SUBSIDIARY ENTITY SET UP IN THE UAE

One of the options for international companies undertaking an expansion into the Middle East would be to consider a subsidiary entity set up in the UAE to widen their global horizons. There are risks, of course, and establishing a presence in a foreign territory can be costly both in time and money; plus, the effort and financial outlay have no guarantee of bringing success. Therefore, expert guidance is essential for expansion into the UAE.

Incoming companies can operate ‘onshore’ in one of the seven Emirates or ‘offshore’ in the 47 Free Trade Zones (FTZs). The UAE has no personal income tax and, until June 2023, no federal corporate taxes, when the rate of 9% will be one of the lowest in operation. Additionally, in November 2020, the government announced an amendment to the Commercial Companies Law removing the requirement for all onshore companies to have 51% UAE ownership. This will bring them into line with ‘offshore’ companies that could already be 100% foreign-owned, although onshore subsidiaries will still be subject to the regulations of the relevant licensing body.

The most common choice for a subsidiary in the UAE is a limited liability company (LLC), with branch offices being another option, but making such a move is a significant commitment. The sensible alternative is to use a Professional Employer Organisation (PEO) and Employer of Record (EOR), such as Bradford Jacobs, to locate the finest local talent and administer your payroll in the Emirates. Your company will be up and running in days rather than weeks or months without any risks.

How to Set Up an Emirati Subsidiary?

The first step for companies planning to establish their brand in the UAE is to decide on the business structure that best suits their plans. The typical choice is to choose a limited liability company (LLC) which, following a change to the Commercial Companies Law announced in 2020, can operate with 100% foreign ownership ‘onshore’ as well as in one of the 47 Free Trade Zones (FTZs). The registration and other procedures include the following:

  • Register a unique company name with the Department of Economic Development (DED) and obtain initial approval for the company.
  • Create a Memorandum of Association, notarized by a public notary in the UAE and produce corporate documents of the parent company.
  • Sign the office lease agreement and register with the relevant local authority.
  • Requires a minimum of two shareholders and no more than 50, with at least one director or manager appointed by the shareholders.
  • Open a corporate bank account.
  • There is no standard federal requirement for share capital, although different Emirates can require between USD 1 and USD 50,000 (EUR 47,750). Companies must show sufficient funds to complete the incorporation process as part of their notarized Memorandum of Association.
  • Obtain special approval from the Ministry of Economy if involved in contracting or industrial activities.
  • Obtain a business license from the relevant licensing authority according to location.

Each of the UAE’s seven Emirates has ‘offshore’ Free Trade Zones (FTZs) that can apply varying regulations for corporate taxation, customs and imports. Different criteria affect companies established in an FTZ, including such as:

  • ‘Offshore’ location allows 100% foreign ownership.
  • No corporate or income tax for guaranteed 50 years, with 100% repatriation of capital allowed.
  • Exempt from duties on imports into the Zone, but duties apply to goods entering mainland UAE.
  • FTZ companies doing business on the mainland must appoint a UAE-registered distributor ‘onshore’ or establish a branch office in the relevant mainland Emirate.

Benefits of Setting Up an Emirati Subsidiary

The subsidiary has a separate legal identity from the foreign parent company and is treated the same as any local UAE-registered entity. The parent company’s liability is generally limited to the invested share capital, and there is no responsibility for debts, with the same applying to its shareholders.

The subsidiary provides the parent company with the potential for further expansion throughout the Middle East and into Asia as a stepping stone into other regional economies. Additionally, the subsidiary can ‘test the market’ by following its own business ideas and entering into different areas of operation for the owning company. The subsidiary is also free to draw up its own contracts and agreements with clients.

Other benefits for a subsidiary include: 

  • Easier to obtain potential benefits and incentives and enter into contracts with other UAE and regional companies.
  • More impact with clients and suppliers, as subsidiaries imply more permanency than branches.
  • Employees feel there is more stability and job security than from being with a branch.

Subsidiary Laws in the UAE

All companies operating in the United Arab Emirates (UAE) come under the Commercial Companies Law, which was amended in late 2020 to allow ‘onshore’ entities to operate with 100% foreign ownership and those in one of the 47 Free Trade Zones (FTZs). General requirements for setting up a limited liability company include the following:

Registration and Documentation:

  • Register a unique company name with the Department of Economic Development (DED).
  • Have a Memorandum of Association notarized by a public notary in the UAE.
  • Provide DED with corporate documents of the foreign parent company, including passport copies of shareholders, directors, managers, and officers.
  • Register a signed lease agreement with the relevant local authority.
  • Obtain approval from relevant local authorities and the Ministry of Economy if engaged in industrial or contracting operations.
  • According to the location, obtain a business license from the relevant DED licensing authority.
  • Update the annual register of shareholders and beneficial owners.

Accounts and Taxation:

  • There is no statutory federal minimum for share capital, although individual Emirates can require between USD 1 and USD 50,000 (EUR 47,750)
  • Companies should have sufficient capital to complete incorporation, as indicated in the notarized Memorandum of Association.
  • There is no requirement to deposit capital in a UAE-registered bank.
  • As of June 1 2023, a corporate tax rate of 9% will apply to companies with taxable profits exceeding AED 375,000 (EUR 97,770, USD 102,100). Multinationals earning more than USD 772 million worldwide will be subject to 15%.
  • Corporate tax returns must be filed for financial years beginning on or before June 1, 2023. Before this, no returns were necessary apart from Value Added Tax.

Management:

  • Minimum of two shareholders and a maximum of 50.
  • Shareholders must appoint a minimum of one director and/or manager.
  • A general assembly of all members is held once a year within four months of the end of the financial year.
  • Meetings of directors/managers are to be held as specified in the Memorandum of Association.

LOOKING TO EXPAND INTO THE UAE?

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