Dubai Company Formation, Company Formation United Arab Emirates, UAE, Tax Dubai- Free Zone VAE Dubai- Dubai Offshore Company, offshore company, limited company
Company Formation UAE – Company Formation United Arab Emirates (UAE): Jebel Ali Free Zone (Jafza)
- Index Company Formation UAE/Dubai
- Free Zone Company RAK
- Examples for the legal reduction of corporate taxes
- DTA permanent establishment concept
- Parent companies and their subsidiaries in the European Union
- OECD: Articles of the Model Convention with Respect to taxes on income and on capital
- Beware of cheap founders!
Company formation uae / Dubai: General information on company formation in a free-trade-zone of UAE
Shares of companies within one of the free-trade-zones of the UAE (RAK, Jebel Ali, Sarah) may be owned by foreigners in whole. These companies are allowed to do their business within the FTZ or abroad UAE only. Business wthin the UAE can only be made via a representative.
Foreign investors must fulfil the following requirements to their companies:
The following steps have to be realized in any case:
- Visa for Management, shareholders and resident employees
- Office (UAE does not allow a sole registered office or a virtual office; affordable office space is available e.g. in RAK)
- Licence (approval to run a certain business. For each business a license is required and only after obtaining the license may the appropriate action be taken.)
If the only business of an enterprise is in the UAE, please notice chapter 5 of the DTA:
Company Formation UAE / Dubai: Double Taxation Agreements, Definition of Permanent Establishment (Article of the DTA)
- For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
- The term “permanent establishment” includes especially:
- a place of management;
- a branch;
- an office;
- a factory;
- a workshop; and
- a mine, quarry or any other place of extraction of natural resources.
- A building site or construction or installation project constitutes a permanent establishment only if it lasts more than nine months.
- Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include :
- the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;
- the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;
- the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
- the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;
- the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;
- the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of this paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.
- Notwithstanding the provisions of paragraphs (1) and (2) of this Article, where a person – other than an agent of an independent status to whom paragraph (6) of this Article applies – is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph (4) of this Article which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.
- An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.
- The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.
If there is no factory, workshop, mine, quarry or any other place of extraction of natural resources or a building site or construction or installation that lasts more than nine months, a resident of the UAE has to manage the operations of the business, to located the permanent establishment in the UAE. Besides this, a non-resident director can bring the proof that he is present to fulfill his management duties (place of management).
We cannot provide a trustee director in the UAE.
Companies in the FTZ are tax free
The initial capital is very different and we have to refer to our survey on our Internet sites.
Fees for an incorporation in the FTZ vary by services of ETC and governmental fees.
Governmental fees are available on our Internet site. Our fees are between € 2,900.00 and € 4,900.00, depending on the service.
Notwithstanding this, it is possible to incorporate an Offshore Company (Exempted Company). An UAE Offshore Company may only do business outside the UAE, does not need any intial capital and can be owned by foreigners at 100% also. A trustee director can be provided.
Company Formation United Arab Emirates (UAE): Jebel Ali Free Zone (Jafza)
Jebel Ali Free Zone (Jafza) is a part of Dubai based, state owned Economic Zones World, one of the world’s biggest developers of Economic Zones, Logistics and R&D driven Industrial Parks.
Created under an Emiri Decree, Jafza commenced operations in 1985 with standard size office units and warehouses to provide ready built facilities to customers. In 1990 Jafza expanded its facilities to include light industrial units.
Located next to Jebel Ali Port, the largest port in the Middle East and, at 30 minutes drive to Dubai International Airport, Jebel Ali Free Zone is well positioned to enable its partners the fastest possible access to a market of over 2 billion people in the South and West Asia, the CIS and Africa. Supported with the region’s extensive highway network Jafza presents itself as the most efficient ally for all types of business opportunities.
