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  • Writer's pictureAkram Cheik - Lawyer

The different types of companies in the United Arab Emirates

Updated: Jan 8, 2023

(Each form of company presented below allows obtaining residence in the United Arab Emirates except the offshore company)



In order to open a company, several possibilities are available to customers according to their needs and their sectors of activity. The legal form is important, we will take into account all the parameters in order to optimize the operation and organization of your companies. In particular, between the varieties of forms of organizations there are significant differences in the short and long term.


Legal, contractual and financial issues will therefore be taken into account to support you in your projects.


We propose the opening of the following companies and present the advantages and disadvantages inherent therein.


The Typology of legal forms of companies requires us to make a difference between onshore and offshore companies.


Traditionally, the main difference is in the location, in fact, an offshore company is one that relocates from its country of origin in order to carry out operations in a different country, often for financial interest, in particular because of the cost labor or for tax reasons (allows you not to be taxed in the country of origin). They can also be created in the form of a holding company in order to form a group of companies.


With regard to the Emirates, the offshore company allows the operation of a company and the advantages that go with it, without doing business at the local level, but gives the possibility of operating companies in other countries, moreover, owning real estate in the Emirates.


The Onshore company refers to those who work and organize themselves at a local level, these companies operate in the same country where they are registered. This type of company makes it possible to carry out activities of all kinds in the Emirates.


Therefore, the legal rules are totally different around these two forms.

We therefore present to you the possibilities of opening an Onshore company: Free-zone, Mainland, and Freelance. Finally, offshore company opportunities.





1 – the Free-zone company



This company is characterized by its domiciliation in a specific so-called free zone, these zones are located within the 7 Emirates, in particular in Dubai (Dubai airport, Dubai design district, Dubai Healthcare city, international academic city, Dubai internet city, DIFC, Dubai knwoledge village, Dubai Media city, DMCC, Dubai silicon Oasis, Jebel Ali Free zone, Dubai world central).


Thus, the conditions for doing business in free zones are very attractive.


Benefits through the law



The first specificity linked to this area is the application of the law. Indeed, Free Zones have their own rules of law in order to facilitate commercial and business life. If it appears that the law in the United Arab Emirates is close to the Roman-civil law tradition (French, German or Swiss law), disputes in the Free Zone are settled through Common Law law.


Thus, the formalities of setting up are lightened there, in particular no obligation of association with an Emirati partner, ensuring independence and a right of ownership over the company.


In addition, it should be noted that the same applies to employees working in the free zone, the latter are not subject to the labor law legislation applicable in the United Arab Emirates. (See article on labor law in the Emirates)


In addition, it is quite possible to hire employees on the condition that they are residents or to obtain this status for them.


From a tax point of view, it should be remembered that the company established in a free zone will be seen (see article on the tax treaty) therefore no tax will have to be paid in this case.


Regarding customs law, the free zone also has its share of exceptions. The customs laws of free zones are different from those of Mainland companies. Certain types of goods are prohibited in free zones and duty-free zones due to their nature or origins.


Prohibited goods are goods which the country prohibits their import or export under the provisions of the Unified Customs Law of the GCC (Gulf Countries Cooperation Council) countries or any other relevant law. Importing, storing or transporting any item classified as prohibited are offenses punishable by law.


Limits related to installation in free-zone



The free zone finds its most inconvenient limit, in the restriction preventing you from having an activity outside this zone. This limit can be a major obstacle depending on the sector of activity.


If the free zone allows certain administrative facilities and confers legal advantages, on the other hand, its opening is limited to certain sectors of activity in particular: industrial activities, commercial activities, advice and services, import-export

Media (written press, audiovisual, internet, ICT, etc.) In addition, companies established in free zones are subject to obtaining licenses depending on the sector of activity.


These two constraints can therefore de facto prevent the installation in the free-zone of certain sectors of activity.


Another important aspect, naturally the creation of a free-zone company requires the installation of offices in a free zone. In this respect, it will be necessary to take into consideration the expensive prices especially in Dubai where the majority of the Free-zones are. In addition, the initial share capital may vary depending on the free-zone chosen.


