In the United Arab Emirates, there are two basic options for business ownership for those that are not UAE nationals. One option is to work with a national who will be a sponsor for business. The other is to open a business in one of the designated free trade zones or free zones within the UAE.
There are differences to consider between the two. For example, with a sponsor, the business is not restricted to the free trade zones and also not limited to trading directly in domestic markets. However, there are the added steps of filing a sponsorship agreement with the courts and understanding the responsibilities of the foreign investor with regards to company debts and management implications.
The sponsor is not the same as a partner, which is sometimes confusing to people not familiar with this system. Instead, the sponsor must be a local business or company and will be paid a fee on a yearly basis to provide this service. Often sponsors assist the foreign investor in understanding the business models within the UAE as well as when doing business with other countries in the Middle East.
Free Zone Business Setup
The option that most foreign investors use is to complete a business setup in the UAE in one of the free zones. This allows the foreign investor to maintain 100% ownership of the business while also benefiting from the tax relief and a duty-free customs boundary.
For purposes of this discussion, the free zone business setup will be the focus. While this can be done by the foreign investor on his or her own, it is highly recommended to work with a local law firm with experience in the business setup in the specific UAE free zone of interest.
It is important to understand that each emirate has its own free zone or free zones. These free zones are administrated through a local Free Zone Authority. Each authority is autonomous in setting up the regulations, requirements and operational considerations for any business within that free zone area.
Foreigners need to understand that the fees, specific regulations and requirements for starting a business will be different between the free zones and the various emirates. It will be of paramount importance to understand the differences between opening a company in Dubai or RAK or any of the other emirates as to how it will impact business opportunities, costs of doing business and even the types of businesses that will be acceptable in the different areas of the free zones.
Free Zone Cautions
While the free zone option is a benefit for the foreign investor in many ways, and there are highly successful companies opening every day, it is not without its challenges.
Depending on the emirate and the free zone, they may be located a distance away from a potential customer base. They are not designed to promote domestic sales, though free zone companies can provide services, such as consulting or educational services, on a domestic level.
Choosing a free zone area that will allow you to use your chosen business model and that is located in an area that is convenient for your customers and clients will be important. It will also be essential to choose the right free zone to match for your business in order to attract the right target client or customer.
It will be essential to choose a business type in any of the free zones. Unlike in other countries where you can open a business and with ownership comes choices in how the business operates and general freedom on merchandise and services, the UAE requires business owners to choose a license and follow the regulations for sales and service under that license.
This can be complicated, particularly if a business may want to participate in different types of sales and services. An attorney can provide the assistance and expertise in selecting the license type that best suits your business model. In some situations, there may not be an appropriate category currently approved by the government. When this occurs, the Department of Economic Development can review an application and approve or reject the application based on the regulations for the selected free zone.
At this time, the business owner will need to choose a legal form for the business. This can range from a sole proprietorship through to an LLC, private shareholding company, partnership, a branch of a foreign company or even a branch of a UAE based company. It is critical to making the correct choice as this will again potentially broaden or limit the actions and opportunities for the business.
Trade Name Selection
Each Free Zone Authority will be responsible for approving trade names for businesses. In the UAE, there are specific regulations around the trade names that can be approved for any business.
Trade names cannot use religious messages, use indecent language, cannot use anyone’s name but the owner or partner and it cannot include only part of the name, but rather the entire name of the individual. For example, a trade name of Smith Consulting cannot be registered, but John Smith Consulting would be considered.
In addition, the trade name must match the business activity. This is very different than in many countries when trade names or business names are solely up to the business owner and may not directly reflect the activities of the business. Additional fees for trade names will be charged if they contain specific words, letters, symbols, numbers or any reference to a region or location of the world.
Once this is completed the business will apply for initial approval. The law firm will complete this process for you, allowing you to continue with the application process.
At the same time in the process, the legal team will draft a Memorandum of Association (MOA) or a Local Service Agent agreement with a UAE national. Not all businesses will require this; it is based on the legal form of the business. In most cases, unless you are a branch of a company (foreign or national), you will need to have at least a MOA in place. This must be completed by an attorney and cannot be done by the individual.
There may be additional approval required from other government agencies and departments based on the type of business. The legal team will ensure that all necessary approvals are obtained from the specific agencies and departments that need to be involved.
Before final approval of the business license in the UAE, the company must have a business location. In the free zones, there are office spaces available that meet the requirements that the Free Zone Authorities require.
The business location is often an open workspace that provides the internet, phone connections, basic office equipment as well as business center and secretarial support. Each free zone is different, and space in these centers is often limited. Private offices may be available, but they are more costly to rent.
After this process is completed, the documents must be provided to the Department of Economic Development for final approval. This will provide you with the required business license. All fees for the business license as well as any additional costs for the service will need to be paid in full within 30 days of approval. Browse the website www.stalawfirm.com for more information.