Jafza is one of the world’s most services driven, customer centric free zones. Free form of red tape and vexing restrictions, Jafza provides its customers an environment which is most conducive for growth. Jafza’s deep commitment to service excellence has enabled it to win ISO 9001:2000 certification in 1996, making it the world’s first ISO accredited free zone.
The incredible journey from a base of 19 member companies has manifested itself into a present where we are a globally renowned commercial and industrial hub, home to nearly 6,000 Dubai businesses from well over 110 countries.
A business climate where your ambitions have opportunities to grow to any length. A vibrant networking atmosphere where new relationships and opportunities present themselves with refreshing regularity. It’s in these surroundings of entrepreneurship and historical richness that Jafza welcomes you.
Business Centers World (BCW), a division of Dubai World’s flagship company EZW offers you ready-to-use, fully furnished office spaces in Dubai designed for short-term or long-term use.
Besides office leasing,BCW helps you simply eliminate the administrative red tape that goes into setting up offices so that you can focus on running and growing your business.
Getting yourself an office space in Dubai through BCW gives you many benefits:
- No office setting-up costs
- Low market penetration costs
- Flexible terms for leasing office spaces, varying from one month to two years.
- Round-the-clock workstation access with network connections, meeting and conference rooms,equipped with the latest audio-visual equipment
- Business Lounges
- Professional support staff, administrative and secretarial services (upon request)
Free Zone Business
The three types of jafza free zone commercial facilities provided are:
Office Space – to provide clients with the freedom to express, Jafza offers unfurnished offices of any size, equipped with air-conditioning, light fixtures, power points, internet, and telephone access. Office space provided by Jafza is specially designed with the options for future expansion.
Light Industrial Units (LIU) – These facilities exist for two purposes: as storage warehouses for distribution and storage, and as factories for light-production and assembly, sizes of LIU’s range from 313 square meters to 619 square meters. Power supply is readily available in Jafza’s LIU’s, ranging from 10 to 50 KVA for warehouses and 100 to 125 KVA for factories. Additional benefits include 24-hour access, two entry/exit points, sufficient parking space and a ramp for light vehicles, as well as a loading dock for containers and trucks; not to mention, every LIU is equipped with an office.
Land – Jafza provides land plots of various sizes ranging from 2,500 square meters up to any size requested by the client. In terms of commercial property for lease, Jafza offers the flexibility of both short-term and long-term leases with flexible payment methods. All land plots and Jafza properties are well provided with the necessary utilities and amenities that are fundamental to their developments.
Jafza is located in Dubai, UAE and offers a number of administrative services, essential authorities and a wide range of licensing services under one roof. These services include:
- Immigration Services
- Roads & Transport Authority (RTA) related Services
- Emirates Telecommunications Corporation (Etisalat) Services
- Dubai Electricity & Water Authority (DEWA) Services
- Postal Authority Services
- Consulate Affairs
Having Jafza authorities at your fingertips enables your business needs to be meet with ease and efficiency.
Company formation Dubai /UAE- Introduction/summary
Dubai has a unique set of selling propositions, namely:
- No corporate tax
- No income tax
- No capital gains tax
- No property tax
- No wealth tax
- Low property transaction cost
- Ease of access to home finance
Dubai/UAE has double taxation agreements = DTA with most other countries. EU freedom of establishment is not applicable. For approval of the permanent establishment according to tax laws, a commercially equipped business operation must be installed in Dubai/UAE, and active business must be transacted in UAE/Dubai.
Since only oil companies and banks are subject to taxation in the UAE/Dubai, and any other companies do not pay any taxes, this results in interesting opportunities for investment in Dubai/UAE. In order to be able to use the tax advantages, a permanent establishment according to DTA must be installed in Dubai. On the one hand, a Dubai company is no offshore company in this sense, since the UAE/Dubai also maintain double taxation agreements with many countries – including Sweden and Denmark – but on the other hand, the EU freedom of establishment is not applicable. Therefore, the following prerequisites for approval of a permanent establishment according to tax laws in Dubai must be met:
- Place of management: A manager resident in the UAE/Dubai according to tax laws must – at least on the outside – control the company’s businesses.