Finally, due to the legal disparity and the limits mentioned above, it is more difficult to obtain the confidence of banks, although it is not impossible to claim to open a bank account.



Summary of advantages - disadvantages


We allow you to obtain the speed of opening of the company (depending on the chosen area)

The administrative procedure is simplified

The number of important areas in Dubai (see above)

Legal advantages (specific legal area, tax law, labor law)


Activity limited to the free-zone (the same goes for the location of the offices)

The price can be expensive

Licensing by activity

Less confidence in banks



2 – The Mainland company




The so-called “Mainland” society is naturally opposed to the freezone from a territorial point of view. Indeed, Mainland could be translated as the main territory, as such, the main characteristic of this type of society is not to be limited: on the one hand from a territorial point of view, on the other hand on its area of economic interaction.


Therefore, the manager of a Mainland company can very well become a player in the local market. This alternative makes it possible to obtain a certain number of non-negligible guarantees relating to business life. In addition, this form of company opens the doors to you without restriction of the Emirates market, but also of the international market, in a range of very varied commercial activities.



Regarding the benefits



Following a legislative reform of 2020,[1] it is now possible for anyone who opens a local law company called Mainland to no longer be associated with a local sponsor (depending on the sector of activity), therefore, to hold the all of the company's assets. (See article on the reform applied on June 1, 2021)


This advantage is one of the major strengths for many investors wishing to operate in the Emirates market. In particular, in certain areas where it is absolutely necessary to have a prime location within the Emirates (restaurants, commercial shops, local industry, service companies, liberal professions, etc.)


In addition to renting, this legal form will also allow you to buy real estate.


In addition, this strength is proportional to the confidence that the banking system gives to this type of company which provides certain guarantees.

Regarding the legal aspects, federal law[2] or common law jurisdictions will apply depending on the case.


It should be noted that in contractual matters the validity of agreements is subject to them being written in Arabic.


Labor law in the Emirates makes it possible to respond to all conflicting situations such as questions relating to dismissal, the duration of the contract, work. Despite popular belief, labor law jurisdictions are protective of employees. Nevertheless, it will be necessary to start from the premise that the residence status for an employee depends strongly on his employer. Indeed, the resident status can be revoked, in the case of loss of work regardless of the cause. (See article on labor law)


With regard to tax matters, the Mainland company is exempt from corporation tax. On the other hand, since 2018 a value added tax at the rate of 5% may be applicable, however, it is the end consumer who is in charge of paying it. (See article on VAT)


Regarding the creation of a Mainland company, in the case of French expatriates, the latter are subject to the tax treaty between France and the United Arab Emirates which provides for and prevents cases of double taxation.


Regarding the disadvantages




Mainly, the Mainland company has few disadvantages. However, it should be noted that the creation of this type of company is more expensive, which is the translation of the advantages it provides - those mentioned above.


In addition, from an administrative point of view, the registration period is longer without however exceeding 3 weeks.


In certain sectors of activity, in particular certain local markets, a local partner is mandatory. This local sponsor is said to be “mute” and will not exercise any administrative, management or executive function within the company, however an annual annuity must be paid to him. However, this relationship will be contractually sealed, thereby legally secured.


We work, if necessary, with potential sponsors with whom we can accompany you, for ever more security and legal guarantees.



Advantages/disadvantages table


Opportunity to do business within the Emirates

No longer requires an Emirati partner for the majority business (See law)

Freedom of territorial settlement

Bank confidence

Application of United Arab Emirates federal law


Check-in deadline

Cost



3- The offshore company

The offshore company is characterized by two important points, the first can result in a form of company relocation for optimization, in particular through a holding company.


The second concerns the operation of the company itself, in particular, Emirati legislation does not allow this type of company to practice business or trade at a local level, the activities are therefore carried out outside the United Arab Emirates. .


Which de facto can limit the sectors of activity that can be practiced by the offshore company.



About the benefits



The offshore company provides their users with significant advantages.

