General Information about Business Registration
Prior to operating any business in Dubai, the steps outlined below must be undertaken in order to meet the legal requirements of all concerned government authorities and to guarantee maximum commercial benefit for the business owner:
•Determine, in the beginning, the category/categories (commercial, industrial and/or professional) and type of business activity/activities to be practiced. Please determine all related business activities that can be included within each business license, subject to a maximum of ten activities per license.
•Determine the appropriate business legal form for your business taking into consideration the desired business activities and the number and nationalities of the business owners.
•Confirm all the requirements of the license to be issued.
•Determine the trade name of the business.
•Submit an application to the Department for an Initial Approval and register the trade name, either by a personal visit to the Department Offices and its external branches or through the internet services that are available on our website.
•After getting the initial approval you can lease premises and contact the counter of the Planning Department of Dubai Municipality in order to verify that this said premise is suitable for the business.
•Prepare all required documents and submit an application to the Department or one of its external branches to pay the required fees to obtain a final license.
•Submit an application to one of the Department external branches for a signboard permit for a business trade name as required by the economic regulations.
Terms & Conditions on Operating Economic Activities in the Emirate of Dubai—UAE Nationals
UAE nationals may operate all commercial, professional, and industrial activities when they fulfill all terms and conditions. They may carry on activities through any of the following legal forms:
•Limited/Joint Liability Company.
•Private/Public Shareholding Company.
•Civil Business Company.
Nationals of Gulf Cooperation Council (GCC) Countries
GCC nationals may carry on most commercial, professional and industrial activities, when they fulfill all terms and conditions (except for activities of Haj and Umra, trade agencies, houses of disabled and old people, community service, and journals and magazine publishing and printing houses as they are limited only to UAE nationals). They may carry on activities through any of the following legal forms:
•Limited Liability Company: two or more GCC nationals may establish a Limited Liability Company to practice a specific commercial activity. However, if there are one or more partners who are not GCC nationals in this case one or more UAE national partners are required, with a shareholding of not less than 51% of the paid-up capital.
•Private/Public Shareholding Company: three or more GCC nationals may establish a private shareholding company to practice a specific commercial activity. However, if there are one or more partners who are not GCC nationals in this case one or more UAE national partners is required, with a shareholding of not less than 51% of the paid-up capital.
(For Example: GCC partner, foreign partner, it is a requirement to have a partner from the UAE).
•Civil Business Company: two or more GCC nationals may establish a civil business company to practice a specific profession without a Local Services Agent. However, if there are one or more partners who are not GCC nationals, a Local Services Agent who is a UAE national shall be appointed or included as a partner.
Nationals of Other Countries
Nationals of other Arab or foreign countriesmay carry on economic activities through any of the following forms:
•Individual Establishment: it may be established to practice any professional activity, only by appointing a Local Services Agent who shall be a UAE national.
•Limited Liability Company: this kind of company shall be established to carry on any commercial or industrial activity, including one or more UAE partners whose shareholding shall not be less than 51% of the paid-up capital.
•Private Shareholding Company: this kind of company shall be established to carry on any commercial or industrial activity, including one or more UAE national partners whose shareholding shall not be less than 51% of the paid-up capital.
•Civil Business Company: two or more persons may establish a civil business company to practice a profession, provided that a Local Services Agent, who must be a UAE national, is appointed or included as a partner.
Any company incorporated outside the UAE may operate any commercial, industrial, or professional activity through one of the following legal forms:
•Branch of a Foreign Company.
•Limited Liability Company: this kind of company shall be established to operate any commercial or industrial activity, including one or more UAE national partners whose shareholding shall not be less than 51% of the paid-up capital.
•Private/Public Shareholding Company: this kind of company shall be established to operate any commercial or industrial activity, including one or more UAE national partner whose shareholding shall not be less than 51% of the paid-up capital.
Under the UAE Commercial Companies Law, most companies or branches are required to have their accounts audited locally, and these accounts will then need to be filed with the appropriate Emirate-level authorities on an annual basis as part of the license renewal ﬁling process. There is also an annual license renewal fees to be paid, which is based on the type of license, entity, and its activities. A similar requirement is for the free trade zone entities, although the requirements and fees vary and need to be considered based on the legal entity set up and its location.
Audit & accountancy
Joint-stock and limited-liability companies must appoint one or more auditors. All legally incorporated companies have to ﬁle their audited financial statements with the Ministry of Economy or relevant authority in order to renew their trade licenses. There are no exceptions available or restrictions on appointment of auditors. Companies generally prepare their accounts on a calendar year basis, and banks are specifically required to do so by the Central Bank of the UAE.
Listed companies (including banks) are required to ﬁle quarterly reviewed financial statements and annual audited financial statements in both English and Arabic with the Securities and Commodities Authority (SCA), which publishes the quarterly and annual financial statements on its website. Banks, including branches of foreign banks, are also required to ﬁle audited annual financial statements and regulatory returns with the Central Bank of the UAE and publish them in a local newspaper.
