The Emirate of Dubai is currently experiencing a period of unprecedented economic growth and prosperity. There is much interest from investors who wish to establish a presence in Dubai to take advantage not only of the economic growth but also of the first world infrastructure and stability that this Emirate provides.
Prior to taking the steps to establish a presence in Dubai, it is important to consider the where, why and how that would need to be answered.
According to the United Arab Emirates Ministry of Economy there are over 40 multi-disciplinary freezones in the UAE, of which at least 20 are situated in Dubai. Freezones are specifically declared geographical areas which have their own authority and in certain financial freezones like the Dubai International Financial Centre, their own laws and courts to hear civil matters.
Apart from freezones one has the additional option of incorporating an "onshore" limited liability company, which are companies incorporated in mainland Dubai outside of the geographical location of a particular freezone. In the past, freezone companies were in demand as previously any onshore company needed to be majority owned by a UAE national. However, this requirement has been eased and as a general rule (apart from certain strategic activities) a foreign national/corporate can own 100 % (one hundred percent) of an onshore company.
We list hereunder some key considerations to bear in mind when establishing an entity in the UAE (please note this is not a comprehensive list): -
- What activity will your entity be undertaking? Unlike other jurisdictions (particularly in common law countries) where an entity may carry out any lawful activity its shareholders wish, in Dubai the entity can only carry out the specific activity as authorized in its trade license. It is thus important to ensure that the investor or founders can form a clear idea of the exact activity to be undertaken and then make the necessary arrangements with the relevant authority to select the appropriate activity. Often certain activities can only be undertaken at specific freezones or onshore. These activities need to be carefully checked with the relevant authorities.
- Requirements – Certain activities may have requirements imposed upon the potential entity by the relevant authority and a no objection certificate or other authorization or requirement may need to be satisfied. For example should you wish to sell watches, clocks and jewelry one will require a no objection certificate will need to be issued by the Security Industry Regulatory Authority which organization will have its own requirements which would need to be fulfilled.
- Where will the licensed activity be undertaken? Will the entity trade within the Emirate of Dubai (onshore) or will the entity trade outside of the UAE. This may have certain implications as to the choice of freezone or onshore and potentially corporate tax considerations.
- Tax considerations. Recently, the Federal Government of the UAE has introduced corporate tax legislation. Certain activities carried out in certain free zones under specific circumstances can be zero rated. Furthermore, a group of companies which are not freezone entities, can in certain circumstances be grouped for beneficial tax reasons.
- Liability – What form of entity will be incorporated and together with the potential tax grouping as set out above, how can the investor's holdings be structured in such a way as to minimize or isolate potential risks.
- Compliance – Does the business model the investor wishes to utilize comply with UAE laws and what needs to be attended to ensure compliance.
We have in the past encountered many structures where clients have opted for the cheapest and most time efficient structure, without requesting legal advice. This has led to clients creating structures which are not fit for purpose and or which unnecessarily expose clients to both tax and other liability.
The Emirate of Dubai offers investors significant potential and upsides, however like in any endeavor it is best to carry out your own due diligence and to properly plan entering this region to ensure that a proper foundation is laid.
It is best to take legal advice to consider the appropriate structure to be undertaken before doing so and have "boots on the ground" assistance when dealing with freezone and government authorities concerned.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.