- There must be a commercially equipped business operation, i.e. at least one office and one employee.
- It must be demonstrated that the Dubai company does actively transact business in the UAE.
Under the stated conditions, for example the Swedish could be a majority shareholder of the Dubai company, but nevertheless Dubai/UAE has the sole right of taxation, provided that the Articles of Association state that all relevant decisions are made at the shareholders’ meetings, which exclusively take place in Dubai, at which the Swedish shareholder must be present. However, the UAE company law stipulates that 51% of the company shares must be held by persons resident in Dubai. As a rule, the founder will use a “sponsor”. This requirement may be omitted in case of company formations in the free zones. In the free zones, 100 % of the shareholders may be foreigners.
The basic requirement for all business activity in Dubai is one of the following three categories of licence:
- Commercial licences covering all kinds of trading activity;
- Professional licences covering professions, services, craftsmen and artisans;
- Industrial licences for establishing industrial or manufacturing activity.
These licences are all issued by the Dubai Economic Department. However, licences for some categories of business require approval from certain ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health.
More detailed procedures apply to businesses engaged in oil or gas production and related industries.
Practising some trade activities (e.g. jewellery and insurance) requires the submission of a financial guarantee issued by a bank operating in Dubai.
In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.
Fifty-one per cent participation by UAE nationals is the general requirement for all Dubai-established companies except:
- Where the law requires 100% local ownership;
- In the Jebel Ali Free Zone, Dubai Internet City, or the Dubai International Financial Centre;
- In activities open to 100% AGCC (Gulf Cooperation Council) ownership;
- Where wholly owned AGCC companies enter into partnership with UAE nationals;
- In respect of foreign companies registering branches or a representative office in Dubai;
- In professional or artisan companies where 100% foreign ownership is permitted.
In the past, each emirate followed its own procedures governing the operations of foreign business interests. In practice, however, Dubai and the other emirates followed the same general system, whereby foreign companies operated in one of three ways: with a local sponsor, through a partnership with a UAE national or company, or through a private limited company or public shareholding company incorporated by Ruler’s decree.
Since 1984, steps have been taken to introduce a codified companies law applicable throughout the UAE. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 – the “Commercial Companies Law” – and its by-laws have been issued. In broad terms the provisions of the Law are as follows:
The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organisation which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.
The seven categories of business organisation defined by the law are:
- General partnership company
- Joint venture company
- Public shareholding company
- Private shareholding company
- Limited liability company
- Share partnership company
Partnership companies are limited to UAE nationals only. The Dubai government does not presently encourage the establishment of partnerships-en-commandite or share partnership companies.
Joint Venture Company
A joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be prescribed. There is no need to license the joint venture or publish the agreement. The foreign partner deals with third parties under the name of the local partner who – unless the agreement is publicised – bears all liability.
In practice, joint ventures are seen as offering a suitable structure for companies working together on specific projects.
Public and Private Shareholding companies
The law stipulates that companies engaging in banking, insurance, or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, however, can establish a presence in Dubai by opening a branch or representative office.
Shareholding companies are suitable primarily for large projects or operations, since the minimum capital required is Dh. 10 million (US$ 2.725 million) for a public company, and Dh. 2 million (US$ 0.545 million) for a private shareholding company. The chairman and a majority of directors must be UAE nationals and there is less flexibility of profit distribution than is permissible in the case of limited liability companies.
Limited Liability Company
A limited liability company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the company’s capital. Such companies are recognised as offering a suitable structure for organisations interested in developing a long term relationship in the local market.
In Dubai, the minimum capital is currently Dh. 300,000 (US$ 82,000), contributed in cash or in kind. While foreign equity in the company may not exceed 49%, profit and loss distribution can be prescribed. Responsibility for the management of a limited liability company can be vested in the foreign or national partners or a third party.
