With the eyes of the world firmly focused on Dubai and the UAE now that Expo2020 is underway, there’s never been a better time to understand the rich business opportunities in this progressive, entrepreneur-friendly nation.
With almost 50 years’ experience of offering business and legal consultancy in the region, Swiss Group is ideally positioned to offer multi-lingual assistance to you and your company, regardless of size or aims. Here, we offer a ten-minute guide on setting up business in the UAE.
• The United Arab Emirates, formed on December 2, 1971, is a federation of the seven Emirates, Abu Dhabi (also the capital city and seat of federal government) Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah, and Umm Al Quwain.
• Almost 90 percent of the 10 million residents are expatriates from 200 nations (with a majority of labourers from South Asia, and many professionals from India, the United States, Europe and other Arab countries).
• The UAE is diversifying its economy away from reliance on fossil fuels and is now a regional and global hub for business, trade and finance.
• Arabic is the official language, but English is widely spoken and used in business.
• The UAE borders Oman and Saudi Arabia, and has maritime borders in the Persian Gulf with Qatar and Iran.
• The latest predictions from the Institute of International Finance (IIF) expect the UAE economy to grow by 4.9 per cent in 2022.
• It offers a world-class infrastructure, facilities and connectivity. There are currently more than 280 international connections from UAE airports, and two billion people live within a flight range of four to five hours from the UAE.
• The UAE is a recognised business and trade hub for MENA, the subcontinent and Central Asia
• It offers globally recognised financial hubs with DIFC in Dubai and ADGM in Abu Dhabi
•Finally, the UAE delivers a very high quality of life, a safe and secure family environment and has one of the lowest crime rates in the world.
The UAE Legal Framework
The legal system in the UAE (outside Dubai International Finance Centre (DIFC) and Abu Dhabi Global Market (ADGM), is based on both civil code and Islamic Shariah Law principles.
Key legal sources are:
• The UAE Constitution (providing for allocation of powers between the Federal and each Emirate’s government),
• Federal laws and regulations (foreign policy, defence and security),
• Local Emirate laws and regulations (such as commercial activities, including the issuance of trade licenses,
• Islamic Shariah principles (see below), and
• Free Zone regulations (where applicable).
While the UAE constitution provides that Shariah is the main source of law, it is not the only source of law. Its application is usually limited to the following areas:
• In UAE mainland civil law (not DIFC and ADGM) courts as an interpretative aid where there is no express legislation governing a particular question
• Religious, morality and personal law matters, particularly involving Muslims (such as inheritance or divorce), and
• Transactions explicitly expressed as Shariah-compliant (such as Islamic banking transactions).
The DIFC and the ADGM, the two financial free zones in the UAE, have their own body of laws based on common law principles. These laws are supplemented by case law. Each financial free zone also has its own court system and jurisprudence.
The ADGM implemented the ‘Application of English Law Regulation’ in 2015, making England and Wales common law (including the concept of equity) and statutes directly applicable in ADGM.
The route to successful Business in the UAE
With the guidance of Swiss Group, setting up a company in the UAE is a straightforward, convenient process. There are a number of ways of approaching how to do business within and from the UAE but we have categorised it into six main options:
1. Trade from overseas
While this is possible, it’s not always practical. Firstly, UAE clients (and especially government clients) often request or require a local, physical presence. Secondly, certain business activities often need a special domestic licence or government consent to pursue their business.
2. Conduct business via an agent or distributor
This helps foreign-based entities to establish a presence through a local agent or distributor’s experience, knowledge, network and connections. Swiss Group can assist in setting up a contractual agency/distribution agreement. UAE Commercial Agencies Law (CCL) grants certain rights to registered agreements, providing certain protections to agents. There’re a few caveats – (A) such agreements often demand exclusive representation in the jurisdiction under discussion, and (B) We recommend taking advice to assess UAE-specific limitations before making an agency or distributor agreement, as it is often very difficult to terminate such agreements.
3. Set-up a Local Entity
In general, there are three main options available to foreign investors looking to set-up a company in the UAE:
• Mainland UAE
• Free Zone onshore
• Free Zone offshore
The decision to establish an onshore presence on the UAE mainland versus setting up a company in one of more than 45 free zones depends on: (i) involvement of the foreign shareholder (for a majority of business activities, there are mandatory minimal shareholding requirements for local Emirati shareholders for UAE mainland companies, but not all activities need a local sponsor any more), (ii) on customer locations (UAE or abroad) and (iii) the nature of the business activity.
Note that different company incorporations require different levels of capital, shareholdings and limitations on where and how you can trade.
We have produced a detailed guide to company set-up, available here.
4. Setting-up a joint venture
Joint ventures – setting up a local presence with a local partner – usually enables a foreign investor to take an equity stake and a role in the operation and management of their UAE entity, while benefiting from the participation of a local partner. Local partners can contribute financially, with technical skills, local connections and reputation.
