The United Arab Emirates (UAE) is one of the most attractive business markets on earth. However, setting up a business here can be rather tedious if you are not familiar with the country. The UAE requires a particular method for setting up a company which should not take long once you have all the required legal documentation in hand.
To avoid wasting both your time and money and before undertaking the legal formalities in your home country which can be fairly costly, Eduardo Delage wrote the below tips should keep in mind:
1. The type of business activity that you wish to carry out in the UAE
This point is critical as the business activity determines the license the company will require. In this sense, the license could be; i) professional; ii) industrial; or iii) commercial, and will define your business development. A wide range of activities (jewelry, oil and gas, banking, legal firms etc.) must receive special approval from other governmental departments prior to a license being issued.
The Economic Department of each emirate has a list of activities where you can check licensing requirements.
Likewise –please see point 2- all free zones have their own distinct rules and regulations to consider when setting up a new company. In this regard, each free zone offers a different range of activities, and the opportunity to carry out operations related to a specific field.
2. The Legal Form and Ownership
You should choose a specific company structure depending on the location and activity you have chosen to pursue. (Mainland LLC or branch and offshore sited on a Free Zone).
With regards to what was mentioned above, if you are foreign investor wanting sole ownership of your company (100% shares), you must establish this company in a free zone.
On another hand, if you need an LLC or branch to operate onshore, you have to obtain a license from the Department of Economic Development from the emirate you hope to establish in. However, you must take into account that UAE regulations require 51% sponsorship by a local national.
In relation to the ownership of share capital, as per UAE regulations, the share capital must be set out in the Memorandum of Association. According to the activity that your company will undertake, the share capital requirement may increase (Banking, Oil & Gas…).
However, here is some peace of mind for you: in most cases, you do not need to pay minimum capital when setting up.
3. Local Sponsor / Agent
For determined licenses, it is mandatory for foreign nationals to have a local agent, partner or sponsor to carry out certain business activities in the UAE according to UAE legislation. In this sense, choosing a local partner is the most important decision you will make in order to have a good working experience in the UAE. A helpful local support could give your company an extra boost to achieve your goals.
For the companies based in free zones, this is not crucial, but with the right support, you could effectively move forward with business in a more efficient manner.
4. Company Name
The trade name is an important consideration during the establishment process.
The approval of the proposed company name is regulated by the authority of each emirate. In this sense, the company name has to be related to the nature of the business.
5. Hiring in UAE
UAE law requires you to hire a manager to oversee all business operations once the registration has been approved.
For companies based in UAE free zones, each authority has its own specific regulation regarding the structure of business and hiring.
VAT is a consumer tax and is charged in the UAE at 5% of the items actual cost.
To determine if you must register for VAT or not, you first need to surpass the threshold which is as follows:
- To voluntarily register for VAT your anual turnover needs to be over AED 187,500. Should your tunover exceed this amount you are not required to register for VAT but may choose to do so.
- You are mandatorily required to register for VAT if your anual turnover excedes AED 375,000.
What is VAT charged on
VAT is charged on supply of Goods and Services.
- A supply of goods would be anything physical that one can acquire ownership over
- A supply of services would be a non- tangible product such as the supply of electricity
Types of VAT
There are four categories of VAT
- Exempt- these are goods and services where VAT is not applicable and cannot be charged for. Businesses supplying exempt goods and services cannot and need not register for VAT. The Business cannot reclaim VAT on purchases.
- Zero-Rated- VAT Will be appear on the Tax Invoice but at 0%. This is not to be confused with exempt. You are still required to register for VAT and although you are not charging VAT in such a way the customer pays more, you can still claim back VAT on certain purchases made for business.
- Standard Rated- You need to register for VAT and must charge VAT on items at 5%.
- Out of scope- this is for items where the VAT law would not have jurisdictions such as Exports or where your main business is in the UAE but goods that you supply never enter the UAE. For e.g, if a client in USA buys an item from you (which you don’t physically have) and you arrange for purchase of that item from the EU and transport to the USA, no VAT will be applicable.
Is VAT the same everywhere in the UAE?
VAT is applied differently in certain parts of the UAE.
- In designated zones, VAT may apply differently than what it would if it was not within such a zone.
I don’t have an office in the UAE but will supply goods or services there.
- The determination if VAT is applicable on a supply is made by determining the place of supply. For E.g if your company is in the USA and a client requests that you supply a service (such as a presentation) in the UAE, the place of supply will be the UAE and you will be required to charge VAT on it (if the annual supply exceeds the threshold).
VAT in the UAE is a complicated thing and should you require any further information on it please contact us.
7. Legal Assistance
Once all the legal procedures and forms are ready, the best option for a clear and simple path to establishing a business would be to contact BSA Ahmad Bin Hezeem and Associates in order to assist you and make it as easy as possible.
From routine domestic corporate transactions to complex high-value international projects, mergers, acquisitions and IPOs, our team provide a full range of corporate solutions to our regional and international clients, operates across the firm’s network of offices in the UAE, Oman, Lebanon, Iraq, Saudi Arabia and France. Our lawyers have a deep understanding of local and regional laws and regulations and provide unique regional regulatory expertise due to their close relationships with local authorities.
By Eduardo Delage, John Peacock & Tyne Hugo
This newsletter was written in collaboration with BSA, our partner firm in the Middle East. To read more, click here