The weather is quite hot in the United Arab Emirates. Even though the temperature is high in the country, the taxes are low there. This is one of the most important factors that attract entrepreneurs from all over the world to the UAE. In addition to that, the country offers broad business opportunities and it has a fantastic geographical location too. If you have a company in the UAE, you can easily trade with partners in many regions including the Middle East, Asia, Africa, and Europe.
Doing business from the UAE is a tempting opportunity but there are some factors that you have to seriously consider before you start the process of registering a company in the country. Below we give you some food for thought: we mention certain factors that you have to think about beforehand.
The first thing that you should know is that you can set up two types of companies in the UAE:
- A company in a free zone or
- A company in the mainland UAE that is also sometimes referred to as ‘local company’.
Depending on your choice, you will have different sets of advantages and disadvantages.
If you opt for a free zone company, you should be aware that it can be an onshore company or an offshore company. An offshore company can do business with foreign partners exclusively: no business can be done in the Emirates. In addition, an offshore company may face reputational issues. Namely, banks are going to be more cautious when taking an offshore company onboard.
Free zones are special areas of the UAE where special regulations apply. Every free zone sets its own rules concerning company registration and business operations. Even though remote opening of an international company in one of the UAE free zones is possible, you will have to pay a personal visit to the country to open a bank account anyway.
Companies registered in the free zones face certain geographical limitations that can have different nature. If you have a trading company, for example, you can rent an office and open an outlet only inside the free zone where the company is registered. You cannot have an office or an outlet in the mainland UAE. You can sell your goods to companies from the mainland and form other free zones but you will have to sell in bulk, that is, you cannot retail but only wholesale. (An insider’s tip: there is one free zone in Dubai that allows renting a company office anywhere, not necessarily inside the zone.)
Service companies, on the other hand, have a much easier time. You can sell your services all over the country. You are also free to meet with clients anywhere outside the free zone: in a mainland office, in a café, hotel, park, beach, etc.
The number of free zones is growing in the UAE and it is already closing on 50. A city district of a business center can be a free zone. Dubai international airport is a free zone, for example. It hosts aviation and logistics companies.
The choice of the free zone depends on several factors but probably the most important one is the list of permitted business activities. Each free zone authorizes its resident companies to engage in a limited number of business activities. Thus, you have some homework to do.
Besides, you should also take the costs of company registration and maintenance into consideration because these are different in different free zones. In addition, the charter capital and the reporting requirements are also dissimilar.
If you are not planning to conduct any business operations in the UAE but work only with foreign partners, a free zone company should be your choice. Each free zone offers tax incentives (and tax exemptions) to resident companies. Choosing the right zone is a challenging task, however, because there are plentiful and each of them has pluses and minuses.
If you register a company in the mainland UAE, you can do business wherever you like, in any location inside the country or outside. Local companies can take part in public tenders, banks open accounts for them without too much trouble, and a foreign national can be a full owner of the company. Below we discuss some specifics of mainland companies in the UAE.
While free zones are zero-tax jurisdictions, the mainland UAE is a low-tax jurisdiction. Until recently, only a 5% VAT was payable. However, a 9% corporate profit tax has been charged since June 1, 2023. It is payable on the amount exceeding 375,000 dirhams (around US$ 102,000) per year. It is not much anyway, is it? Especially in view of the fact that personal income is not taxed in the UAE.
The recent changes in the local tax code have made all mainland companies in the UAE keep accounting records and be prepared to submit them to the tax authorities.
At the same time, no restrictions apply to mainland companies in the UAE. The geography of their operation, the number of their employees, and the amount of profit that they make are unlimited.
We have more good news for you: the Commercial Companies Act was amended in 2021 and now a foreigner can own 100% of the company registered in the UAE. Previously, at least 51% of the company had to be owned by a local person, a citizen of the UAE.
You should be aware, however, that the changes do not cover some business areas. If you want to set up a company in the UAE that provides banking or insurance services, more than half of the shares have to belong to a local person.
The following three things are absolutely necessary if you want to start a business in the United Arab Emirates: a license, a visa, and office space.
License. This is how the UAE differs from many other jurisdictions: you have to obtain a license whatever business area you are planning to work in. The license is valid for one year. Suppose, for example, that you want to trade in clothes and give some English classes to local kids. You will have to obtain two licenses and pay for each of them. They monitor people’s business activities very closely in the Emirates: if you are working without a license, you will be fined and maybe even extradited.
Resident visa. The visa is valid for 2 years and it authorizes the holder to live, work, and buy or rent property in the UAE. The visa is extendable.
Please keep in mind that you cannot stay away from the Emirates for too long if you want to keep your visa. You have to visit the UAE at least once every six months.
Office space. You have to rent an office for at least one year. Office space needs to be available to you for as long as your business license is valid. There are minimum space requirements in the UAE. Depending on the business area and the geographical location where your company is registered, you have to have 4 to 12 square meters of office space per person.
Some free zones allow renting virtual offices or using flexi desks. That is, you can rent only a desk and a chair and use the office telephone number and address as your registered number and address. As far as the mainland UAE is concerned, every company has to have an office even if it is engaged in online business.
To conclude, some intellectual effort and some serious preparation is required if you would like to open a company in the UAE. You would certainly benefit from some professional assistance in the endeavor.