|Doing Business in the U.A.E.
I. ENTERING THE U.A.E. MARKET
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:
- Incorporating a Limited
Liability Company (“L.L.C.”);
- Establishing a Branch office or
- Establishing a wholly owned
entity in one of the U.A.E. Free Trade Zones.
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.
II. ESTABLISHING PERMANENT
PRESENCE IN THE U.A.E.
A. Incorporating a Limited Liability Company:
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).
B. Establishing a Branch or Representative Office:
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.
C. Establishing an Enterprise in a Free Trade Zone:
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
- 100% foreign ownership of the
- 100% import and export tax
- 100% repatriation of capital and
- No corporate taxes for 15 years,
renewable for an additional 15 years;
- No personal income taxes; and
- Assistance with labor
recruitment, and additional support services, such as sponsorship
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.
III. COMMERCIAL AGENCY
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
- Commercial agents must be U.A.E.
nationals or companies incorporated in the U.A.E. and owned
entirely by U.A.E. nationals.
- Commercial agents must be
registered with the U.A.E. Ministry of Economy and Commerce to
engage in commercial agency activities.
- The agency agreement must be
registered in order for the agent to avail himself of the
protections afforded under the law and to have the agency
relationship recognized under U.A.E. law.
- Commercial agents are entitled
to an exclusive territory encompassing at least one Emirate for
the specified products (Article 5(1) of the Commercial Agencies
- Unless otherwise agreed,
commercial agents are entitled to receive commissions on sales of
the products in their designated territory irrespective of whether
such sales are made by or through the agent (Article 7 of the
Commercial Agencies Law).
- Commercial agents are entitled
to prevent products subject to their agency from being imported
into the U.A.E. if the agent is not the consignee.
- Commercial agents are entitled
to receive compensation from the principal if the agency is
terminated without substantial justification or if the agency is
not renewed by the foreign principal, and the agent may be able to
preclude the foreign party from appointing a replacement agent in
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.
IV. PUBLIC SECTOR PROCUREMENT
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;
(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:
- The Public Tenders Law does not
apply to purchases and contracts conducted by the federal defense
forces. In light of potential national security concerns,
procurements for the federal defense forces are conducted pursuant
to Decree 12 of 1986 of the Deputy Supreme Commander of the Armed
Forces (the “Armed Forces Procurement Regulations”). The Armed
Forces Procurement Regulations generally follow the Public Tenders
Law by requiring bidders to be represented by commercial agents or
national companies except with respect to cases requiring “rare
specialization”. In practice, instances of rare specialization
typically involve the sale of certain weapon systems and related
materials, or sales which have been arranged on a
government-to-government basis (collectively, “strategic military
procurement”); however, there is no published definition of what
items fall within this category.
- The Public Tenders Law relates
to federal government procurement and not procurement by the
individual Emirate Governments. For example, Abu Dhabi has a
procurement system, which generally tracks that of the Federal
Public Tenders Law by requiring suppliers to have commercial
agents or national companies that are registered with the Abu
Dhabi municipality. However, there are differences in such areas
as compensation, formality, and flexibility.
- The general requirement for
U.A.E. national participation is not uniformly observed by all
government agencies in the context of certain direct sales to the
public sector or private tenders in which the government solicits
bids directly from relevant manufacturers, particularly in cases
in which the goods or services are quite specialized or not widely
available. These “exceptions” arise on a case-by-case basis.
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
|Income between Dh
3,000,000 – Dh 4,000,000
|Income between Dh
4,000,000 – Dh 5,000,000
|Income above Dh