What Kind of Company Can You Start in the UAE?
If you are thinking of incorporating a company in the United Arab Emirates, you will benefit from knowing that you can open a company of three basic types. Depending on the type of company that you choose, your tax obligations are going to be dissimilar. You can register a company on the territory of the UAS outside Free Economic Zones, you can register one inside a FEZ, and you can open an offshore company in the UAE that will also have to be a resident of one of the FEZs.
Regardless of the type of company that you prefer, you will have to obtain an operational license before you can start any business activities via your UAE-based company. There are four basic types of licenses that a foreign entrepreneur can get in the UAE. These include the following ones:
- Service license;
- Commercial (trade) license;
- Industrial (manufacture) license; and
- Professional service license.
How can you start an onshore company in the UAE?
If you register a company outside any of the numerous Free Economic Zones in the UAE, you will have an ‘onshore’ or a ‘resident’ company in the country. You will have to apply for a license to the Department of Economic Development of the Emirate where you would like your company to be domiciled. You will have to prepare the application documents in a careful manner and pay the state duties before you can apply for company formation.
An onshore (resident) company in the UAE is entitled to perform business operations on the entire territory of the country as well as abroad. This type of company will give you the highest degree of business freedom. Naturally, an onshore company can become a tax resident of the UAE (or to be more precise, a tax resident of the Emirate where it is registered). What is more, foreign company founders/ managers and members of their families are eligible to apply for permanent residence permits in the UAE.
How can you start a company in a Free Economic Zone in the UAE?
A Free Economic Zone (FEZ) is an area in the UAE with clear borders. Every Arab Emirate has several FEZs and their total number exceeds 45 in the UAE. Regulations related to the tax rates, customs, trade, employment, company administration, etc. applied in the FEZs are different from the regulations applied to onshore companies in the UAE.
Probably the most outstanding advantage that the FEZs boast is lack of customs control and customs duties on their territories. You can unload, process, manufacture, reconfigure, and re-export goods to/ from a FEZ without having anything to do with the customs office if your company is domiciled there.
Customs duties become payable only if the product manufactured inside a FEZ goes to the mainland UAE. If it goes to a foreign country, no export duties are payable.
Many FEZs in the UAE offer advanced manufacturing facilities, loading/ unloading equipment, transportation networks, warehouses, and other objects of business infrastructure.
Every FEZ has its own regulatory authority and its own licensing regime.
If you would like to register a company in one of the FEZs, you have to make a choice, prepare the application documents, and apply to the company registration authorities of the particular Zone. Please bear in mind that FEZ-registered companies are not allowed to do any business in the mainland UAE: only inside the Zone or abroad.
A FEZ-registered company can become a resident of the UAE for tax purposes. Besides, it can employ foreign personnel and apply for residence permits for its workers.
How can you register an offshore company in the UAE?
It is also possible to have a UAE offshore company. The term ‘offshore company’ refers to a UAE-registered business entity that has no physical assets in the country: only the registration certificate and registered address. The company can be registered inside a FEZ. It can do business only with foreign partners located outside the UAE. The company cannot become a tax resident of the UAE. Company officers are not eligible to apply for residence permits. No taxes are payable by offshore companies in the UAE.
Do you need a local sponsor to open a company in the UAE?
Only a couple years ago, you had to have a local partner if you wanted to register a resident (onshore) company in the UAE. The company could not be fully owned by a foreign national. Moreover, the local partner had to have at least 51% of the company shares. If you wanted to fully own your UAE-based company, you had to register it in a FEZ exclusively.
Luckily, this restriction has been withdrawn now. A foreigner can own 100% of the company’s shares no matter where it is registered – inside or outside a Free Economic Zone.
Can company formation make you eligible for a residence permit in the UAE?
If you set up a resident company in the UAE or register one in a FEZ, you can apply for a legal residence permit in the country. Foreign founders of offshore companies do not qualify for residence permits in the UAE.
We must stress that the foreign company founder is not the only person who can qualify for legal residence in the UAE. Residence permits (sometimes also referred to as ‘resident visas’) can be obtained for company directors, managers, and other company employees. Moreover, company founders and directors’ family members can also obtain resident visas. Thus, you can easily relocate to the UAE with your family on legal grounds if you establish a business entity there.
What FEZ in the UAE should you choose to open a company there?
Free Economic Zones can be found all over the UAE. Usually they are located outside large cities or in some special areas such as seaports, for example. The choice of the FEZ will largely depend on what business sphere your company is going to work in. Each Zone offers a different set of advantages to foreign entrepreneurs establishing business entities there. We must re-emphasize, however, that FEZ-registered companies cannot enter business agreements with partners resident in the UAE.