Dubai in the UAE has proved to be one of the most attractive places to businessmen from all over the world. Dubai’s law expresses its leniency for free and fair trade with other countries and therefore the procedure for setting up a business, compliance mechanisms etc. are relatively simpler than in other countries. The Department of Economic Development (“DED”) has laid down a vision whereby the business owners are actively assisted by the good administration and simple procedural requirements. On this blog we will look into major stuffs that would resolve a simple question on “How to start a business in Dubai?”
Branch office v. Subsidiary:
A business in Dubai may be set up by a parent company located outside the territory of Dubai either as a Branch office or as a Subsidiary Company. While the former is related to the parent company and cannot function independently, the latter is an arm of the parent company but functions as an independent unit. The branch office of the company in Dubai will have to register itself with the Ministry of Economic Affairs and will be allowed to perform only limited activities as per the law of the country and that are similar to those of its parent company.
A subsidiary on the other hand is a separate legal entity than its parent company. The parent company will not be liable for any functions or actions of the subsidiary in Dubai and will be free to practice any business activities independent of its parent provided that all the rules and regulations of the country are complied with.
Free Zone v. outside free zone:
A subsidiary company in Dubai may be set up either in the mainland of Dubai or in the Free Zones. The location of the business may be chosen depending upon the nature of the business, the activities to be undertaken, the scale of these activities, capital requirements, capital structure etc. Setting up a company in the free zone of Dubai entails various benefits. Some of these include:
- Ownership by a foreign national to the extent allowed by the law.
- A complete exemption from all kinds of corporate taxes, duties imposed on import and export of goods and services for a period of fifteen years from the year of establishment.
- The laws of Dubai also allow repatriation of all the 100% invested capital and profits.
However, on the contrary, it must be noted that though the benefits of setting up a unit in the free zone is plenty, it comes with its own drawbacks. Such a unit is not allowed to transact and indulge in any business activities with the companies statute on the Dubai mainland, involves extensively high translation and notarization costs, and mandatory presence of the office in the free zone that has been chose.
If you set up an office in the mainland, the permission of the DED authorities by way of a license to carry out business activities in the territory will have to be obtained.
Below is an account of all the requirements that must be fulfilled in order to establish a subsidiary in Dubai:
Choosing an area of business: The business activities that a subsidiary company may choose have been categories under tourism, commercial, professional and industrial. The list encompasses a total of about 2,100 business activities under the above stated heads. In case the activity that you wish for your business to undertake is not listed under any of these, you may write to the concerned authorities by emailing at firstname.lastname@example.org for seeking a clarification for this purpose.
Prior to a formal application having been made, a subsidiary under the company law of Dubai is set up as a limited liability company. For this purpose, a company must choose a unique name that has not already been registered and also not the intellectual property of any other entity. In addition to this, an approval from the DED authorities may also be applied for, Memorandum and Articles of Association are required to be drafted and notarized etc.
Along with the application to the Ministry of Economic and Commerce, the parent company shall also submit the following documents:
- Certificate of Incorporation of the company
- Memorandum and Articles of Association drafted and notarized according to the laws of Dubai.
- Board Resolution of the parent company approving the establishment of the subsidiary company.
- Audited Financial Accounts for the previous financial years.
- Power of Attorney in favour of a locally appointed agent to carry out functions on behalf of the parent company.
- A ‘Service Agreement’ for this purpose may also be entered with any UAE national.
- Approval for the location of the office must also be obtained.
- Bank Guarantee of AED 50,000 drawn in favour of the Minister of Economy and Planning, renewable annually.
An application for a license to carry out business activities in the chosen area shall be filed with the Ministry of Economy and Commerce with the required documents such as the executed and signed Service Agreement. The Ministry classifies the application depending upon the business activity that the subsidiary proposes to undertake. This application is then forwarded to the concerned department and the local government’s approval is sought.
It is also then sent for approval to the Federal Foreign Companies Committee after which, the license is issued by the Ministry of Economy and Commerce after entering it in the register of Economic Department. It also specifies the kind of activities that may be undertaken by the subsidiary company in the chosen area of functioning.
Last but not the least, this office is registered with the Dubai Chamber of Commerce and Industry.
Once the area of business activity is chosen, the next step is to file an application with the relevant authority according to your chosen area of practice. For example, for the purpose of starting a road transport activities business- the permission of the Road and Transport Authority must be taken. Similarly, for Oil related and legal services to be rendered- by His Highness the Ruler’s Court’s authority must be taken, for telecommunications- the Telecommunications Regulatory Authority must be obtained etc.
Hence, the process of the registering and starting a business in the form of a subsidiary company in Dubai. In case of a need for any assistance, our associates and affiliates from Wazzeer will be happy to guide you through the process.