There is no specific language requirement for the purpose of maintaining books and records, although books are generally maintained in English. International Financial Reporting Standards is mandated by SCA and the Central Bank of the UAE and adopted as the default GAAP by all other companies.
Legal Business Structures
An Individual Establishment is an establishment owned by a sole proprietor to operate an economic activity (commercial, professional, industrial, agricultural, or real property). An establishment’s financial liability is linked to the proprietor, who shall be responsible for all of its financial obligations.
•A Civil Company undertakes directly a specific profession as its target and partners depend, for their earnings, on the practicing of activities that involve the use or investment of intellectual faculties more than depending on speculation, materials, or others’ work.
•Under Dubai Local Order No. 63 of 1991 on licensing professionals and tradesmen in the Emirate of Dubai, it is allowed for a number of normal individuals to practice a service or professional activity as distinct form, a commercial one, the business takes the form of a “Business Partnership” in accordance with the provisions of the rules (from 683 to 690) of the Federal Civil Dealings Law. Professional companies may be 100% foreign owned. However, it is necessary to appoint a Local Service Agent.
•The obligations of the local service agent toward his principal and third parties shall be restricted to rendering the usual experience in order to enable him to practice the professional or craftsmanship work without holding any responsibility or financial commitment in respect of his principle’s business or activity inside the Emirate or abroad. The relations between the two parties shall be regulated by any agency agreement.
Legal Forms of Commercial Companies
The legal forms of commercial companies, pursuant to Federal Law No. 8 of 1984 as amended, are summarized below.
•A general partnership is an arrangement between two or more partners whereby each of the partners is jointly and severally liable to the extent of all their assets for the company’s liabilities.
•Only UAE nationals are allowed to be partners in a general partnership.
•The name of the company shall be made up of the name of all partners, and its name might be limited to the name of one or more partners and adding a word to modify the presence of the company. In addition to that, the company may have a special commercial name, if the name of a person other than the partners was mentioned in the name while he is aware of that, the said person shall be responsible in partnership for the company’s obligations.
•All partners shall be considered a dealer, and the bankruptcy of any partner leads to the bankruptcy of all partners.
•The company shares may not be represented in negotiable certificates.
•Partners are severally responsible in all their money for the company’s obligations and any agreement to the contrary might not be made against Third Parties.
•The company administration shall be undertaken by all partners, unless the company contract or an independent contract assigns the administration to a partner or to a non-partner party.
Simple Limited Partnership
•A simple limited partnership is a company formed by one or more general partners liable for the company liabilities to the extent of all their assets, and one or more limited partners liable for the company liabilities to the extent of their respective shares in the capital only.
•Only UAE nationals are allowed to be general partners.
•The name of the company shall be made up of the name of one or more of the limited partners, adding a word to modify the presence of the company. In addition to that the company may have a special commercial name.
•The name of the limited partner may not be mentioned in the company name. If it was mentioned with his knowledge of that, he shall be considered a partner for Third Parties in good faith.
•The simple limited partnership shall be a partnership for all partners and shall be subject to all the rules of partnerships, based on the following:
1.The simple liability contract shall include, in addition to the other data, the name of each limited partner, his surname, nationality, date of birth, country, capital share, and the part paid of it.
2.The limited partner is only liable toward the company’s debtors with his capital share.
3.A limited partner may not intervene in company administration-related issues related to others even if upon authorization, he may rather require a copy of the loss/profit accounts and the balance sheet and check the validity of the data by reviewing the company’s records and documents by himself or by a representative from any of the partners or others provided that this does not harm the company.
4.If the limited partner violates the above-mentioned ban, he shall be responsible in all businesses for all the obligations resulting from his business.
5.The limited partner may be held responsible in all his money for all company’s obligations if the business administration he carried out leads others to believe that he is one of the ultimate actual partners, in which case the rules and regulations of the actual partners shall apply to the limited partner.
6.If the limited partners carried out any of the banned administration business based upon an explicit or implicit authorization from the partners, such partners shall be held responsible with him for the obligations resulting from such acts.
7.Limited partnership shall issue resolutions in consensus of all partners and limited partners, unless the contract states a majority, and the majority in number shall be considered, unless otherwise stated.
8.Resolutions to amend the company contract shall not be passed unless duly approved in consensus of all partners and limited partners.
Private Joint-stock Company
•A number of founders, not less than three, may establish a Private Joint-stock Company.
•The shares of a Private Joint-stock Company cannot be offered to the public or for the Public Subscription.
•The founders must subscribe all capital, and the minimum requirement for such capital is AED2 million.
•A Private Joint-stock Company is subject to all rules and regulations pertaining Private Joint Stock Companies, except for rules and regulations of the Public Subscription.
•A Private Joint-stock Company may be converted into a Public Joint-stock Company, in order to do so the following conditions must be satisfied:
1.The nominal value of the issued shares is fully paid up.
2.A period of not less than two financial years has expired.
