Brent Yap
Feb 27, 2023 9 min read
Your reference to the laws and legal compliance guidelines to the jewel of the Arab states, The United Arab Emirates – as shared by our legal partners in Dubai, United Arab Emirates. This is a collaborative new original series for your reference in anticipation of your plans to do business in the United Arab Emirates, or if you wish to increase your legal knowledge on this emirate.
1. Introduction:
About the United Arab Emirates
The United Arab Emirates (UAE) is a small, but dynamic and fast-developing country located in the Middle East. It comprise the following federation of seven emirates : Abu Dhabi (oil & gas and adminstrative capital), Dubai (financial center), Ras al Khaimah, Sharjah, Fujairah (port activities), Ajman and Umm al Quwain. UAE has become a global leader in business and is currently making a significant impact on the global economy. This impressive growth can be attributed to a number of factors; its strong economy, attractive tax rates, and pro-business environment amongst them.
The UAE is now home to a vibrant and diverse array of industries, including oil, gas, manufacturing, finance, and tourism. This impressive variety of economic activities has made it an attractive option for foreign investors, with a number of large companies establishing bases and offices in the country.
The UAE offers a unique and attractive opportunity for investors and Small and Medium Enterprises (SMEs). As the growth of the country accelerates, the need for more SMEs to fill the business landscape is evident. The UAE has a large and growing population, with almost 3.5 million people in total. About 60% of the population is young and entrepreneurial, giving any SME setting up shop a large potential customer base with ready-made demand for their products and services.
SMEs can avail of the country’s attractive tax and regulatory environment, with business owners paying income tax only on profits earned in the UAE and no other corporate taxes up until year 2023. Furthermore, SMEs can access credit and business financing quite easily, with the country boasting an accommodating banking system that offers attractive loans and loan guarantee mechanisms.
The UAE, with its pleasant climate and geographic position, is also an ideal location to set up a business. Transportation and logistics are relatively easy due to the country’s well-developed infrastructure, consisting of airports, ports, railways, and roads.
The UAE’s advanced infrastructure often helps to reduce business costs, with low-cost energy and telecommunications services. The country also prides itself on having excellent business services, including sound business law and regulatory systems.
SMEs in the UAE also have access to a wide range of incentives from the government to help them succeed. These include tax holidays, grants, advice, and access to the UAE’s growing network of skilled labor. The country also has a number of government initiatives dedicated to helping SMEs succeed, such as the establishment of business incubators, provision of investment capital, and access to specialized technical assistance.
In short, the UAE is an excellent destination for SMEs and foreign investors. The UAE’s fast-paced growth, attractive business climate, and supportive government policies make it one of the most attractive countries in the world to do business.
2. Types of Businesses in the UAE:
The UAE offers potential investors a wide range of business opportunities, divided into two main categories: onshore and offshore.
Onshore Businesses
Onshore (local) business activities involve businesses licensed and operating within the UAE. The process of registering and setting up an onshore business involves significant costs in terms of capital and fees. Businesses that require a license to operate domestically include professional services, trading, manufacturing, hospitality, tourism, financial services, insurance and businesses involved in oil, gas, and other energy-related activities.
Offshore Businesses
Offshore businesses involve those that operate outside the jurisdiction of the UAE. This involves the formation of companies or setting up a base in one of the UAE’s free zones. The setup resources for offshore business structures are fairly easyWith free zones businesses having full exemption of taxes and customs duties, few formalities and less stringent legal requirements, setting up offshore is relatively easy and can be done quickly. Some of the main advantages of offshore business structures include: 100% foreign ownership, zero taxes, less complexity, and greater confidentiality.
Free Zones in the UAE
The UAE is home to many established and greatly successful free zones, suited to cater to varying business needs. Free zones are regulations established by the government allowing businesses to operate in the UAE with foreign ownership and a range of other benefits. Some of the most prominent free zones in the UAE include Dubai International Financial Centre (DIFC), Abu Dhabi Global Market (ADGM), Jebel Ali Free Zone (JAFZA), and Dubai Multi Commodities Centre (DMCC).
Visa Incentives
The UAE offers several visa options to help businesses recruit qualified investments and staff. The types of visa incentives offered by the UAE include permanent residence visas, family visas, banking and financial visas, work visas, and investor visas. Depending on the type of visa, the related costs and requirements also vary. To elaborate, UAE offers various visa incentives such as the investor ll visa, business ll visa, work ll visa and family ll visa. The investor visa allows investors to stay in the UAE for a period of three years and enjoy tax benefits while the business ll visa allows approved investors to stay in the UAE to manage their businesses. The work ll visa allows skilled employees to enter and work in the UAE while the family ll visa enables family members to join the foreigner in the UAE.
Tax Laws
The UAE offers one of the lowest corporate tax rates in the world at zero percent. Until recently, foreign investors in the UAE are exempt from paying taxes on their business operations. This means that all foreign companies and individuals operating in the UAE are not subject to income tax. Consequently, taxes on income and dividends are not levied on companies registered in the UAE. However, certain oil and gas businesses are subject to taxation. The UAE does however impose value-added tax (VAT) for goods and services provided in the country at a rate of five percent. The UAE offers one of the lowest corporate tax rates in the world at zero percent.
New Corporate Tax Laws in the UAE For Foreigners
The UAE Government recently announced new tax regulations for foreign companies operating in a free zone in the UAE. The foreign company must be 100% owned by the foreign parent company in order for the business to benefit from the new law. The company is subject to corporate tax of 20 percent applied on the net taxable profit of the business. Companies that derive more than half of their income from activities outside the UAE are excluded from paying this corporate tax.
