Key considerations for incorporating in the UAE
The United Arab Emirates (UAE) has rightly gained a reputation as one of the most attractive business destinations in the Middle East and North Africa (MENA) region. In addition to its strong trade ties with many countries in the MENA region and beyond, the country’s economy, business environment and strategic location are key drivers of its success.
In our latest annual GBCI (Global Business Complexity Index) report, the UAE ranked as the 53rd most complex jurisdiction, a significant increase in complexity from 61st in 2022. Some of the reasons for this upward trend include: the introduction of new regulations relating to ultimate beneficial owner (UBO) filing; anti-money laundering (AML) reporting; the introduction of corporate income tax; the requirement to file audited financial statements in most jurisdictions to renew trade licences; as well as strict Economic Substance Regulations (ESR) reporting requirements.
Diversification and economic liberalisation
The UAE is one of the most business-friendly economies in the MENA region, benefiting from its strength and diversification. While the country is a major exporter of oil, the government has made a significant effort to reduce economic dependence on oil exports by promoting other economic activities such as tourism and financial services.
The UAE’s economy began to recover from the impact of the Covid-19 pandemic in the latter part of 2021, and further expansion into non-oil sectors took place in 2022. The tourism sector too has shown signs of rebounding, with data from the Department of Economics and Tourism showing tourism recovering to just under 2019 levels. A new visa regime has been introduced and new countries/nationalities have now been approved for visa on arrival.
The UAE has invested heavily in infrastructure development across all cities. This has led to a liberalisation of business rules and made it easier for foreign investors to set up businesses in the region.
However, with seven emirates and 45 free zones for general or industry-specific activities across the UAE, registering and managing a business entity can be challenging. Dubai alone has more than 20 free zones, each with their own laws and regulations, which can make doing business in the UAE a complex affair.
Free zone vs mainland
The UAE is an ideal location for a foreign company to establish its presence in the Middle East. It’s home to a stable economy and government, and offers an increasingly diverse range of business opportunities. In addition, the UAE offers tax benefits and other incentives for investors, making it a convenient place to do business.
The first thing you need to consider when seeking to incorporate in the UAE is whether to establish a free zone or mainland company.
Free zones were established to encourage foreign direct investment, and each zone has its own laws and regulations. The types of companies that can be established within free zones differ, but generally include subsidiaries and branch and representative offices. Entities established in a free zone can have 100% foreign ownership and no local service agent for a branch or representative office is required.
While 100% foreign ownership is allowed in free zones, these entities are not allowed to conduct business on the mainland. Profit-seeking enterprises wishing to tap into the domestic market are required to register a mainland entity.
New legislation passed in 2021 states that both mainland and free zones may offer limited liability company (LLC) and Branch of Foreign Company options with full foreign ownership.
Previously, an LLC on the mainland required a 51% local UAE shareholder, and though 100% foreign ownership is now permitted, a local UAE shareholder may still be required for some activities. Full foreign ownership is currently available for more than 3000 business activities.
A company licence from a free zone jurisdiction allows the company to operate only within the free zone and outside the UAE, whereas a company licence from the mainland can be used to operate in the entire UAE.
An entity set up in the UAE is always a combination of the business licence, legal entity and registered office. The law specifies that a company licence must be linked to the size of the office space as stated in the official office space tenancy contract.
How to incorporate in the UAE
Company incorporation in the UAE is a relatively simple process and can typically be completed online. However, investors need to consider several factors before beginning the incorporation process.
These are the six key steps you need to follow when incorporating in the UAE:
- Consider the activity of the entity when choosing the legal structure and form of incorporation.
- For a mainland company, submit your application for registration to the Department of Economic Development (DED). To register in a free zone, submit your application to the Registration/Licensing Authority in the relevant free zone.
- Apply for initial approval from the relevant authorities.
- Select your office location and rent a local office space or a serviced office.
- Open a corporate bank account.
- Obtain visas and work permits for staff as needed.
Generally, opening a business bank account in the UAE is a mandatory requirement for any company, but it can be challenging. Foreign investors incorporating in free zones may be better off working with an international bank, as opening an account with a local bank can be a time-consuming process.
Tax changes and new labour legislation
Major changes in the UAE’s tax laws are ongoing. In January 2022, the UAE introduced its first federal corporate tax rate of 9%, which became effective in June 2023. The tax rate is expected to further enhance the UAE’s attractiveness to foreign investors.
On the employment front, Federal Law No. 33 of 2021, also known as the Labour Law, governs the labour rights of employees in the private sector working for entities located on the mainland and in the free zones. This law was implemented on 2 February 2022.
However, free zones such as Dubai International Financial Centre and Abu Dhabi Global Market have their own employment rules and regulations.
Talk to us
Our experts on the ground offer services across the three core business lines of accounting and tax, global entity management, and human resources and payroll. In addition to assisting with incorporation procedures, we help you streamline your operations and stay compliant.
To learn more about how we can help you set up a company in the UAE, make an enquiry today.
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