How to create a subsidiary under an LLC in the UAE
When looking at expanding your business’s presence in the UAE while maintaining operational independence without compromising operational control, setting up a subsidiary under an existing LLC is a strategically advantageous option.
Subsidiaries offer a degree of financial and operational independence from the parent company and can be established to focus on specific business activities or projects, allowing the parent company to concentrate on its core operations while the subsidiary manages distinct ventures, such as new product lines, services, or markets.
Depending on the nature of the business and its activities, creating a subsidiary can also provide tax advantages whereby the parent company can strategically allocate profits and expenses between the entities to optimise tax liabilities.
This article explores some of the main benefits of establishing a subsidiary under an LLC and how it can be done.
Why set up a subsidiary in the UAE
A subsidiary is a separate legal entity that is wholly or partially owned and controlled by another company, often referred to as the parent company or holding company. Subsidiaries can operate independently to some extent but are ultimately under the ownership and influence of the parent company.
They are a useful tool for enabling expansion into new markets, regions or industries while ensuring that the parent company’s assets are isolated from any risks or liabilities associated with the subsidiary’s operations. They can also offer tax benefits through strategic allocation of profits, expenses, and tax planning.
Types of subsidiaries in the UAE
In the United Arab Emirates (UAE), companies have various avenues for establishing subsidiaries, each tailored to specific requirements and preferences:
- Limited Liability Company (LLC): The LLC structure is a favoured choice for businesses seeking a presence in the UAE mainland. It allows foreign investors to partner with UAE nationals or companies. The primary advantage of an LLC is that it grants access to the broader UAE market, not limited to a specific free zone. This is suitable for enterprises aiming to engage directly with the local market, provide services across the UAE, or conduct specific professional activities necessitating a mainland presence.
- Free Zone Company: Establishing a subsidiary in a UAE free zone offers numerous advantages, including full foreign ownership, tax benefits, and streamlined administrative processes. Most free zones specialise in particular industries, allowing businesses to select one aligning with their activities. Additionally, they can easily access shared resources, industry-specific expertise, and tailored support.
- Offshore Company: The UAE provides options for offshore company formations in jurisdictions such as Ras Al Khaimah International Corporate Centre (RAKICC) and Jebel Ali Free Zone (JAFZA). These structures are typically used for holding assets and conducting international business operations.
- Joint Venture: Opting for a joint venture with a local partner is a practical option, particularly if your business requires local knowledge or connections. Sectors like banking and telecommunications have specific rules that require a certain degree of local ownership or participation. This arrangement can be beneficial, especially when competing for government contracts and may be a prerequisite for qualification.
Whether the parent company is based in the UAE or abroad plays a crucial role in determining the subsidiary’s structure, ownership, legal framework, and market access. Depending on the parent company’s location, the subsidiary may have different degrees of access to the broader UAE market. A parent company in the UAE may find it easier to trade directly with the local market or engage in certain professional activities on the mainland. The location of the parent company also has tax implications for both the subsidiary and the parent company, including issues related to double taxation treaties. The application of these treaties depends on the location of the parent company. If the parent company is based in a country with a DTT with the UAE, it can benefit from provisions that determine which country has primary taxing rights over specific types of income. It may also choose to reinvest profits in the subsidiary or repatriate them to the parent company based on the prevailing tax regulations and treaties.
How to set up a subsidiary under an LLC in the UAE
- Determine Business Activities: Define the specific business activities your subsidiary will engage in, as this will impact the licensing and regulatory requirements. Certain business activities require additional approvals from government departments. For example, if your subsidiary is planning real estate development projects, you’ll need approvals from the Real Estate Regulatory Agency (RERA) and the Dubai Land Department (DLD), or if your business involves offering financial services, you’ll need to comply with regulations set by the UAE Central Bank and the Insurance Authority.
- Draft board resolution and POA from the parent company: For this step, you’ll need soft copies of the following documents:
- Parent company Certificate of Incorporation
- Parent company’s constitutional documents (Memorandum and Articles of Association)
- Certificate of Incumbency / Company Extract
- Authentication and translation of parent company documents: The following documents will need to be notarised by the notary public in the parent country and then apostilled and attested at the UAE Embassy in the parent company and Ministry of Foreign Affairs (MOFA) in the UAE. They must then be translated into Arabic by a certified legal translator and in some cases, attested by the Ministry of Justice:
- Parent company Certificate of Incorporation
- Parent company Memorandum and Articles of Association
- Certificate of Incumbency
- Board Resolution from the parent company authorising the opening of the subsidiary
- Name Reservation: Choose a unique name for your subsidiary and submit it to the Department of Economic Development (DED) in the respective emirate where you plan to establish your subsidiary. You have the option to choose a trade name (the official registered name) and a brand name (the name you commonly use for branding and marketing purposes). Ensure that both names align with your business activities and adhere to naming regulations. It’s also important to ensure that the name doesn’t imply activities that are beyond the scope of your business licence, as this can lead to registration issues.
- Memorandum of Association: Draft the Memorandum of Association (MOA), which outlines the company’s objectives, shareholding structure, and management details. You’ll need to include the local partner’s details in this document. You’ll need the parent company’s MOA, a shareholder’s agreement and a service agreement for this step.
- Lease Office Space: Once initial DED approval is obtained, you’ll need to secure office space to register your subsidiary. This will need to be signed by the legal representative and the lessor.
- Execution of the MOA: The newly created MOA will have to be executed before a private notary public and signed by the parent company’s representative. You’ll require the DED initial approval and trade name reservation certificate, as well as the attested translations of the company’s constitutional documents, certificate of incorporation and board resolution.
- Obtain the commercial licence for the subsidiary: Once the above steps have been completed, with all documents provided, the DED will issue the subsidiary’s commercial licence to allow it to legally operate.
- Open a corporate bank account: There are approximately 48 banks to choose from in the UAE, both local and international. You’ll need to deposit the minimum chare capital in the bank and prepare required documentation. This usually includes:
- Trade licence
- Passport and visa copies
- Proof of address
- Board resolution
- Financial statements
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 to set up a subsidiary in the UAE, assisting with navigating local regulations, handling documentation and liaising with government authorities on your behalf to expedite the establishment process and ensure compliance with all legal requirements.
If you need advice on setting up a subsidiary 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.