representatives,
and distributors in the U.A.E. This law defines a commercial agency
as any arrangement whereby a foreign company is represented by an
agent to “distribute, sell, offer, or provide goods or services
within the UAE for a commission or profit”. (Article 1 of the
Commercial Agencies Law). The Commercial Code (Federal Law No. 18 of
1993) augments the Commercial Agencies Law and establishes the
regulatory framework for the various types of commercial agencies
permitted under the law. The most common type of agency is the
contracts agency, whereby the agent undertakes “on a permanent basis
and in a specific area of activity, the instigation and negotiation
of the conclusion of deals, to the advantage of the principal and in
return for payment”. (Article 217 of the Commercial Code).
Distributor contracts are treated like contracts agencies when they
involve one agent as the sole distributor. (Article 227 of the
The primary requirements and characteristics of commercial agencies are:
The Commercial Agency Law provides for compensation of the agents terminated without due cause only if the agency agreement has been registered with the federal Ministry of Economy and Commerce (MOEC). Many U.A.E. commercial agents will insist on a registered arrangement in order to avail themselves of the protection of the Commercial Agencies Law. Notwithstanding whether the agency agreement is registered and therefore subject to the protections provided in the Commercial Agency Law, foreign entities should note that the Commercial Code also may affect the relative rights and duties of the parties as noted above. In summary, foreign parties should consider carefully the application of the Commercial Agency Law and the Commercial Code in drafting any agreement to engage a U.A.E. party to perform any type of marketing, sales or other “commercial” activity in the U.A.E.
Pursuant to the Federal Regulation of Conditions of Purchases,
tenders and Contracts, Financial Order No. 16 of 1975 (the “Public
Tenders Law”), and subject to certain exceptions, only U.A.E.
nationals, foreign entities represented by a U.A.E. agent, or
foreign entities with U.A.E. partners (i.e., a U.A.E. entity with at
least 51% U.A.E. ownership (“national entities”) may bid for public
sector tenders for the supply of goods and public works projects
that are governed by the Public Tenders Law. As a result, foreign
entities wishing to perform public sector contracts are generally
required to have some level of U.A.E. national participation. Such
participation typically takes the form of either:
(i) A registered commercial agency;
(ii) A “service agent” of the foreign entity’s U.A.E. branch office; or
(iii) The majority owner of a joint venture in which the foreign entity owns 49% or less of a U.A.E. limited liability company (i.e., a national entity).
The following are three major exceptions to the application of the Public Tenders Law:
There is no federal income tax in the U.A.E. for general businesses. However, with respect to Dubai only, the Dubai Income Tax Ordinance of 1969 specifies that an organization that conducts trade or business, including the rendering of any services in Dubai, is subject to the following tax scale:
|Income between Dh 1,000,000 – Dh 2,000,000||10% rate|
|Income between Dh 3,000,000 – Dh 4,000,000||30% rate|
|Income between Dh 4,000,000 – Dh 5,000,000||40% rate|
|Income above Dh 5,000,000||50% rate|
These pages contain some basic information about business structure and procedures regarding some key Middle Eastern markets. The following articles are for information only: