The United Arab Emirates (UAE) has become an increasingly vital hub for businesses locally and globally. Recent legislative changes such as relaxed foreign ownership laws, economic substance regulations, and the newly implemented corporate tax demonstrate the UAE’s efforts to align itself with international best practices. Following updates to the UAE Commercial Companies Law in 2022, free trade zones in the UAE have also modernized their laws to stay competitive. When starting or growing a business in the UAE, companies must consider these new laws alongside other key factors like employment visas, accounting standards, and taxes. With its strategic location and pro-business policies, the UAE remains an appealing destination for organizations worldwide.
Businesses looking to operate in the UAE must first obtain licenses or appoint a licensed local agent before starting activities. The specific licenses required depend on the products, services, and locations involved – multiple permits or a mix of licenses and distributors may be needed. There are three main options to establish a licensed presence: setting up a new free zone or mainland entity, entering a joint venture, or acquiring a current local company. Regardless of structure, proper authorizations must be in place per UAE regulations prior to a business commencing operations in the country. The choice of entity and licenses will vary based on the nature of the activities. But compliance with licensing and registration rules is mandatory for all foreign companies entering the Emirati market.
When looking to establish a presence in the UAE, foreign investors generally have two main options: registering on the mainland or in one of the country’s free zones. The optimal choice between mainland and free zone depends on the locations of target customers and the planned business activities. Offshore company registration is also available, but does not permit commercial operations within the UAE itself.
Overall, foreign companies need to evaluate whether the flexibility of establishing onshore or the expedited process of free zones better aligns with their objectives in the Emirati market. But the key determination falls to where a business intends to operate and what type of entity best suits those aims. By weighing all factors, foreign investors can determine the ideal local entity structure and registration path when entering the UAE.
Overview of Corporate Governance
There are various regulations in the UAE that establish corporate governance requirements. The Commercial Companies Law (CCL) and free zone regulations refer to corporate governance, focusing mainly on minimums like board size, conflicts of interest, and number of board meetings. The Emirates Securities & Commodities Authority (SCA) Chairman of Authority’s Board of Directors’ Resolution No. 7 R.M of 2016 (CG Rules) provides a comprehensive overview of the UAE’s corporate governance framework. Certain provisions were amended per SCA Chairman of the Authority’s Board of Directors’ Decision No. 25/Chairman of 2020 and Decision No. 08/Chairman of 2021. Notably, requirements differ by entity type – the CG Rules only apply to public joint stock companies listed on the Dubai Financial Market or Abu Dhabi Securities Exchange. Thus, the CG Rules could be viewed as best practices for other UAE entities, regardless of applicability. Companies registered in the DIFC that perform regulated services and/or are listed on NASDAQ must comply with the Dubai Financial Services Authority (DFSA) Rulebook. Likewise, ADGM registered companies conducting financial services follow the ADGM Financial Services Regulatory Authority (FSRA) Rulebook. Both the DFSA and FSRA Rulebooks outline corporate governance requirements.
The section of the Resolution on the “Use and confidentiality of the CbCR information” states that the Competent Authority in the UAE can utilize the CbCR data for these aims:
- Evaluating transfer pricing risks for “high risk” transactions;
- Evaluating other dangers linked to base erosion and profit shifting; and
- Evaluating the risks of noncompliance by the MNE’s affiliates with the relevant transfer pricing rules.
Furthermore, the Resolution clarifies that the Competent Authority cannot use the CbCR information to make transfer pricing adjustments.
United Arab Emirates Company Law
- The UAE Commercial Companies Law governs most economic activities taking place on the mainland. Foreign companies looking to operate onshore typically register as a limited liability company or a branch/representative office, though joint stock companies and sole establishments are also permitted.
- Instead of the mainland, foreign companies can also set up wholly owned entities or branches in one of the UAE’s many free zones. Each free zone operates under its own governing body and regulations. The licensing authority in a given free zone oversees issuing licenses to operate only within that free zone’s jurisdiction.
