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Free zone Company

Free zone Company:

Primarily, free zones are established to serve as a central business hub for companies to conduct global business and not specifically within the UAE. Therefore, UAE free zone companies are meant to operate within the corresponding free zone as a hub for worldwide operations and are not licensed to operate within the rest of the UAE. According to the World Federation of Free Zones, a free zone is a portion of clearly defined and isolated land or setting, with a special tax, customs and import regime, usually involving the status of extra-territoriality.

Technically, trading within UAE is not allowed as free zones are not considered part of the UAE market. However, you can appoint a local dealer or agent and trade with any local company in the UAE after payment of required customs duties. Some of the features of free zones in UAE are:

  • No corporate or personal tax
  • No Import / Export duties
  • No restriction on hiring foreign workers
  • Most free zones offer land and the assets developed on the land can be mortgaged to bank or financial institutes as collateral
  • All UAE free zones are built with state of the art infrastructure
  • 100% foreign tax free
  • 100% ownership, no local national involvement required
  • Liberal multi-currency
  • bank account opening and maintaining
  • Confidentiality
  • Warehouse facilities & virtual office facilities
  • Common facilities at free zones
  • Offers UAE residence visas for investor and his/her family
  • Attractive business environments and user-friendly free zone authorities
  • Quick incorporation

Types of Free zone companies:

  • Branch of the Company

A branch office of foreign company can be set up in Free zones. No capital is required to set-up a branch of an existing company.

  • Free Zone Establishment (FZE)

An FZE is an establishment formed & registered within the free zone & regulated by the free zone authorities. Their liability will be limited to the amount of paid up capital. An FZE need to have a single shareholder (individual or a foreign company) and is an independent legal entity. 

  • Free Zone Company

FZC is registered with a free zone authority & does not require any local citizen as a shareholder. Minimum of 2 and maximum 5 shareholders are permitted in FZC. FZC’s are limited liability companies.

Some restrictions relating to registration of companies in FTZ apply thereto. For instance, in case of retail trading at the local market of the UAE.

There is a particular type of company for each type of business that best matches its objects and the most optimal in terms of costs, taxes, customs fees and other expenditures.

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Onshore/ Commercial Company (2)

  • Individual Establishment (UAE national or GCC national)

Individual establishments with 100% ownership can be formed with either UAE Nationals or GCC Nationals as owners in order to do any Commercial, Professional and Industrial activities.

  • Civil Companies

Civil companies are formed 100% in the name of individuals (Foreigner) in order to enable him to practice the professional or craftsmanship. It is necessary to appoint a UAE National as “Local Service Agent” without holding any responsibility or financial commitment in respect of the principal’s business.

  •  General Partnership

This is an arrangement between two or more UAE Nationals, each of whom are jointly and severally liable to the extent of their assets for the Company’s liabilities.

  • Limited Partnership

This is an arrangement between two or more of UAE Nationals of which one or more of them may be general partners and one or more of these may be limited partners. General partners are liable to the extent of their assets for the company’s liabilities whereas limited partners are liable for the company’s liabilities to the extent of their respective shares in the capital only.

  • Private Share Holding Company

A private shareholding company is incorporated with persons not less than three. A private share holding company cannot invite public for subscribing its shares. The minimum capital to form a private share holding company is AED 2 Million. The Chairman and majority of Directors in private shareholding company shall be UAE Nationals.

  • Public Shareholding Company

Public shareholding company is a company with a capital divided into equal negotiable shares. In such companies a shareholders’ liability is limited by the number of shares held by him. Minimum capital required to form a Public Shareholding Company is AED 10 Million. The Chairman and Majority of the Directors of Public Shareholding Company must be UAE Nationals. In addition, at least 51% of the shares of PSC should be held by UAE Nationals. The law stipulates that the Companies engaged in banking, insurance or financial activities should be run by a PSC.

  • Joint Venture Companies

A Joint Venture is a type of Company where two or more partners agree by contract to share the profits or losses of one or more commercial enterprises which will be carried on in the name of one of the partners. Third parties can recourse only to the partners with whom they deal. However, should the Joint Venture be disclosed to the third parties, all the partners are liable to the third parties.

  • Partnership Limited with Shares (PLS)

A Partnership limited with shares is a company formed by general partners who are jointly liable to the extent of all their shares for the company liabilities and participating partners who are liable only to the extent of their shares in the capital. The capital of this PLS shall be divided into negotiable equal shares. All general partners shall be UAE Nationals and minimum capital requirement for limited partnership is AED 500,000/-

  • Limited Liability Companies (LLC)

LLC or the Limited Liability Company is the popular and preferred type of company. Minimum capital for setting up a LLC company is AED: 150,000/- (AED 300,000/- for Dubai).