First, the creation and adoption of this form of company does not require any physical presence, which is very advantageous for certain types of activities, in particular consulting and trading, for example. On the other hand, this form of company does not make it possible to obtain the status of resident.


This type of company is perfect for businessmen who want to obtain the possibility of an extension on the international market.


Therefore, the first interest is of a fiscal nature, with regard to non-taxation on company profits or very low taxation.


Thus, we offer the possibility of being able to register the company remotely and at short notice (48 hours).


Secondly, the cost of creation is less expensive with a lower minimum capital than for a Mainland company. Moreover, this type of company does not require the presence of a local partner either.


Despite the impossibility of doing business within the territory of the United Arab Emirates, the offshore company makes it possible to hold real estate in the country.




About the cons


The offshore company immediately presents an obvious structural defect. Indeed, the advantages linked to the non-physical presence (impossibility of having offices in Dubai) constitute a base of disadvantages. First and foremost, a lack of economic substance (see article on economic substance). This is generally assessed on the basis of factual criteria such as: the existence of human and material resources of the structure, its management autonomy, its legal reality and, where applicable, the nature of its assets .


Thus, since 2020 the United Arab Emirates has put in place a law relating to the economic substance concerning certain types of activities, in particular with regard to an offshore holding company which would enter into a commercial relationship with its Emirati subsidiary. Therefore, a guide has been published so that offshore companies are brought into compliance from the point of view of their economic substance.


It is ousted from the lack of economic substance a lack of confidence in this type of structure on the one hand of the French State which does not provide for the possibility for offshore entities of entries in the tax treaty between France and the Emirates , on the other hand, this lack of confidence is also felt by Emirati banking institutions that may be somewhat reluctant when opening an account.


However, we will support you administratively, in order to make it possible to open a bank account for offshore companies. In addition, depending on the activity chosen, we will allow you to have a compliant economic substance.


Advantage / disadvantage


Speed of creation of the company

Requires no physical presence

Expansion of company on the international market

No local sponsor needed


Inability to obtain offices

No commercial and business relations in the Emirates

Weak economic substance

No application of the tax treaty

Difficulty of obtaining the confidence of banking institutions




The freelance license

The freelance license is a work permit in the Emirates, this license is suitable for self-employed workers because it guarantees the freedom to offer various and varied services. In particular, with the health crisis the number of self-employed workers has increased, in Dubai there is a large number of freelance licenses, we note a reduction in the number of licenses issued over the past three years.


Indeed, the United Arab Emirates attracts many independent consultants who can now enjoy the quality of life in the Emirates through this working method. This permit, however, will be granted according to the sector of activity, it must correspond with the type of license requested, therefore duly justified. The freelance license can be obtained in the free zone only.






The advantages are:



Allows you to work in Dubai in complete independence, this scheme is perfect for remote work (at home) which only requires an internet connection for example.


This eliminates the possibility of working outside the Emirates. A physical office is not a necessity.


We allow you to obtain this license quickly and its cost is less expensive.


Although it differs from the regime of other companies, the license will allow you to obtain a residency visa in the Emirates.


This plan is not a company, it allows not to hold an audit, however we recommend the follow-up of the accounts.


Finally, this regime does not require you to have an Emirati partner either.




The weaknesses are:




If this regime allows total independence, it requires particular rigor in order to develop without structure.


This results in the fact that it is not possible to have an employee under the license who is not a company, it is also excluded that the license does not allow obtaining a physical office.


This permit does not allow obtaining a professional bank account but only a private bank account.


The license requested must correspond to a specific sector of activity, which may de facto exclude certain areas of activity.


However, this status requires obtaining the license in the free zone sector.



By Akram Cheik, Lawyer in UAE for Nextcap



[1]https://www.economy.gov.ae/LawsAndRegulationsEn/Cabinet%20Resolution%2016%20Concerning%20the%20Determination%20of%20the%20Positive%20List.pdf

[2] https://www.economy.gov.ae/LawsAndRegulationsEn/Federal%20Law%20Regarding%20Foreign%20Direct%20Investment.pdf



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