The United Arab Emirates has enjoyed persistent growth in foreign direct investment (FDI) recently, with annual inflows of foreign money nearly doubling between 2010 and 2013. It is the most popular investment destination among the Islamic countries in the Middle East, and the second overall in the region behind Israel. In the same period, the UAE’s economy has grown by 47% in real terms, its GDP increasing from US$286bn to US$402.3bn in today’s money.
Aiming to take advantage of the opportunities in the UAE and the wider Middle East, foreign entrepreneurs, investors and international businesses have flocked to do business in the Emirates. However, due to each Emirate’s partial autonomy and attempts by the government to ensure that Emiratis retain a stake in the growth of the non-oil industries, the system for doing business in the country is rather fragmented.
This guide is designed to describe the different methods for conducting business in the UAE and to explain the most appropriate use cases for each one.
Incorporating a limited liability company is one of the two main ways to conduct your business in the UAE proper (as opposed to in one of the free zones, below). The LLC may carry out any type of activity permitted by the law of i) the UAE and ii) the Emirate in which it is established.
UAE investment law requires that Emirati nationals own at least 51% of the shares in these companies. Although agreements can be made with these shareholders regarding profits and voting rights, many investors prefer to retain full ownership of the business. The LLC may also only do business in the Emirate in which it is established, requiring a branch or new LLC if it wishes to carry out its trade elsewhere. A Dubai LLC would therefore need to set up a branch in Abu Dhabi in order to trade in the UAE’s two main business centres.
Professional services companies – these firms may establish a 100% foreign-owned LLC. The mainland LLC is therefore most appropriate for businesses of this type including law firms, accounting firms, architectural practices and management consultancies.
Establishing a branch is more popular with foreign businesses wanting to enter the mainland UAE. Branches allow for full ownership and control of the business, but they are limited to the activities of the parent company and therefore have less scope to grow. Furthermore, a branch may not hold multiple licences and is therefore not appropriate for businesses with diverse activities.
The branch, not being a separate legal entity in the way that the LLC is, also has unlimited liability; we therefore recommend establishing a special purpose vehicle from which to extend the branch. This method shields the wider business from any liability that may arise in the UAE.
Like the LLC, each branch may only operate in the Emirate of its establishment, although the same company may extend multiple branches across the UAE. Branches must appoint an Emirati agent, which adds a significant cost to doing business in the UAE.
General purpose – we recommend the branch as the starting point for most businesses expanding into the UAE, as long as the planned activities do not span more than one of the three main licence categories (professional, trade and commercial).
Free zone companies
Free zones have proliferated throughout the UAE, aiming to attract foreign expertise and capital from a wide range of industries. These companies take the same legal form as the LLC, but allow 100% foreign ownership and do not require a local agent, making them less expensive to operate. The key restriction on free zone companies is that they must use branches to do business outside of the free zone in which they are registered.
Each free zone has its own specialty, ranging from financial services to logistics, technology, biotechnology and media. The concentration of selected industries in each free zone create an environment with easy knowledge transfer, and free zone companies may trade freely with other countries in the region.
Region-focused businesses – for companies looking to take their first step into the Middle East and take advantage of the capital and skilled workers available in the UAE, the free zones present an excellent choice.