The following steps are required in establishing a limited liability company in Dubai:
- Select a commercial name for the company and have it approved by the Licensing Department of the Economic Department;
- Draw up the company’s Memorandum of Association and have it notarised by a Notary Public in the Dubai Courts;
- Seek approval from the Economic Department and apply for entry in the Commercial Register;
- Once approval is granted, the company will be entered in the Commercial Register and have its Memorandum of Association published in the Ministry of Economy and Commerce’s Bulletin;
- The licence will then be issued by the Economic Department;
- The company should then be registered with the Dubai Chamber of Commerce and Industry.
Branches and Representative Offices
The Commercial Companies Law also covers the formation and regulation of branches and representative offices of foreign companies in the UAE and stipulates that they may be 100% foreign owned, provided a local agent is appointed.
Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local agents (which should not be confused with the term “commercial agent”). Local agents — also sometimes referred to as sponsors — are not involved in the operations of the company but assist in obtaining visas, labour cards, etc and are paid a lump sum and/or a percentage of profits or turnover. In general, branches and offices of foreign commercial companies are not licensed to engage in importing activity except for re-export or in the case of products of a highly technical nature.
To establish a branch or representative office in Dubai, a foreign commercial company should proceed as follows:
- Apply for a licence from the Ministry of Economy and Commerce, submitting an agency agreement with a UAE national or 100% UAE owned company.
- Before issuing the licence, the Ministry will forward the application to the Economic Department to obtain the approval of the Dubai government and will forward the application specifying the activity that the office or branch will be authorised to undertake in the UAE, to the Federal Foreign Companies Committee for approval;
- Once this has been done, the Ministry of Economy and Commerce will issue the required Ministerial licence specifying the activity to be practised by the foreign company;
- The branch or office should be entered in the Economic Department’s Co
- The branch or office should also be entered in the Foreign Companies Register of the Ministry of Economy and Commerce;
- mmercial Register, and the required licence will be issued;
- Finally the branch or office should be registered with the Dubai Chamber of Commerce and Industry.
Branches and Representative Offices of Foreign Professional Companies
Branches and representative offices of foreign professional firms may be 100% foreign owned provided UAE nationals or 100% UAE owned companies are appointed as local agents. Such agents are not involved in the operations of the firm but assist in obtaining visas, labour cards etc and are paid a lump sum as remuneration. The Economic Department is the authority in charge of licensing such branches or representational offices.
In setting up a professional firm, 100% foreign ownership, sole proprietorships or civil companies are permitted. Such firms may engage in professional or artisan activities but the number of staff members that may be employed is limited. A UAE national must be appointed as local service agent, but he has no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover. The role of the local service agent is to assist in obtaining licences, visas, labour cards, etc.
Offshore-Companies in the United Arab Emirates
Since the year 2003 the United Arab Emirates allow the formation of offshore companies in the Jebel Ali Freezone in Dubai. With this step Dubai is positioning itself as a regional alternative among the worldwide network of offshore locations such as Liechtenstein, Madeira, Malta and the Canal Islands.
The advantages of establishing an offshore company in the United Arab Emirates are obvious: there are no corporate or individual taxes existing in the Emirates as well as no value added tax, inheritance tax or tax on assets. In addition to the tax free environment there is a double taxation treaty existing since 1995 between Germany and the Emirates, which exempts German producers located in the Emirates from taxation according to the German tax law.
Substantial legal regulations for forming and operating an offshore company can be found in the „Jebel Ali Free Zone Authority Offshore Companies Regulations“ (consists of 126 paragraphs). Concerning the activity of the offshore business there is no limitation except for banking or insurance businesses. The offshore company does not require its own personnel or maintain office space in the Emirates. In every case the company has to appoint a local representative (so called registered agent), who acts as the contact person for authorities in the United Arab Emirates.
Due to the low magisterial requirements the formation of an offshore company in the Jebel Ali Freezone offers an interesting alternative for foreign companies.