LIMITED LIABILITY COMPANY
The LLC is the most popular onshore structure throughout the UAE.
51% of the share capital must be held by a UAE national or a company wholly owned by UAE nationals.
Although not officially sanctioned by law, common practice for foreigners setting up LLCs is to enter into side agreements altering profit and loss splits – deviations of a ratio of in favour of the foreign interest of up to 80/20 in Dubai and 90/10 in Abu Dhabi are common.
Advantage: a separate legal entity and not a branch of the foreign parent company
Disadvantage: unless the foreign interest is adequately protected by a side agreement, there is a loss of control
Consider synergies in picking a partner.
UAE BRANCH OF A FOREIGN COMPANY
A branch is limited to engaging in those activities undertaken by the parent company.
Branch operations must have a service agent who is a UAE National or is a company wholly owned by UAE Nationals.
Role of service agent is to assist the branch office with liaising with UAE governmental departments, such as obtaining licences, permits and visas.
The service agent is paid an annual fee and does not have any proprietary rights in the branch or any of its assets.
Advantage: the establishment process is convenient and avoids the partnership aspect of the LLC.
Disadvantage: the financial exposure to the parent company, the potential difficulties in terminating the service agency and the agency fees can be quite high.
FREE ZONE ENTITY
Free zones are territories within the UAE which have regulations that are designed to boost international business through providing 100% ownership to expatriates and single window administrative convenience.
Each free zone is governed by its own laws and regulations although federal laws such as the UAE Commercial Companies Law apply in certain free zones.
With some exceptions, the laws of and regulations of free zones prohibit free zone companies from conducting economic activities in the UAE outside the free zone.
It is possible to set a free zone company as:
- a branch of a foreign company;
- a free zone establishment which is a new business entity with a sole owner; and
- a free zone company which is a new business entity owned by more than 1 shareholder and has limited liability status.
There are more than 20 operating free zones in Dubai and six6 in Abu Dhabi.
REMARKS
From our experience in the setup of our Middle East offices, there are three important lessons to be noted:
- Get capable on-shore assistance both in planning and implementing your entry plan.
- The business process in the UAE and in Europe/North America has parallels and some major differences but neither is distinctively easier or more difficult than the other. The key is having good advice in planning and implementing entry into each market.
Lastly, we reiterate our mantra:
- Persistence.
- Patience.
- Presence.
- Politeness.
