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A guide to corporate structure in the UAE

Corporate structure is the architectural blueprint upon which businesses are built. In the UAE’s dynamic and rapidly evolving business landscape, its importance cannot be understated. It forms the framework through which a company operates, detailing how ownership, management, and decision-making are distributed and defining the roles, responsibilities, and relationships between various stakeholders, such as shareholders, directors, and employees.

A strong corporate structure is essential for legal compliance, efficient taxation, liability protection, operational flexibility, and overall business success. It not only safeguards the interests of business owners but also lays the foundation for growth and long-term sustainability.

This article looks at the UAE’s legal and regulatory landscape, some of the most common corporate structures and how to choose the most appropriate one for your business.

The UAE’s legal and regulatory landscape

The legal and regulatory framework governing corporate structures in the United Arab Emirates (UAE) is a crucial aspect of the country’s business environment. The UAE is a federation of seven emirates, and while there are federal laws that apply uniformly across the nation, each emirate also has the authority to enact its own regulations, which can add complexity to the legal landscape. The following is an overview of the key elements governing corporate structures in the UAE.

Federal Laws and Authorities:

  • UAE Commercial Companies Law (CCL): The CCL is a fundamental piece of legislation that governs various aspects of corporate entities, including formation, management, and dissolution of companies. It sets out the legal requirements for different types of corporate entities, such as limited liability companies (LLCs), joint-stock companies, and partnerships.
  • UAE Central Bank: The UAE Central Bank plays a crucial role in regulating financial institutions and banks. It sets monetary and financial policies and supervises banks, ensuring their compliance with financial regulations.
  • UAE Ministry of Economy: The Ministry of Economy oversees economic activities in the UAE and plays a role in approving foreign investment and trade licenses. It also maintains the Commercial Register, which records company information.
  • Securities and Commodities Authority (SCA): The SCA regulates and supervises the securities and commodities markets in the UAE, ensuring the integrity and transparency of financial markets. It oversees publicly traded companies.

Emirate-Specific Regulations:

Each emirate in the UAE has its own regulatory authority responsible for implementing federal laws and enacting local regulations. For example:

  • Dubai: The Dubai Department of Economic Development (DED) is responsible for issuing business licences and regulating economic activities within the emirate. Dubai also has its own free zones with specific regulations.
  • Abu Dhabi: The Abu Dhabi Department of Economic Development (ADDED) has a similar role to the DED in Dubai, regulating businesses and issuing licences.
  • Other Emirates: Other emirates like Sharjah, Ras Al Khaimah, and Fujairah have their own economic departments or authorities responsible for business regulation.

Free Zones:

The UAE boasts over 40 multidisciplinary free zones, such as the Dubai International Financial Centre (DIFC), Abu Dhabi Global Market (ADGM), and the Dubai Multi Commodities Centre (DMCC). These free zones offer unique regulatory environments, incentives, and tax benefits to attract foreign investment and business activities. They have their own legal and regulatory frameworks.

Foreign Investment Laws:

The UAE has introduced laws and regulations to encourage foreign investment, such as the Foreign Direct Investment (FDI) Law, which allows for increased foreign ownership in certain sectors. These laws aim to promote economic diversification and attract foreign capital.

Common corporate structures in the UAE

The following is a brief overview of some of the most common corporate structures in the UAE, along with their advantages and disadvantages:

  • Limited Liability Company (LLC):
    • Advantages: Flexibility, limited liability for shareholders, minimal capital requirements, ability to conduct business across the UAE.
    • Disadvantages: Set up and maintenance can be costly due to various government fees, administrative expenses, and compliance requirements. These costs can be a burden, especially for small businesses.
  • Free Zone Company:
    • Advantages: 100% foreign ownership, tax incentives, simplified registration process, no import/export duties, and access to state-of-the-art infrastructure.
    • Disadvantages: Restricted to operating within the free zone, limited ability to do business outside the free zone without a local distributor.
  • Joint Venture:
    • Advantages: Ability to leverage local expertise, access to local markets, risk-sharing with partners.
    • Disadvantages: Shared decision-making, potential conflicts with partners, profit-sharing, complex legal agreements.
  • Public Shareholding Company (PJSC):
    • Advantages: Ability to raise capital through public offering, transparency, potential for liquidity through stock exchange listings.
    • Disadvantages: Stringent regulatory requirements, complex governance structure, disclosure obligations.
  • Branch Office:
    • Advantages: Allows foreign companies to have a presence in the UAE, no requirement for a local shareholder, access to local markets.
    • Disadvantages: Limited to activities permitted by the parent company, subject to federal and emirate-specific regulations.
  • Representative Office:
    • Advantages: Non-trading entity for market research and promotion, no tax liability, low administrative requirements.
    • Disadvantages: Cannot conduct commercial activities, limited to promotional and support functions, must be sponsored by a UAE entity.