However, having a license in one free zone does not prohibit doing business with customers in other zones or onshore. In such cases, careful consideration is needed regarding licensing and contractual structures for delivering products/services across jurisdictions.
The major free zones generally offer three main entity types: free zone establishment (single shareholder), free zone company (multiple shareholders), and a branch of a foreign firm. Similar to onshore branches, foreign branches in free zones facilitate operations without forming a separate local entity. Overall, free zones provide a straightforward option for foreign companies to establish a licensed presence in the UAE. But free zone entities are restricted to their designated jurisdiction, which is an important factor when selecting between mainland and free zone business registration.
- Companies not looking to conduct operations in the UAE can establish offshore entities outside the jurisdiction of mainland and free zone regulations. Offshore companies differ from free zone entities and typically act as holding structures without engaging in commercial activities locally. Offshore companies cannot open local bank accounts, obtain UAE tax residency, or trade within the country. However, under certain free zone offshore rules, they can own freehold property onshore. Jebel Ali Free Zone and Ras Al Khaimah International Corporate Centre offer offshore registration in the UAE. Key benefits of offshore companies include no foreign ownership restrictions, no residency requirements for shareholders/directors, and no need for a physical office. But the inability to conduct business onshore or in free zones makes offshore registration suited only for specific holding company roles and not general commercial activities within the UAE.
The United Arab Emirates (UAE) has a business-friendly climate with top-notch infrastructure, skilled professionals, and customized services that give it an advantage over other nations. In 2020, the UAE ranked 16th worldwide on the World Bank’s Ease of Doing Business list. It is the 25th most competitive economy globally per the 2019 Global Competitiveness Report. The UAE’s robust economy is defined by its strategic site, ample financial reserves, sizable sovereign wealth funds, strong global ties, steady state spending on infrastructure, digital change, and innovation. The nation has a forward-thinking policy of economic diversity and growing foreign direct investments (FDIs).
United Arab Emirates PWC
PwC Middle East is part of PricewaterhouseCoopers (PwC), a global professional services network. PwC Middle East provides a broad range of services including audit, assurance, business advisory, tax, and legal services. They have had a presence in the United Arab Emirates (UAE) for over 25 years with offices in Abu Dhabi, Dubai, and Sharjah. PwC Middle East is dedicated to building trust in society and addressing significant problems. They offer perspectives on topics such as sustainable finance, core banking transformation, and AI’s impact on the future of work. If you want to join PwC Middle East, they have career opportunities for both graduates and seasoned professionals.
United Arab Emirates Deloitte
With its strategic location connecting Asia, Europe, and Africa, the United Arab Emirates (UAE) is the top destination for foreign direct investment in the Middle East and Africa. For new readers of Deloitte Middle East’s Doing Business guides, this document serves as a helpful companion and supportive guide throughout your journey into the UAE’s business landscape.
For those who have followed our reports previously, you will appreciate the updates highlighting the most important changes, presented in a familiar format.
This Taxation and Investment guide is a first stop for investors looking to gain a working perspective on the operating environment and investment climate. The areas covered in this guide include:
Overview of the United Arab Emirates
Legal and Regulatory Framework
– Market entry options
– Mainland and Free Zone establishments
– High-level comparison of entity setup in mainland vs. Free Zones
– Offshore establishments and formation procedures and registration
– Introduction of Corporate Income Tax
– Taxation of oil, gas, and foreign bank branches
– Withholding taxes
– Capital gains and incentives
– Transfer pricing and country-by-country reporting
– Stamp duty, real estate fees, and municipal charges
– Economic substance rules
– Value Added Tax and Excise Tax
– Customs duty
– Personal taxation
Immigration and Labor Landscape
– Work authorizations and exit requirements
– Work permit processing challenges
– Inter-emirate assignments and employer compliance
– Business visitors
– Virtual work program and labor laws