Companies with foreign partners prefer the limited liability company. The ownership percentage LLC offers to the foreign partner is 49%. 51% shares will be held by the local partner who will be a UAE National.

Authorities that issue LLC licenses in the UAE are;

  1. Dubai: Department of Economic Development
  2. Sharjah: Economic Development Department
  3. Abu Dhabi & Other Emirates: Municipality / Chamber of Commerce

The popularity of LLC business is due to its flexibility, some of major advantages of setting up LLC company are:

  1. Although foreign equity in the company is limited to 49%, profit and losses can be shared at a ratio difference from the share capital.
  2. The investor becomes the partner in the company.
  3. The investor is provided with an investor’s visa with a family visa status.
  4. No restrictions for business expansions and starting new branches.
  5. No annual financial statements requirement.
  6. The assets and capital will be held by the company and not by the local national partner.
  7. Ease of opening global corporate bank accounts.
  • Foreign Companies (Branch / Representative office)

A foreign company is licensed to exercise its main activity in the UAE by opening a branch or representative office. These foreign companies need to get themselves registered in the foreign companies register in the Ministry of Economy, after obtaining approval of the concerned authorities. These companies need to appoint UAE Nationals as the Agent. A foreign Company’s branch can freely exercise their activities whereas a representative office may practice only promotional business for the products and services provided by the parent company. These companies need to submit a bank guarantee for AED 50,000/- as part of the licensing process.

Onshore companies have to meet a few series of requirements of the state government. Obtaining a license to start a business and it is necessary to have an office. Hypothetically, such office can be just a desk leased by the free zone authority. Another requirement is that business should be conducted only within the FEZ or outside it, but not directly in the UAE. If the company would do the business directly inside the country, it would require a local company to act as an agent for it.

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Onshore / Commercial Company (1)

Onshore/ Commercial Company:

Mainland companies are regulated by the UAE legal structure and government policies and are located within the limitation of commercialized geographical areas falling under the jurisdiction of the Emirates government.

The main feature of an onshore company registered outside FTZ is partial ownership of a foreign entity, at least 51 % shall belong to a citizen of the United Arab Emirates. And as a rule, an additional agreement is signed with him that actually he does not own shares of such company, except in the following cases:

  • Activities with 100% GCC ownership Businesses located in the Free Zones
  • Instances where GCC companies (wholly owned) enter into a partnership with UAE national
  • Where the law requires 100% local ownership.

Commercial companies and Establishments (Onshore) can be of following types:

  1. Individual Establishment (UAE national or GCC national)
  2. Civil Companies
  3. General Partnership
  4. Limited Partnership
  5. Private Shareholding Company
  6. Public Shareholding Company
  7. Joint Venture Companies
  8. Partnership Limited with Shares
  9. Limited Liability Companies (LLC)
  10. Foreign Companies (Branch / Representative office)
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StartUp

Setting up business in UAE

The United Arab Emirates facilitates great opportunities for modern business. It is known as the gateway to the Middle East. Economic activity in the UAE is governed by each of the seven emirates as well as by the Federal Government. Federal and individual authorities have created a business-friendly environment across the seven Emirates. Business laws are well organized with minimal restrictions. UAE offers a friendly business climate and is the most liberal and attractive in the region. Developed banking and financial sectors, high level of investor confidence and reputation of business environment have attracted multi-million-dollar investments from around the world.

An important aspect for organization of business in the UAE is the choice of correct status of legal entity. The choice of such status may depend on the location, strategic objectives and line of your business and other factors. Depending on where you are going to operate your business – on local or international markets – you should determine the type of legal form of potential company. The main advantages for an investor in UAE is no taxation, limited liability, privacy and asset protection. Our experienced consultants at MSI Alnoman & Ravi provide valuable advice to initiate, enter and position the company in the UAE successfully.

The companies in UAE can be broadly divided into three:

  1. Onshore/ Commercial Companies
  2. Free Zone Companies
  3. Offshore Companies
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Why invest in UAE

About UAE:

The Population of the United Arab Emirates is 8.19 million and is increasing on an average of 5% annually. While 11.5% is Emirati population, 27.15% is Indian, 12.35% is Pakistani and 49% other nationalities include Asians, Africans, Europeans as well as from both North and Latin Americas respectively.

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