The UAE Commercial Companies Law (the “CCL”) has changed to allow companies incorporated in the UAE under the CCL, sometimes colloquially called “mainland” companies, to have full foreign ownership. The foreign ownership change took effect on June 1, 2021, according to the UAE Ministry of Economy.
This change aims to stimulate business activity and attract more foreign investment into the United Arab Emirates. As per the guidelines published by Dubai’s Department of Economic Development (“DED”), full foreign ownership is available for more than 1,000 commercial and industrial activities, excluding economic activities with a strategic impact. This strategic category includes activities in core sectors such as military, banking, insurance, and telecommunications. The complete list of activities open for full foreign ownership can be viewed on the Dubai DED website via this link.
However, before you start a new business or revise your company structure, you ought to understand the conditions and intricacies involved in this amendment to the CCL.
Rules Vary in Each Emirate for Mainland Company Setup
While Dubai has around 1,000 business activities for full expat ownership, the Abu Dhabi Department of Economic Development (ADDED) has a list of 1,500 activities. The local government of each Emirate retains the final authority to decide foreign ownership percentage.
The local Department of Economic Development can request that you submit your business proposal and documents supporting your business and specific activity for a final decision on ownership percentage. It helps to have the assistance of a seasoned consultant who can submit these documents on behalf of your business.
Impact on Existing Mainland Businesses
The status of existing business licenses structured on the 51%-49% model remains unchanged. However, you can amend your Memorandum of Association (“MOA”) and license via standard legal procedures.
Full ownership does not diminish existing requirements for licensing, except that it is no longer mandatory to have an Emirati or GCC national or company as a partner. In addition, the new guidelines do not yield in any additional fees, guarantees or capital requirements.
You cannot convert the legal form of a company from an LLC (Limited Liability Company) to an expat owned sole proprietorship; however, the license can be transferred to a one-person company with limited liability, or you can add another expat to retain the LLC structure. Full ownership does not apply to commercial agencies, as they are regulated by the Commercial Agencies Law and not the CCL.
Previously, LLC’s were required to have a share capital of at least AED 150,000, although in practice the minimum capital accepted by Dubai DED was AED 300,000. It not necessary to deposit the share capital, companies are expected instead to have adequate share capital in order to achieve the purpose of its incorporation.
In practice, the minimum share capital imposed is at the discretion of the relevant DED in each Emirate and these authorities may continue to impose minimum share capital requirements for certain business activities.
Amending Your Existing DED License
Before you amend your existing license, you will need to ensure cooperation with the Emirati shareholder. In most cases, the Emirati shareholder is a silent partner who collects an annual fee for his or her services. You will most likely need to negotiate a final settlement fee to transfer all shares to yourself or another expat partner.
Once you have come to a mutual accord, you can proceed with a sale of share agreement and amend the MOA. We can assist with the legal process of the amendment. If the Emirati shareholder does not agree to remove himself or herself from your existing LLC company, you still retain legal and arbitration options to get full control of your business.
Impact on Free Zones
Since their inception, UAE free zones were dependent on full ownership in companies as their primary differentiator. However, the amended CCL has created a new challenge to find new ways to compete with mainland company formation, be it with their services, ease of transactions, or employment and taxation regulations.
Free zones continue to have a tax-free environment which can play a deciding factor for companies. Mainland businesses in the UAE must register for VAT if they have a turnover of more than AED 375,000 in a year. The UAE Cabinet has defined free zones as “designated zones”. These zones are outside the scope of VAT when goods are transferred between designated zones.
Long-term property leases ranging from 20 to 50 years are available in some free zones such as Jebel Ali Free Zone or Hamriyah Free Zone. Many free zones also offer freehold ownership options or virtual desk solutions for SMEs whereby a physical office is not required.
The decision to either incorporate via a free zone versus the local DED may boil down to what share of the business is transacted locally versus internationally. Entrepreneurs focused on external markets may opt to retain a free zone setup, whereas those focused domestically can save the cost of having to go via a local distributor and thereby improve profit margins.
How Do I Incorporate a New Mainland Business With Full Ownership?
The incorporation process for a new mainland business is easier than ever. Many of the procedures are available through online portals managed by the local DED. You can launch your business in 5 simple steps:
- Think of a name for your business and select your business activity from this list.
- Complete the incorporation paperwork. The documentation required can vary depending on the business sector. This is where a business consultant can come in handy.
- Lease a physical site for your venture and pay the DED license fee.
- Open a corporate bank account once you have a license.
- Complete visa formalities for yourself and any foreign staff.
The cost for business incorporation in Dubai depends on the business activity, location, and the number of visas needed. You should factor in service fees for business incorporation firms, office rent, and visa costs.
Apart from foreign banks and oil companies, there is no corporate tax imposed in the UAE. There are also no restrictions imposed by the UAE authorities on the repatriation of profits for mainland businesses. Annual fees are payable to the relevant local DED authority to renew business licenses. Fees are also payable to the relevant Chamber of Commerce and other regulating agencies (if applicable).
Free Consultation for Company Setup
Our consultants are experts in Dubai and GCC incorporations, having advised on several of the region’s high-profile incorporations for franchises, private investment firms and start-ups in multiple sectors. We also specialize in helping SMEs navigate the local business environment.