The CCL allows for a particular type of entity to be used as a Joint Venture vehicle. In practice, we see most joint ventures set-up using either conventional mainland or free zone companies. Restrictions on 100% foreign ownership in a number of mainland companies operating in certain sectors remain valid – speak to our expert legal team for more advice here.
5. Acquire an existing Local Entity
Another entry strategy for foreign investors could involve acquiring or investing in an existing UAE company or business. When acquiring a company or business, there are several factors which should be taken into account, including:
• The limited amount of publicly available information (and therefore the need for thorough due diligence)• The impact of foreign ownership restrictions
• The potentially limited scope of operations (UAE, free zone only or only abroad)
• Any requirement for regulatory consents or approvals (such as UAE Central Bank consent for local banks and financial institutions)
• Deal with transferral of existing local employee contracts and visas, and
• The impact on mandatory end of service benefits for employees.
6. The Freelance Option
A Freelancer License Permit identifies the holder as a sole practitioner, enabling them to conduct business in their birth name, as opposed to a brand name.
The Freelancer Permit enables applicants to hold the necessary legal structure for their role. This option is good for professional entrepreneurs wanting to test the market with a cost-effective solution, before investing and setting up a company in UAE.
The License is available to both UAE residents and non-residents, but applicants must prove relevant expertise in the activity they are seeking a license for.
The caveats here are that the permit holder is personally responsible for all financial liabilities - business debts and any other financial obligations. Note that when doing business, some larger companies may request a tax registration number (TRN), which is (as of October 2021) not available to freelancers. Also, as a freelancer, it is currently not possible to open a corporate bank account in the UAE.
Given its globally central geographical position, excellent infrastructure and economic situation, Dubai and the UAE remain popular places for business incorporation. The UAE legislature is fast moving compared to other nations, responsive and quick to respond to the business world’s needs – like introducing regulation around crypto currencies, to take an example. It’s an ideal location for cross-border operations, with smooth company migration opportunities many double tax treaties in place. In fact, the UAE holds one of the largest networks of double tax treaties (DTT, over 100) and investment protection treaties (IPT, around 70) globally.
In short, DTTs are designed to avoid double taxation – where two nations tax income twice. These agreements are designed to facilitate investments and trade between nations.
IPTs provide global protection of investments for UAE companies and individuals based on fair and equitable treatment of UAE investments by partner countries, some most-favoured nation protection (where UAE investors may claim equal preferential treatment for investments) and dispute resolution procedures. IPTs also prohibit expropriation - although provisions vary – and also prohibit any government measures that are unreasonable, arbitrary, or discriminatory and that impair or harm an investment. The broad tax position is worthy of consideration as we conclude this document:
On 31 January 2022, the Ministry of Finance (MoF) announced the introduction of Corporate Tax (CT) in the United Arab Emirates. The applicable laws and regulations are however still pending. This regime will become effective for financial years starting on or after 1 June 2023. The competitive CT Regime, based on international best practices, shall strengthen the UAE's position as a leading global hub for business and investment, while also accelerating the UAE's development and transformation to achieve its strategic objectives. Such regime shall also reaffirm the UAE's commitment to meeting international standards for tax transparency and preventing harmful tax practices.
CT will apply to all individual (e.g. freelancer) and legal persons (companies) carrying out business activities under a commercial license in the UAE (incl. the banking sector, however not companies engaged in the extraction of natural resources which remain subject to Emirate level corporate taxation only).
The Corporate Tax rates and Tax Basis:
• 0% for taxable income up to AED 375,000;
• 9% for taxable income above AED 375,000; and
• a different tax rate for large multinationals that meet specific criteria set with reference to 'Pillar Two' of the OECD/G20 Base Erosion and Profit Shifting project.
Tax basis under the CT regime will be the Taxable Income, hence the accounting net profit of a business (as reported in the financial statements prepared in accordance with internationally acceptable accounting standards) after making adjustments for certain items (to be defined and clarified in the applicable law and regulations).
Considerations for Free Zone Companies:
There will be a consistent CT treatment to apply across all free zones, hence companies setup up in the various UAE Free zones (including the financial free zones ADGM and DIFC) will be subject to CT. The MF has however stated and clarified as follows “Incentives currently offered to be honoured” where businesses (i) comply with all regulatory requirements and (ii) do not conduct business with the mainland UAE. We expect further clarification on this matter with the issuance of the applicable laws and regulations, amongst others on mixed business setups where a company does conduct business outside the UAE and within.As per the MoF, the issuance of the CT law and regulations is expected later in 2022.
There are no withholding taxes in the UAE - not on royalties, interest, dividends or similar made by UAE licensed entities to other entities or persons (residents or non-residents).
Personal Income Tax
There is no personal income tax law in the UAE. There is no domestic legislative definition of personal tax residence in the UAE. Individuals are not subject to any personal taxes by reason of their income or capital gains arising from the UAE or anywhere else in the world.
There is no requirement to submit UAE personal tax returns.
For more information on business opportunities in the UAE, download our free information sheet here.
If you have specific questions or would like to know more about business in the UAE and how Swiss Group can help smooth out your incorporation, contact us for your initial consultation.