How to choose the right corporate structure

When setting up a business in the UAE, choosing the right corporate structure in the UAE is a crucial decision since it has implications on many elements of your business such as trading scope, taxation, ownership requirements and liability. The following are some of the key areas you should consider:

  • Business Activity and Location: The nature of your business activity and where you plan to operate (e.g., within a free zone or mainland) can significantly impact your choice of corporate structure. You should consider your target market and which jurisdictions offer the best access, as well as the availability of business support and infrastructure that aligns with your business needs.
  • Ownership Requirements: Consider whether you prefer 100% foreign ownership or are open to partnering with local Emirati individuals or companies. The recent changes in foreign ownership regulations allow for greater flexibility, but there may still be certain restrictions in specific sectors.
  • Liability: Assess the level of liability protection you need. Some structures, like LLCs, provide limited liability for shareholders, protecting personal assets. Others, like sole proprietorships, offer less liability protection.
  • Taxation: Understand the tax implications of each corporate structure, including corporate income tax, VAT (Value Added Tax), and customs duties. Many free zones offer incentives, such as corporate tax exemptions, no import or export duties and full repatriation of company profits while mainland companies tend to have less of these benefits but offer greater trading scope.
  • Capital Requirements: Different structures may have varying minimum capital requirements, which can impact your initial investment and financing options.
  • Regulatory Compliance: Be aware of the regulatory requirements and industry-specific regulations that may apply to your business. Certain industries, such as healthcare, banking and finance, and telecommunications have independent authorities which oversee them and require specific approvals. Other industries, such as manufacturing and construction, must comply with environmental regulations, including waste management and pollution control measures. You should research the specific requirements that relate to your industry to ensure compliance.
  • Management and Control: Consider how much control you want over the management and decision-making of your business. Some structures such as LLCs involve shared management, while others like sole proprietorships and Free Zone Establishments (FZE) allow full control.
  • Flexibility: Evaluate the flexibility of the chosen structure in terms of adding or removing partners, expanding activities, or changing business objectives.
  • Location of Customers and Suppliers: The location of your primary customers and suppliers may influence your choice of corporate structure to facilitate business transactions and logistics. If your primary customers and suppliers are geographically dispersed, choosing a corporate structure that allows for regional subsidiaries or branches might facilitate smoother business transactions and logistics, reducing shipping costs and enhancing customer service by being closer to your target markets and suppliers.
  • Exit Strategy: Plan for the future. Consider how easy or complex it would be to exit or sell your business under the chosen structure.
  • Costs and Administrative Requirements: Different structures come with varying administrative overheads and costs, such as licensing fees, annual audits, and corporate governance requirements. You should assess your initial budget and expected outlay, but also consider the possibility of long-term sustainability and growth, as choosing a structure with lower upfront costs may lead to higher administrative expenses or limitations down the road.
  • Brand Image and Reputation: The choice of structure can impact how your business is perceived by clients, investors, and partners. Some structures, like public shareholding companies, may enhance your reputation.

Conclusion

A thorough understanding of corporate structuring and governance requirements in the UAE is critical to business success. It ensures compliance with local laws, facilitates efficient operations, and minimises legal risks, ensuring that your business has a strong foundation for success and sustainable growth.

How can Global Link help?

Global Link has over 16 years’ experience working with local and global businesses, providing bespoke consultancy services for company incorporation in Dubai and the wider UAE.

We can help you set up your business in the UAE, guiding you through the complex legal and regulatory landscape, assisting in choosing the most suitable corporate structure, streamlining the incorporation process and ensuring compliance with all relevant laws and regulations.

If you need advice on business setup or structuring in the UAE or any other company incorporation, visa or PRO service, please get in touch with us on +971 4 553 9901 or email us at [email protected] and we will be happy to assist you.