Business setup in Dubai is a big financial step for individuals and one that requires careful planning and consideration. There are many risks involved in setting up and running a company and so it is crucial to choose the right business activity, legal entity, location for your company. When starting a company in the business hub of the Middle East it is essential to first determine what is the best location to set up a company for you.
Dubai has emerged as one of the top international financial destinations for businesses worldwide. Many businesses are not looking to establish their presence in this part of the world. Dubai’s Free Zones are attractive economic propositions for businesses. However, you need to make sure that you are taking help from Dubai-based business law firms to help you with all the legal paperwork required. If you would like to understand this better, read more here.
Table of Contents
- Mainland companies
- Types of legal entities for mainland companies
- Licenses for mainland companies
- Types of legal entities for free zone companies
- Licenses for free zone companies
Mainland companies operate through a government license. The Department of Economic Development is responsible for mainland company formation in the UAE. Mainland company formation is popular in the UAE and provides numerous benefits to their owners. Mainland companies can operate anywhere in the UAE and internationally. Such companies can expand their business easily by availing as many visas as they want and opening multiple office locations. Another advantage of business set up in Dubai mainland is the ability to diversify business activities and take advantage of a greater market share. Mainland companies can also bid for lucrative government offers and contracts.
Types of legal entities for mainland companies
Mainland company formation in the UAE can take a number of legal structures. These structures and their specific features are listed in the Commercial Companies Act.
1. Limited Liability Company
The most famous type of Mainland Company, a limited liability company contains between 2-50 shareholders. Each shareholder is liable to the extent of their share in capital. There is no minimum share capital for LLC companies however, it must be sufficient to conduct the prescribed business activity.
2. Branch Company
A branch company is an extension of an already existing local or international company. A branch must conduct the same activity as the original company but can be used to expand the company’s operational procedures.
3. Sole proprietorship
A sole proprietorship is owned 100% by an individual with the license issued in his or her name. The owner assumes complete financial liability. This type of company is usually formed for practising personal skills.
4. Joint stock company
A joint stock company can be private and public. In this type of company capital is divided into equal and negotiable shares. The minimum capital for a private joint stock company is AED 2,000,000 while it is AED 10,000,000.
5. Civil company
A civil company is formed between two or more individuals carrying out professional activities. This type of company is 100% foreign owned and includes activities like medical practice and consultancy firm.
Licenses for mainland companies
Mainland company formation has three general types of licenses including:
- Commercial licenses – It includes market activities that involve the buying, selling and exchange of goods and services.
- Industrial licenses – This type of license covers production and manufacturing activities.
- Professional licenses – It is required by businesses that provide a professional skills-based service.
Free zone companies
Free zones Company set up is a unique feature of the UAE. Free zones are launched by the government and are special economic zones with their own laws and regulations. Free zones were established to encourage economic and commercial activity within the region. Free zones offer an attractive option to investors especially those not local to the UAE because they allow 100% foreign ownership. Free zones are exempt for corporate and commercial tax. Each free zone specializes in a particular business activity so for example investors looking for business set up in Dubai related to media will find all pre existing infrastructure in Dubai Media city.
Types of legal entities for free zone companies
Each free zone is unique in terms of the company formation structures it allows. However, the most common ones are
Free Zone limited liability
This structure is similar to a limited liability company. It can have between 2-50 shareholders each of whom is liable to the extent of their share. Some free zones have a predetermined share capitals while others do not.
Free Zone company
Free zone company or establishment involves a single shareholder who is financially liable for the company.
Local or International companies can open their branches in the free zone as long as they follow the same business activity as the parent company
Only a limited number of free zones offer offshore company formation options namely JAFZA, Fujairah and Ajman free zones. Offshore companies conduct activities outside of the jurisdiction in which they are incorporated
Licenses for free zone companies
The license is an essential factor in a free zone company set up. Each free zone specializes in a particular activity their licenses are also specific towards the activity the free zone is known for. However, generally licenses include
Trade license – it can include a general trade license that contains a range of trading activities and a single activity trade license
Professional license – for free zones that promote a certain specific kind of skills based professional activity
Industrial license – Used for industrial and manufacturing activities
Freelance permit – required for all freelance activities
For investors looking to set up a company in the UAE, they must consider both free zone and mainland options so that they can decide the location and company type best suited to their needs.