3. Setting Up a Business in the UAE
Before starting up a business in the UAE, it’s important to understand the legal framework in place and the regulations enforced to ensure compliance with the UAE’s Companies Law and local laws.
The Different Types of Businesses in the UAE
There are essentially four types of businesses that an entrepreneur can establish in the UAE. They are:
• Free Zone Company: This type of company can be 100% owned by a foreign parent company and operate within the boundaries of a designated free zone. There are more than 30 free zones throughout the Emirates
• Limited Liability Company (LLC): This type of company is set up in one of the main Emirates of the UAE and lets an entrepreneur have their very own local business.
• Branch: This type of company is a branch of the foreign company without any legal existence in the UAE, and all liabilities ultimately fall under the foreign company.
• Representative Office: This type of company is mainly used for promoting the foreign company’s products and services, and does not generate any income for itself.
4. Registering the Business
The steps and documents needed to register a UAE business will vary depending on the type of business and the jurisdiction in which it will be registered, for example there is a difference in registering a business in UAE mainland and free zones, just as there are differences in registering your business in Dubai, Abu Dhabi or Sharjah or even in all of the Emirates. To register and operate a business in the UAE, an applicant must conduct the necessary legal licensing and registration procedures and comply with applicable foreign ownership restrictions.
Generally, the process of registering a business in the UAE can be broken down into four main steps.
First, applicants must decide what type of entity they would like to create and register. The UAE offers various options, including branches of foreign companies, local companies, free trade zones, civil companies, public joint-stock companies, and limited liability companies. Each type of entity has different requirements and different levels of foreign ownership restrictions, and applicants must make sure they select the right type of entity for their needs.
Second, applicants must choose a unique business name and register the company with the relevant governmental authority, such as the Department of Economic Development. Applicants should search the existing corporate database to ensure that the chosen business name is available and not already registered.
Third, applicants must obtain the necessary approvals and certifications for the company. Depending on the type of entity, required approvals can include Ministry of Labor, Ministry of Economy, Immigration Service, and Ministry of Health. Moreover, applicants must also obtain a trade license and other permits as needed. To begin a business in the UAE, you have to register the company with the Department of Economic Development (DED). To complete registration with the DED, the entrepreneur must submit a variety of documents and pay the necessary fees. The specific requirements for a license will vary by jurisdiction. Generally, for a company to obtain an approval or license, a written application must be submitted to the legal authority. Along with the application, the prospective company must provide all necessary documents such as valid trade and/or corporate documents, a description of the proposed business activity and commercial registration documents.
Finally, once the application is approved by the relevant legal authority, the process to register the business will move forward and this involves opening a corporate bank account, obtaining the necessary commercial documents, obtaining Trade License or a Commercial License, and registration with Chamber of Commerce and Industry. Applicants must open a commercial bank account. Most financial institutions in the UAE require not only corporate documents, but also proof of personal identity and residence.
Upon successful completion of the registration process, the company will be allowed to begin its activities. The company will also need to register with federal and local government authorities such as the Ministry of Labour and the Department of Economic Development. In order to operate lawfully in the UAE, the business must comply with the Tax Law, Labour Law, and other applicable laws.
In sum, the requirements for registering a business in the UAE can vary depending on the type of entity, industry, and other factors.
5. Applying for and Obtaining a Work Visa and Residential ID and Permit:
Once a business is registered in the UAE, the next step is to obtain a work visa, residence ID, and permit for the employees as well as the business owner. Generally, non-UAE nationals are not permitted to work or stay in the UAE without the proper permit.
To obtain a work visa, the applicant must first secure a labor permit. This requires submitting documents such as the passport and employment contract to the Ministry of Human Resources and Emiratisation. A fee is imposed for the labor permit, which must be paid before the application is submitted. Once the permit is granted, the applicant can proceed with the visa application.
To start this process, the employer must apply for an entry permit from the Ministry of Interior. This permit will grant the applicant a residence ID and work permit. The employer must submit documents such as the entry permit fee and the work contract in addition to the labor permit documents. After the entry permit is granted, the applicant can apply for a visa at the General Directorate of Residency and Foreign Affairs.
Finally, the applicant must obtain an Emirates ID Card and Health Card. The Emirates ID Card is issued by the Emirates Identity Authority. To obtain the card, the applicant must provide certain personal details and biometric information. The Health Card is issued by the Health Authority Abu Dhabi (HAAD), and requires submission of the entry permit documents, passport, Emirates ID, proof of address, and a completed application form.
Overall, obtaining a work visa and residence ID and permit in the UAE is a multistep process. Depending on the applicant’s nationality, industry, and other factors, the requirements may vary.
6. Conclusion
The UAE offers considerable benefits for entrepreneurs wanting to establish their businesses in the country, enabling them to benefit from various incentives and special taxation laws.
Through this guide, entrepreneurs can form a clearer idea on setting up businesses in the UAE, the different types of businesses available, the various free zones, the visa incentives, the tax laws and finally, the new corporate tax laws that foreigners must consider. With its well-developed infrastructure, business friendly policies and economic growth, the UAE offers great opportunities for entrepreneurs wanting to invest and develop their businesses.
It is advisable for a company to seek the assistance of a lawyer or a corporate service provider to ensure the registration process is completed correctly and in a timely manner. Our associates in UAE can assist you to achieve this process. You can email me at brentyap@vikneshyap.com if you have further enquiries.
