Registering a company in the UAE - what do you need to know? Personal experience
- Deciding on the founder: natural person or legal entity
- Choosing the type of company
- Choosing a free zone
- Obtaining Initial Approval from the free zone administration
- Establishing a legal entity in DIFC
- In brief
Jurisdictions in the Middle East, particularly the United Arab Emirates, have been gaining popularity among IT clients of our law firm in recent years.
There are several reasons for this:
- a friendly attitude to founders from any region,
- preferential tax treatment,
- attractiveness of the Emirates as a developed financial centre for investors.
However, despite all these advantages, there are pitfalls to consider if you choose the UAE to set up your business.
Deciding on the founder: natural person or legal entity
Who the founder will be determines what additional steps will have to be taken to register and then run the business.
If the founder is a natural person
Then the initial documents required for company registration are a minimum of a scanned copy of your passport and a bank statement with the required balance of funds.
To do business after the company is incorporated, it will be necessary to obtain a UAE resident visa:
- to ensure economic substance (economic presence);
- it will not be possible to open a company bank account with a local UAE bank without it.
If the founder is a legal entity
In this case, a package of constituent documents must be submitted that have undergone a consular legalisation procedure.
The UAE has not joined the Hague Convention abolishing the requirement for legalisation of foreign public documents and providing for a simplified procedure for providing an apostille.
Consular legalisation of documents is a rather complicated, time-consuming and costly procedure. And then there is the need to obtain a UAE resident visa for a representative of a legal entity.
So, keep in mind that if time is of the essence for you to start a company in the UAE, it is quicker and easier to start registering a company with one individual founder – a natural person.
Choosing the type of company
Non-UAE residents can register both an offshore and an onshore company in the Emirates.
Registering an offshore company
An offshore company in the UAE is a company that is not allowed to operate within the UAE, nor is it allowed to work with legal entities from the Emirates.
- For this reason, the offshore company is only issued with a certificate of incorporation and no licence to operate in the UAE.
That is why it is worth registering an offshore company in the UAE if you do not plan to operate in the local market.
The cost of registering an offshore company in the UAE starts at $3,000. It is easier to register such a company than an onshore company.
Registration of an onshore company
It is necessary to register an onshore (local) company if you intend to operate both outside the UAE and directly within the country.
An onshore company in the UAE is registered in one of the free zones, which are business districts within the UAE emirates that allow foreigners to incorporate and conduct business in the country without the involvement of a local partner.
In total, there are 50+ free zones in the UAE, more than 20 of which are localised in the Emirate of Dubai. Each free zone has its own legislation in place.
Doing business within the UAE is only allowed from the free zone in which your company is registered.
Choosing a free zone
The choice of a particular freezone depends on a number of factors.
The type and needs of your business
It is important to pay attention to the licences issued by free zone.
The UAE has a lot of free zone focused on the IT sector. The most attractive ones are considered to be:
- Dubai Multi Commodities Centre (DMCC),
- International Free Zone Authority (IFZA),
- Dubai International Financial Centre (DIFC),
- Ajman Media City (AMC).
These are other things that can influence the choice of free zone:
- The size of the incorporation fee - for example, the Emirate of Dubai is the most expensive place to incorporate. The price is also influenced by the reputation of a particular free zone;
- Requirements for minimum authorised capital and annual audited accounts;
- The law in force on the territory of the free zone.
The procedure for registering a company in free zone
We were assisting our client to incorporate a company in DIFC, Dubai.
We chose this free zone because it had a good reputation and English law was applicable on its territory.
However, most free zones are governed by UAE local law.
In our case, the founder was a natural person The personal presence of the founder was not required to register the company, so the whole process was carried out remotely and consisted of two stages.
Obtaining Initial Approval from the free zone administration
The stage is similar to the KYC procedure. In this stage, the free zone verifies the documents provided to it by the found:
- scan copy of the passport,
- bank account statement of the founder,
- information about the business to be conducted by the company to be registered.
The stage is finalised with the issuance of Certificate of status which confirms that free zone has approved your application and you can take the next steps for registration.
We have experienced that the KYC procedure of the client's chosen free zone has become more complicated.
Therefore, going through the Initial Approval was accompanied by three to four rounds of additional questions from the free zone, mostly related to:
- with the planned business,
- source of income,
- background of the founder.
This procedure took about two months.
Establishing a legal entity in DIFC
The stage starts immediately after going through the Initial Approval. An application for company registration is submitted to free zone and the founder is then required to undergo verifications on the free zone online portal.
The stage is completed by the issuance of the company's statutory documents:
- the licence to operate,
- articles of association,
- certificate of incorporation.
You should also expect additional questions from the free zone administration and be prepared that the deadlines may be delayed. In our case, this stage lasted just under a month.
The licence is issued to the company for one year, so it must be renewed on a fee basis thereafter and the cost will vary from free zone to free zone.
The total cost of company registration (excluding visas and account opening) was about $15,000.
The actual period of registration turned out to be about three months (initially we expected to manage within one month).
In brief
- It is quickest to start a company in the UAE with a natural person founder (nationality does not matter).
- If your company's activities will be directed mainly outside the Emirates, but you care about reputation, register an onshore company in one of the UAE free zones.
- In any case, you will have to devote time and attention to choosing a free zone. There are many of them and they differ - in the emirate of Dubai alone there are more than 20 free zones.
- Registration of an onshore company in the UAE is not a cheap procedure. You should expect to spend around $15-20,000.
- Focus on the real term of company registration - one month or more. If it turns out to be quicker, it will be a pleasant bonus.
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