Business incorporation in the UAE

In the context of globalization and the changing global economy, choosing the right jurisdiction for incorporating and conducting your business is critically important. Today, one of the attractive jurisdictions for company registration is the United Arab Emirates.

What are the main advantages of opening a company in the UAE?

Developed legal system

The legal system of the United Arab Emirates (UAE) is a complex structure that combines elements of traditional Islamic law, civil law, and common law. This system ensures legal security, transparency, and predictability, making the UAE an attractive place for business and investment.

The UAE is a federal state consisting of seven emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, and Fujairah. Each emirate enjoys a significant degree of autonomy and is governed by individual rulers (sheikhs). This structure provides flexibility and diversity in approaches to governance and development, making the UAE unique in terms of economic and legal opportunities.

In addition, the UAE actively develops free economic zones (FEZs), or 'free zones,' which offer favorable conditions for doing business. Currently, there are over 40 free economic zones in the Emirates. These zones are designed to attract international investments and offer several advantages, such as tax benefits, 100% foreign ownership of businesses, and simplified company registration procedures. The most well-known FEZs include Jebel Ali in Dubai, the Dubai International Financial Centre (DIFC), and the Abu Dhabi Global Market (ADGM).

Favorable tax regime

Historically, the UAE has been a low-tax jurisdiction. In 2023, the UAE introduced corporate tax in accordance with Federal Decree-Law No. 47 on the Taxation of Corporations and Businesses.

The general corporate tax rate is 9% and generally applies to income exceeding AED 375,000 (~USD 103,000).

However, in the free zones, the tax remains at zero, but only for those companies that meet certain criteria and are recognized as Qualifying Free Zone Persons (QFZPs) — qualifying companies or qualifying residents. If companies are recognized as such, they are taxed as follows:

  • 0% - on all income derived from qualifying activities (Qualifying Income);
  • 9% - corporate tax on income derived from other sources.

Economic development

The financial system of the UAE is one of the most developed and stable in the region, providing a wide range of financial services and access to capital. Additionally, the country is actively creating tech parks, innovation centers, and accelerators to support startups and innovative enterprises. As a result, the UAE is currently an attractive hub for the incorporation of startups. For example, the annual United Nations Conference on Trade and Development (UNCTAD) World Investment Report for 2023 highlighted the significant achievements of the United Arab Emirates in attracting foreign direct investment (FDI). In 2023, the UAE ranked second in terms of FDI into new projects, second only to the USA*.

The UAE also has a number of government programs and funds for startups, such as the Mohammed Bin Rashid Innovation Fund (MBRIF), the Sharjah Entrepreneurship Centre (Sheraa), and others.

https://unctad.org/system/files/official-document/diaeiainf2024d1_en.pdf

Political stability

The UAE has a stable and predictable political system, creating a favorable climate for business and investment. Additionally, the UAE maintains stable and constructive relations with most countries around the world, and the government is actively improving legislation, making it more transparent and predictable for businesses.

What are the types of companies to do business in the UAE?

There are three types of jurisdictions for doing business in the UAE (and therefore three types of companies):  

Onshore local companies - Mainland company

Registering an onshore (mainland) company in the UAE provides businesses with access to the local market and opportunities for cooperation with government organizations. Additionally, mainland companies enjoy a good reputation with local banks, which significantly simplifies the process of opening a bank account.

Territory - unlike free economic zones, local companies are allowed to operate throughout the entire UAE.

Foreign ownership - currently, foreign nationals can own 100% of a local company unless the local company engages in «strategic impact» activities, which are subject to additional regulation.

However, for onshore local companies, it is necessary to consider corporate income tax (9% on income exceeding AED 375,000 per year) and a relatively complex legal environment.

In most cases, local companies are registered to conduct service activities directly in the UAE local market.  

Onshore companies in free economic zones (free-zones)

Free zones in the UAE are designated areas that allow foreign investors to conduct business and enjoy tax and other benefits. There are over 40 free economic zones in the UAE— some are tailored and convenient for doing business in specific industries, while others allow for the registration of companies for almost all types of activities.

Territory - the key distinction for onshore companies in free zones is that they can only operate within the specific free zone where they are registered, or outside the UAE, but not throughout the entire UAE.

Foreign ownership - onshore companies in free zones can be 100% owned by foreign nationals and provide the opportunity to obtain resident visas.

