With the UAE’s economy booming, more than 3 million expatriates are expected to arrive in the country by 2020. There will be a surge in construction and infrastructure projects which is estimated at $140 billion over the next few years. Expats with experience in various fields find it difficult to start their own business due to many complications that come with establishing a business in the UAE.
In this article, we will provide an overview of the business setup in UAE and highlight some of the key procedures that should be taken into account when starting a business in the country.
Types of Businesses in UAE
There are six types of businesses which can be set-up in the UAE. They are:
Sole Proprietorship
It is a business that is owned and run by one individual. This type of business is established under an own name with no legal entity registration requirement, which means it does not have its own separate identity from the owner. This means all liabilities will be under the owner’s name.
Proprietorship business is not recommended as it offers limited protection to the owner in case of any legal disputes.
Partnership
This type of business is owned and run by two or more individuals. Each partner has unlimited liability for the debts and obligations of the partnership, which means each partner is responsible for the actions of their co-partner. Partnership is generally not recommended as it offers no clear distinction between a partner’s personal money and business money, which may cause problems if a dispute arises.
Joint Stock Company (LLC)
This type of business is owned by at least one shareholder and has at least one director who is appointed by the shareholders. The company is registered with the Commercial Register and has its own legal identity. The shareholders are not liable for the debts of the company, except for any unpaid share capital. The shareholders may be held liable if they have acted negligently or fraudulently.
A LLC offers limited liability to its members and is the most preferred option for foreign investors who would like to set up their own business in the UAE.
Limited Liability Company (LLC)
This type of company is owned by at least one shareholder and has at least one director who is appointed by the shareholders. The company is registered with the Commercial Register and has its own legal identity. The shareholders are not liable for the debts of the company, except for any unpaid share capital. The shareholders may be held liable if they have acted negligently or fraudulently.
Like LLCs, LLC offers limited liability to its members and is also preferred by foreign investors who want to set up their own business in the UAE. There are additional tax exemptions for LLCs when compared to LLCs.
Public Joint Stock Company (PJSC)
This type of business is owned by shareholders who are usually appointed by the state or public authorities. The company has a president and vice-president who are selected from among its board members. A PJSC is registered with the Commercial Register and has its own legal identity. The shareholders are liable for the debts of the company to the extent of their share capital.
This type of company is not commonly used by foreign investors and is more commonly used by state-owned entities or public authorities.
Free Zone Company
This type of company is a special type of LLC which is registered in one of the free zones in the UAE. Free zone companies are subject to special rules and regulations which are specific to each free zone. The company must have a local service agent who is registered with the relevant free zone authority.
The most popular free zones for foreign investors are Dubai Multi Commodities Centre (DMCC), Dubai Science Park (DST), Dubai Airport Free Zone (DAFZ) and Ras Al Khaimah SEZ.
Representative Office / Branch Office
This type of office is not considered a business in the UAE, but rather an extension or representation of an existing company abroad. It has no legal status and cannot engage in any commercial activities unless it is registered as a branch office. The company’s representative must be approved by the Ministry of Economy in order to operate in the UAE.
This type of office is not recommended for foreign investors due to its uncertain legal status in the country.