3.During the two years preceding the application for conversion, the company has achieved net profits distributable to the shareholders whose average is not less than 10% of the capital.
4.A resolution of the extraordinary assembly
for the conversion of the company is adopted by a majority of three-quarters of the company capital.
Limited Liability Company (LLC)
•A Limited Liability Company is one with limited liability, where the number of partners may not exceed 50 and should not be less than two. Each of the partners shall only be liable to the extent of his share in the capital. The partners’ participation should not be represented by negotiable certificates.
•The name of the Limited Liability Company shall be taken from its purpose or from one or more of the names of partners, the statement Limited Liability Company shall be added to the company’s name, stating the company’s capital.
•Other than the insurance, banking, and investment businesses for others, the Limited Liability Company shall be entitled to practice any legal business.
•The company may not resort to Public Subscription to make up its capital or to increase it or to get the necessary loans, and it may not issue any negotiable stocks or shares.
•The minimum share capital shall be AED300,000 divided into equal shares with a minimum face value of AED1,000 per share.
•Shares may not be divided, and if several people owned it, they shall choose one to be an individual owner against the company, and it may fix for the share owners a time for such selection, provided that after that date, the share may be sold to its owners, in which case partners shall enjoy a priority in purchase.
•Losses and profits shall be divided equally among shares unless otherwise herein stated.
•The share of each partner shall be transferred to his heirs and those mentioned in the will shall be treated as heirs.
•A Limited Liability Company can be managed by a manager/managers that may be selected from among the partners or any other parties providing that they do not exceed a total of five persons.
•The manager/managers shall be appointed by memorandum of association or by a separate management contract for limited/unlimited terms. If the manager/managers are not appointed as stated in the above paragraph, the General Assembly of the partners will appoint them.
•Unless otherwise stated in the MOA, the company manager shall enjoy full powers of administration, and the manager’s acts shall be binding to the company, provided that it is supported with stating the capacity he enjoys.
•The manager’s resolution shall be as responsible as that of the company board, all conditions in the company contract contrary to that shall be invalid.
Partnership Limited with Shares (PLS)
•A Partnership Limited with Shares is a company formed by general partners who are jointly liable to the extent of all their shares for the company liabilities and participating partners who are liable only to the extent of their shares in the capital.
•For the general partners, the company shall be a general partnership, and the general partner shall be a dealer even if he did not enjoy such capacity before entering the company; all general partners must be nationals.
•The capital of Partnerships Limited with Shares shall be divided into negotiable equal shares.
•The company shall be named after the name of one or more of the general partners. Its name may be added to another innovative name or a name derived from its purpose.
•The rules related to the incorporation of limited liability partnerships shall apply to Partnerships Limited with Shares, according to the following:
1) All general partners and other founding parties shall sign the MOA and its regulations, and their resolutions shall be as effective and valid as the founders of the limited liability companies.
2)Names of the general partners, their surnames, nationalities, and countries shall be stated in the company contract and its regulations.
3)The minimum share capital requirement for limited partnership is AED500,000.
4)The documents issued by Partnerships Limited with Shares shall be subject to the same rules of the documents issued by Limited Liability Partnerships.
•Excluding the foreign companies licensed to practice business in the country’s free zones, foreign company’s may not practice main business in the state, and may not establish branches unless licensed to do so by the Ministry of Economy after obtaining the approval of the concerned authorities, which shall specify the business it is licensed to practice, provided that such license may not be issued unless the company has a national agent, and if the agent was a company, it shall hold the state’s nationality and all its partners shall be nationals.
•The obligations of the agent towards his company and third parties shall be limited to rendering the services required for the company without holding any responsibility or financial commitment in respect of his company’s branch or office business or activity inside the Emirate or abroad.
•Foreign companies licensed to work in the state based on the provisions of the above paragraph may not start their business in the state unless they are registered in the Foreign Companies Register at the Ministry of Economy.
•The offices and branches of a foreign company shall be the headquarters of its business and its business shall be subject to the provisions of the law.
•Foreign companies, offices, and branches shall have an independent budget, independent profit/loss accounts, and shall have an auditor.
•If the foreign companies, or their offices or branches, practiced their business inside the state without carrying out the above-mentioned provisions, the persons practicing such business shall be personally and collectively responsible.
Free Trade Zones
Investors also have a choice to set up operations in one of the free trade zones in the UAE. A free trade zone is a geographical area within the UAE that has been established by the UAE government to generally encourage FDI into the UAE and, as such, there are generally no foreign ownership restrictions, unlike “onshore” entities. That is, foreign investors can set up 100% fully owned entities in the free trade zones.
The principle drawback of a free trade zone is that strictly, entities registered in the free trade zone are not permitted to conduct commercial activities in the UAE, outside of the free trade zone.
Currently, there are over 25 established free trade zones in the UAE, of which the majority are in the Emirate of Dubai. The free trade zones also provide a choice of establishing either a company or a branch.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
TBY would like to thank Merali’s Chartered Accountants & Registered Auditors for compiling this analysis.