Below are the main types of companies that can be registered in free zones:

  1. Free Zone Establishment (FZE) – a company with one shareholder;
  2. Free Zone Company (FZC) – a company with two or more shareholders.

The activities of companies registered in free zones are regulated by special regulations adopted in those free zones, along with federal legislation and the legislation of the respective Emirate. Each free economic zone has its own management structure, including a registrar, immigration authorities, customs, police, and even medical facilities.

The most popular free zones for business incorporation are the financial free zones Dubai International Financial Centre (DIFC) and Abu Dhabi Global Markets (ADGM). These are among the most developed. The implementation of common law institutions in these free zones ensures a high degree of predictability and transparency in legal enforcement.

His is particularly important for international companies and investors. The courts in DIFC and ADGM are independent and operate according to international arbitration standards.

Offshore companies in free economic zones

Offshore companies are suitable for conducting international business exclusively outside the UAE. This means that such companies cannot operate within the UAE, and there is no possibility of obtaining resident visas for the beneficial owners and management of the company.

Foreign ownership - offshore companies can also be 100% owned by foreign nationals.

It should be noted that the optimal choice of type and location for company registration depends on the specific goals and needs of the business. If a business plans to engage in international activities with minimal tax obligations and regulatory requirements, it is worth considering onshore companies in free zones. Offshore companies in free zones are suitable for international holdings and companies focused on international trade and asset management, but exclusively outside the Emirates.

What activities can companies conduct after incorporation in the UAE?

Companies registered in the UAE can engage in various types of activities, which can generally be divided into holding and operational activities. Each of these forms has its own characteristics, advantages, and disadvantages within the context of different UAE jurisdictions.

Holding Company

A holding company in the UAE is typically established for managing assets and investments, owning shares in other companies, and earning income from these investments. This structure is suitable for international corporations aiming to optimize asset management and distribute tax burdens.

Operational Company

An operational company in the UAE engages in commercial activities such as manufacturing, trading, providing services, and other activities aimed at generating profit.

However, it's important to note that obtaining licenses is required for conducting most types of business in the UAE. The licensing procedure depends on the type of activity and the company's place of registration, but generally includes the following types of licenses:

  • Commercial License - for trading companies engaged in buying and selling goods.
  • Professional License - for companies providing professional services (consulting, IT, etc.).
  • Industrial License - for manufacturing companies engaged in production and processing of goods.
  • Specialized Licenses - for companies engaged in specific activities such as banking, insurance, healthcare, and others.

What is necessary to consider for registering a company in the UAE?

To successfully register a company in the UAE, several key aspects need to be considered:

  1. Documentation preparation:
    Typically, the documentation package includes the following:
    • Choosing and confirming the company name – the name and legal form of the company should reflect the nature of your business activities
    • Articles of Association of the company
    • Legal address
    • Notarized copies of passports of shareholders and directors
    • Document legalization: Currently, the UAE is not a party to the Hague Convention, which abolishes the requirement for legalization of foreign official documents. Therefore, it is necessary to undergo consular legalization procedures
       
  2. Opening a bank account
    Opening a bank account when registering a company in the UAE is an important step that requires special attention. If the ultimate beneficiaries or directors of the company are citizens of the Republic of Belarus or the Russian Federation, obtaining a local UAE residency visa may be required to open a bank account.
     
  3. Migration issues
    If you are planning to establish a company along with relocating ultimate beneficiaries and management, it is essential to prepare the necessary UAE residency visas and permits for living in the country. Please note that in some free zones, the number of residency visas granted may depend on the size of the office or warehouse space (for example, in ADGM).

Overall, incorporating a company in the UAE can be a strategically advantageous step, especially if your business is targeting international markets. However, before making a decision, it is crucial to carefully study all aspects and make an informed choice, considering the specifics of your business and the company's strategic objectives.

The REVERA legal team has the necessary experience in incorporating companies in various jurisdictions. Our own Legal Panel in the UAE enables us to offer seamless services to our clients for business registration and support in the UAE and other Central Asian countries.

Disclaimer: This publication offers general insights and should not be construed as legal advice. Companies are encouraged to seek tailored legal advice for their specific incorporation needs.

Authors and contacts:

Egor Zelianouski - LL.M, senior lawyer at REVERA law group - e.zelianouski@revera.legal
Firsiankova Marharyta - lawyer at REVERA law group - m.firsenkova@revera.legal

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