To start, allow us to provide a brief look at Dubai and the UAE, and the available jurisdictions (onshore mainland and free zone and offshore regimes) for clients to gain a general understanding of the available options.
 

The United Arab Emirates (UAE) consists of seven Emirates. Dubai and Abu Dhabi are generally more well-known compared to the other five. Abu Dhabi hosts the capital, and is the richest emirate thanks to its abundant petrodollar revenue. Dubai was historically a pearl and gold trading hub, which then transitioned into the commercial and trading hub.
 
The remaining other emirates, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah and Fujairah round up as the remaining federation members, each with its own specialties.
 
In spite of the fact that all the seven aforementioned emirates are a part of the country that is the United Arab Emirates, there exists friendly competition between them, with each engaging in different ways to ultimately attract entrepreneurs and investors to their emirates and free zones.
 
This manifests itself through the setup of various free trade zones (“free zone”) across the various emirates, which entice investors to setup shop within the respective free zones and to conduct and operate businesses from there.
 
Did you know that there are 50 free zone jurisdictions spread out across the UAE? (the number changes because free zones are added and merge).
 

Emirates offer investors two types of registering themselves in the UAE: Free zone and Mainland. Allow us to explain the difference.

To protect the local market from being taken over by foreigners, federal legislation makes it mandatory for UAE nationals to retain 51% ownership of shares in most commercial licenses operating in the mainland.

For instances wherein a foreign owned company wishes to operate in the local market, UAE nationals are required to act on behalf of the foreign investor in the capacity of a local service agent or representative.
 
Such “local sponsorship laws” inhibit full foreign ownership and participation in the local market, thereby necessitating a workaround to a certain extent, hence free zones in the UAE.

Free zones, which allow for 100% foreign ownership, were an initiative in direct response to this regulations.
 
We now have segmented the local onshore market into two categories, mainland companies fully active in the emirates, and free zone companies active in the free zones.

Mainland companies are defined by the general inclusion of a UAE national as a majority shareholder and or authorized agent representative, as well as having full unrestricted access to the local UAE market.
 
Such entities are generally regulated by their immediate authorities, the Department of Economic Development (DED) of the respective emirates.

Free zone companies, on the other hand, allows for 100% foreign ownership, and its direct access to the local market is only permitted to a certain extent.

Free zone companies offer their investors interesting benefits, such as being able to live and work in the UAE and serve their worldwide clients. They however cannot fully serve the local market, this possibility remains restricted to the mainland companies.
 
The regulatory body for free zone entities are the registrars of the free zones.
 

For certain activities additional permits are needed. In addition to the DEDs or the free zone registrars for onshore companies, if the licensee conducts activities that fall under additional supervision, then the applicable, supplementary governing body’s approval and or oversight may also be required.
 
For example, a mainland, publicly-listed company, licensed in investment fund management activities, located in Dubai, will fall under the Dubai DED, as well as the Securities and Commodities Authority (SCA) and even the Central Bank of the UAE (CBUAE).
 
If said company was incorporated in Dubai’s financial free zone, Dubai International Financial Centre (DIFC), then the relevant regulatory authority would be the DIFC Registrar, but also the SCA, and likely the CBUAE as well.
 

Apart from the onshore companies offered in the UAE, there exists also an offshore companies in the UAE.

An International Business Companies (IBC) regime in the UAE can be found in three emirates, namely Ras Al Khaimah International Corporate Centre (RAK ICC), Ajman Offshore, and Jebel Ali Free Zone Authority Offshore (“JAFZA Offshore”).
 
UAE offshore companies are characterized by minimum physical requirements, lower cost, exemption from VAT, and less strict bookkeeping requirements. They are ideal for those doing business internationally.

On the flip side, an offshore company is not able to conduct any business within the UAE, and does not offer its owners the right to live and work in the UAE.

Offshore companies are regulated by their respective registrars.
 

Ability to Conduct Business Locally

1. A Mainland Company can participate fully in the local UAE market and internationally without restrictions.
2. A Free Zone Company can participate partly in the local UAE market with restrictions, and internationally without restrictions.
3. An Offshore Company cannot participate in the local UAE market, but can conduct business internationally without restrictions.

 

Requirement for UAE national Participation

1. A Mainland Company either requires a UAE national as a majority shareholder holding 51% shares, or requires a UAE national as a designated, authorized company agent.
2. A Free Zone Company does not require the participation of a UAE national.
3. An Offshore Company does not require the participation of a UAE national.

Applicability of Value Added Tax (VAT)

1. A Mainland Company is liable for VAT upon fulfilling the threshold requirements.
2. A Free Zone Company is liable for VAT upon fulfilling the threshold requirements.
3. An Offshore Company is outside the scope of VAT in the UAE.

 

Tax Residency for Investors

1. A Mainland Company, upon meeting the requirements, can apply for a Tax Residency Certificate in the UAE.
2. A Free Zone Company, upon meeting the requirements, can apply for a Tax Residency Certificate in the UAE.
3. An Offshore Company, is  cannot apply for a Tax Residency Certificate in the UAE.
    

Now that you are aware of the core defining features of the three main entity types in the UAE, what’s next?
 
At the start of the article, we pointed out that upon posing some queries to the prospective client, we would then be able to determine the specific jurisdiction that would adequately serve their needs.

Based on the answers to the above, we as consultants may list the type of companies suitable for clients.
 

How to Setup Onshore and Offshore Companies in the UAE?

Mainland Company Setup in Dubai, UAE

1. We determine if the business activities requested by the client requires a 51-49 shareholding structure, or for a local service agent arrangement (“local sponsorship laws”)
2. We conduct the relevant name checks, name reservation and initial approval.
3. We arrange for the applicable documents for company incorporation and registration, such as Board Resolution(s), Power of Attorney(s), Memorandum and Articles of Association.
4. We seek out the relevant office setup requirements and acquire the Tenancy Contract.
5. We incorporate the company.
6. Trade License and other applicable company legal documents are issued.
7. We start the process for residence visa application.

 

Free zone Company Setup in Dubai, UAE

1. We determine the applicable free zone jurisdiction for the client, based on clients’ requirements for the business activities, budget and location of choice, as free zone companies have 100% foreign ownership and do not require consideration of a UAE national.
2. We conduct the relevant name checks, name reservation and initial approval.
3. We arrange for the applicable documents for company incorporation and registration, such as Application form(s), Memorandum and Articles of Association, Business Plan, Service Lease Agreement or Tenancy Contract.  
4. We incorporate the company.
5. Trade License and other applicable company legal documents are issued.
6. We start the process for residence visa application.
    

Offshore Company Setup in the UAE

1. We determine the relevant offshore jurisdiction in the UAE (we recommend RAK ICC due to its full suite of documentation and regulation that safeguards the interests of clients, as well as its global reputation).
2. We conduct the relevant name checks, name reservation and initial approval.
3. We arrange for the applicable documents for company incorporation and registration, such as application form(s), Memorandum and Articles of Association, UBO declaration form, Sanctions Policy Questionnaire.
4. We incorporate the company.
5. Certificate of Incorporation and other applicable company legal documents are issued.

Onshore vs Offshore: Conclusion

We trust that you have a better understanding of the various jurisdictions offered in the UAE, and hopefully this will allow you to further pinpoint the most suitable type of business registration for you in Dubai and the UAE.


If you are interested in setting up an onshore or an offshore company in the UAE, do not hesitate to contact us...


 

 
Or the one on Different Offshore Companies in the UAE.