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How to set up a subsidiary in the UAE

As a foreign company looking to expand your footprint into the UAE and tap into the lucrative opportunities in the MENA region, setting up a subsidiary is a worthwhile consideration. Unlike a branch which operates as an extension of its parent company, is limited in its scope and whose liabilities and obligations can directly affect the parent company, a subsidiary operates as a distinct legal entity, offering more autonomy, versatility in business activities, and reduced liability for the parent company. This approach not only provides greater operational freedom but also ensures a higher level of protection for your parent company’s assets and interests.

This article looks at the UAE’s appeal as a business destination, the advantages of setting up a subsidiary in the UAE, legal and regulatory considerations and the setup process.

Types of subsidiaries in the UAE

In the United Arab Emirates (UAE), businesses have several options when it comes to setting up subsidiaries, each tailored to specific needs and preferences:

  • Limited Liability Company (LLC): An LLC is a popular choice for businesses looking to establish a presence in the UAE mainland. It allows foreign investors to partner with UAE nationals or companies. The key advantage of an LLC is that it provides access to the broader UAE market and not just a specific free zone. It’s suitable for businesses that want to trade directly with the local market, offer services across the UAE, or engage in specific professional activities that require a mainland presence.
  • Free Zone Company: Setting up a subsidiary in a UAE free zone offers various benefits, including 100% foreign ownership, tax advantages, and streamlined administrative processes. Most free zones also focus on specific industries which means businesses can choose one which aligns with their activities and can easily access shared resources, expertise, and specialised support.
  • Offshore Company: The UAE offers offshore company formations in jurisdictions like Ras Al Khaimah International Corporate Centre (RAKICC) and Jebel Ali Free Zone (JAFZA) These are typically used for holding assets and international business activities.
  • Joint Venture: Partnering with a local entity for a joint venture is another option, especially if your business needs local expertise or connections. Some industries, such as banking and telecommunications, have specific regulations that mandate a minimum level of local ownership or involvement. This can be advantageous when bidding for government contracts and in some cases, is a prerequisite for eligibility.

The legal and regulatory landscape

The legal and regulatory framework for setting up a subsidiary in the United Arab Emirates (UAE) is well-structured and aims to facilitate business growth while maintaining transparency and adherence to established rules. The following is an overview of the key aspects to consider:

Business Laws and Regulations:

Subsidiary establishment in the UAE is governed by federal laws, such as the UAE Commercial Companies Law (CCL). The CCL outlines the types of business entities, their structures, and the rights and obligations of shareholders. In addition to federal laws, each emirate in the UAE may have its own set of regulations that businesses must adhere to so it’s essential to consider both when establishing a subsidiary.

Licensing and Permits:

The process for obtaining permits for a subsidiary in the UAE depends on the location (mainland or free zone) and the type of business activity. On the UAE mainland, the key authority responsible for issuing permits and licences is the Department of Economic Development (DED) in the respective emirate where the subsidiary will operate. Each emirate has its own DED branch, such as the Dubai DED in Dubai or the Abu Dhabi DED in Abu Dhabi. You will need to visit the DED office in your chosen emirate or use their online portal to submit the necessary documentation, including the trade name reservation, Memorandum of Association (MOA), and other required documents. If you opt to set up in a free zone, the respective free zone authority is responsible for issuing permits and licences. Depending on the nature of your business and the industry you are entering, you may need to obtain additional permits or approvals from specialised authorities. For example, if you’re setting up a healthcare facility, you may require approval from the Ministry of Health and Prevention.

Ownership Requirements:

For mainland companies, including subsidiaries, the ownership requirements and allowances have evolved, with the vast majority of business activities allowing 100% foreign ownership. However, some sectors such as banking and finance and certain categories of professional activities still have restrictions on foreign ownership. Free zones, on the other hand, have always permitted 100% foreign ownership without the need for a local partner or sponsor. However, it’s important to note that branches of free zone companies are still required to have a UAE national agent as part of their structure.

Legal Documents and Contracts:

Setting up a subsidiary involves preparing legal documents, such as the Memorandum of Association (MOA) and other contractual agreements. These documents outline the company’s structure, shareholding, and operational guidelines. Depending on the type of subsidiary and the nature of the business, legal documents may require notarisation and authentication.

Compliance and Reporting:

Businesses must adhere to ongoing compliance requirements, including filing annual financial reports and conducting audits as mandated by UAE law. Additionally, companies must register for Value Added Tax (VAT) if their annual turnover exceeds a threshold of AED 375,000.

How to set up a subsidiary in the UAE

The following is a brief overview of the process for setting up a subsidiary:

1. Legal Structure and Business Activity:

Decide on the most suitable legal structure for your subsidiary (e.g., LLC, free zone company, offshore company, etc.). Then determine your business activities and ensure they align with the chosen legal structure.

2. Choose a Business Name:

Select a unique and approved business name in compliance with UAE regulations.

3. Local Partner or Sponsorship:

If required by the chosen legal structure, find a local Emirati partner or sponsor who meets the legal requirements.

4. Registration and Licensing:

Apply for the necessary licences and permits from the relevant authorities based on your business activities and location (mainland or free zone).

5. Office Space:

If you’re establishing a mainland subsidiary in the UAE, you’ll typically need a physical office presence within the emirate where you plan to operate. Free zones tend to be much more flexible in this regard. Many offer a range of office options to cater to different business needs. These options include flexi-desks, dedicated workstations, executive suites, warehouses, and industrial units. Shared facilities and business support services, such as meeting rooms, reception services, and administrative support are also commonly available, which can help reduce initial setup costs and administrative burdens.

6. Draft Legal Documents:

You’ll typically need a Memorandum of Association (MOA) and Articles of Association (AOA) outlining company structure, a trade licence permitting specific business activities, and board resolutions authorising the subsidiary’s establishment. Additional documents may include passport copies and visa documents for shareholders and directors, a lease agreement for the registered office, and, in some cases, a Power of Attorney to delegate authority.

7. Submit Documents and Fees:

Submit all required documents and pay the associated government fees for company registration and licensing.

8. Bank Account and Capital:

There are a number of local and international banks to choose from. Some of the most well-known and established include:

  • Emirates NBD
  • First Abu Dhabi Bank (FAB)
  • Abu Dhabi Commercial Bank (ADCB)
  • Dubai Islamic Bank (DIB)
  • Mashreq
  • Citi UAE
  • Standard Chartered Bank UAE

You’ll need to deposit the minimum chare capital in the bank and prepare required documentation. This usually includes:

  • Trade licence
  • MOA
  • Passport and visa copies
  • Proof of address
  • Board resolution
  • Financial statements

9. Visas and Labor Contracts:

Apply for employee visas and labour contracts for your staff, ensuring compliance with UAE labor laws.

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.