Effective from June 1, 2021, the UAE Government removed the requirement for companies to have a local sponsor, allowing foreign investors and entrepreneurs to establish and fully own onshore companies in most of the sectors. In most sectors, there are no restrictions on repatriation of capital and profit. Non existence of corporate or personal income tax is also an advantage (Corporate tax will be introduced in June 2023). Cities like Dubai, Abu Dhabi and others offer excellent infrastructure. These factors, combined with a strategic geographic location and good connections to most counties, make the UAE an ideal place to do business.

Establishing a business in UAE can be a confusing task due to availability of plethora of options for establishment of the business for location of the entity (7 emirates, multiple freezones and offshore company) and Legal structure of entity (LLC/FZC/Limited Partnership/Branch etc.). Although, it is made relatively easier in past years and it can be done online through portal of respective authorities, proper planning needs to be done to get maximum advantage.

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A. Selection of location (Mainland Vs Freezone)

There are 7 emirates in UAE namely, Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah and Fujairah. You can choose to establish your entity in any of these 7 emirates. Additionally, there are more than 20 free zones available for establishing company and conducting business. An option of offshore company also remains open for foreign investors.

Each location has its advantages and restrictions, which are summarized here:

Offshore company

Offshore companies are allowed in some free zones. Offshore company refers to companies that operates outside the location of its ultimate ownership. They are generally used as trading companies/ Investment companies to enjoy tax advantages and relaxed regulations that the country offers. UAE has low VAT (Maximum 5%) and corporate tax rates (9% from June 2023) compared to other countries. Plus Offshore companies are generally exempt from taxes and requirement of annual auditing. So, it is cost-effective way to expand your international business without overwhelming administrative obligations.

While offshore companies can open bank account and conduct international business, they are not allowed to do business with local market. In order to conduct local business, you will need to open separate company in mainland or freezone. Plus certain businesses like Insurance, media, Aviation etc. are prohibited for any offshore company so it has limited use in that sense. Also, There are restrictions on buying real estate in UAE for offshore companies.

B. Type of licenses

The three major types of licenses in the UAE are commercial, industrial, and professional. But the government also issues various other licenses as well that are specific to certain activities.

Note: These are broad categories of license issued in UAE. Their name and scope may differ based on where the entity is registered (mainland or any Freezone)

Commercial license

Commercial License is issued to business entities which are involved in any type of commercial activities of buying and selling of goods, imports and exports, transportation and all other commercial activities which are performed with the intention of making profits. Commercial License is generally taken for business activities like trading, retail, hotels, warehousing, transporting, etc. It can be General Trading License which will allow the licensee to deal in any product or a Specific license which will be restricted only to specific products/activities.

Industrial license

Industrial License is issued to business entities which are involved in any manufacturing or industrial activity which involves value addition or conversion of the input into a different output. The manufacturing or industrial activity involves transforming the raw material into semi-finished or finished goods. The transformation can be in the structure or usage or appearance or stage of finish etc. The manufacturing process could involve use of machinery or could be manual.

Professional license

Professional License is issued to professionals, artisans and craftsmen. The Professional License is for rendering professional services which depends on the skills, knowledge and experience of the professional concerned. It includes consultancy services, printing and publishing, medical services, repair & maintenance services, security services, etc. Generally, the holder of professional license is not permitted to import or export any goods and thus is not permitted to engage in any trading or manufacturing activity.

Crafts license

A crafts License is issued to those individuals/companies who provide services that require physical strength, abilities, and skills. It includes people who are plumbers, carpenters, electricians, and blacksmiths etc. Companies that appoint artisans to work under them also need to apply for this license.

Tourism License

The Tourism License is for businesses willing to operate in any of the tourism sectors in UAE. It mainly includes tour operators and travel agents, restaurants, guest house etc.

Agriculture license

Business working in activities such as cultivating growing crops, harvesting vegetables and grains, trading of plants and crops, pesticides and fertilizers, pest control, etc. need to obtain agriculture license. Additionally, Any kind of agricultural activities, such as the installation of greenhouses, installation of irrigation systems, and providing agrarian consultancy and enhancers, are required to have agriculture license.

C. Type of entities

Mainland

The legal form depends mainly on the business requirements. Moreover, the legal form is basis for identifying applicable laws and regulations. In the UAE, an investor can select one of these legal forms:

                1. General partnership

                2. Limited partnership

                3. Limited liability company (LLC)

                4. Public joint stock company (PJSC)

                5. Private joint stock company (PrJSC)

                6. Civil company

                7. Local company branch

                8. GCC company branch

                9. Foreign company branch

                10. Free zone company branch

                11. Sole establishment

                12. Holding companies.

Freezone

In a free zone, you can set up one of the two types of companies:

    1. Free Zone Limited Liability Company (FZ LLC) or Free Zone Company (FZ Co.)

    2. Free Zone Establishment (FZE)

Key difference between both is that FZE has single shareholder (either individual or company) whereas FZ LLC or FZ Co. has 2 or more shareholders. It is necessary to check with individual free zone authorities about the type of company they can register as it is possible that all free zones might not register both types of companies