Corporate Law/ Legal Update

A Guide to Corporate Structures in Dubai

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Setting up in Dubai

Over the last 30 years, Dubai has transformed itself from a local trading community into one of the most popular and successful destinations for corporate and commercial set ups. With its growing multi-jurisdictional nature, and in the absence of income tax for both mainland registered companies and those registered in the free zones, Dubai has become a major trading hub in the region for local and foreign companies wishing to establish a business presence in the region.

Mainland Dubai

Dubai’s Department of Economic Development (DED) is the department for licensing and registration of corporate entities in mainland Dubai and the Commercial Companies Law (CCL), as amended, is the federal law that regulates all entities set up in the UAE mainland, and regulates corporate entities set up in mainland Dubai.

Limited Liability Company

A Limited Liability Company (LLC) is the most common form of business set up in Dubai. When forming a LLC, the CCL prescribes that at least 51% of the shares must be registered with a UAE national (natural or legal person).

Commonly, where a UAE national (otherwise known as a Local Partner) is used and the foreign investor owns 100% of the beneficial interest in the LLC, the LLC’s memorandum of association can be structured in such a way so as to transfer all authorities, rights and powers to operate and manage the LLC to the foreign investor, including for example the ability to appoint the general manager and the company board of directors.

Another safeguard to protect the foreign investors interests in the LLC can be provided in the form of a unique set of contractual arrangements commonly known as side agreements. This comprises a set of agreements entered into between the foreign investor and Local Partner with the aim of vesting all managerial control, voting and dividend rights in the LLC to the foreign investor. As such, the Dubai LLC formation allows companies to establish flexible, differential profit sharing arrangements with a UAE Local Partner. The Local Partner can be paid a fixed annual fee, a percentage of sales or a percentage of profits.

The Free Zones

Dubai is home to over 20 free zone jurisdictions that cater to various industrial and business clusters where foreign investors can enjoy 100% foreign ownership of their companies. Across the UAE, there are designated territorial areas that are considered separate legal jurisdictions from the UAE government, which allows free zone jurisdictions to govern, license and register corporate entities independently.

Another major advantage to foreign investors is that free zone laws generally prescribe a guaranteed tax-free period of 50 years and there are no restrictions on the repatriation of capital or profits. The main restriction for a free zone corporate entity is that it cannot actively trade outside of the territorial parameters of the free zone unless it appoints a Dubai mainland based commercial agent.

Offshore Companies 

Certain free zones, for example the Jebel Ali Free Zone in Dubai offer the concept of an offshore company in the UAE.  Offshore companies are flexible corporate entities which are generally used as holding companies in the UAE.

Offshore companies are very quick to set up, there are no limitations on foreign ownership and there is no minimum share capital requirement. A minimum of 2 directors (maximum of 5) are required, all of whom must be natural persons (no corporate directors). Shareholder(s) may be either natural persons or corporate entities, any of which may also be non-residents (expatriates).

Furthermore, offshore companies can open and operate bank accounts as well as own investments inside and outside of the UAE. The other major advantage lies in Dubai property ownership. Select offshore companies such as those incorporated in the Jebel Ali Free Zone can own real estate in Dubai in certain designated areas. Therefore, any income generated from the company’s investments (such as real estate) can be held in the company bank account and repatriated thereafter.

Davidson & Co is a boutique law firm established in Dubai in 2008, with lawyers and legal consultants drawn from across the globe.  Providing a unique combination of corporate / commercial expertise; dispute resolution solutions; as well as private client advice, we are able to cater to the mass market and offer unparalleled legal services in the region.

 

For more information about our capabilities and accolades, please visit http://www.davidsoncolaw.com/about.html or contact 04 343 8897 and ask to speak to one of our associates.

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