5 EFFECTIVE WAYS TO STRUCTURE YOUR OWNERSHIP OF BUSINESS IN DUBAI

Starting a business in Dubai is growing at high rate than ever, in line with the vision of Expo 2020. As per the latest report from Department of Economic Development (DED), there has been a significant increase in the number of transactions related to renewal of business licenses as well as the number of licenses issued during the second quarter of 2016. Commercial licenses had the largest share at 67.8% while 30% were professional licenses and Industrial & Tourism licenses each had a share of 1.1%.

Before starting a business in Dubai, the most critical question that comes to any investor is: “How to structure my ownership of business in Dubai without associating with UAE Local sponsor or with very minimal of association by safeguarding the risks?” It is highly important to understand the local laws and different licensing options in order to effectively structure your company. Broadly, there are two jurisdictions in Dubai for conducting business: Dubai “mainland” on one hand, and more than 20 economic Free zones in Dubai on the other hand. Mainland and free zones offer different advantages depending on your business type and activities.

A Free Zone is a designated geographical area where certain taxes or restrictions on business do not apply in the same manner that they apply to the country in which the zone is located. Free zone Licenses can be 100% owned by foreign investor. Since no local partnerships are imposed in the free zones, the investor has the complete ownership of the business. The biggest disadvantage with Free Zone is that you cannot freely trade outside the Free zone otherwise called as the local market. Trading of goods outside the Free zone is possible only through distributor or Logistics Company that would clear the goods and deliver them to the mainland Dubai.

The total geographical area which is permitted by the Dubai economic department to all the private business entities in order to operate business functions without any restriction in Dubai as well as international markets.There are more than 2,100 business activities available in Dubai,which fall into different classes and groups: industrial, commercial, professional and tourism activities. It requires immense knowledge of UAE market and professional skills to determine the activity type, legal form, ownership foryour business.The main difference between Mainland and Free zones the ownership regulations. Let’s see some of the major licensing legal shapes available in Mainland Dubai.

i) Limited Liability Company (LLC): It is the most common form of business entity currently used by a Foreign Investor to set up business in Dubai. An LLC must have between 2-50 shareholders.Foreigners can own up to 49% of shares and minimum of 51% sharesmust be owned by UAE Nationals, and it can be owned up to 100% for GCC nationals only.The Foreign investor can manage the business without the day-to-day interference from the local partner and 100% profits belong to foreign partner only. The Local partner is normally remunerated for his services by way of a fixed annual fee stipulated in the side Agreement.

ii) Sole Proprietorship: A Sole Proprietorship is a business owned by an individual. A Foreign partner can be the sole owner of the company by appointing a Local Service Agent (LSA) provided that the business is catering only to Service sectors. Foreign partner will own 100% of the business control all of its operations and keep 100% of any profits. A Sole proprietorship for Industrial or Commercial business can be owned only by UAE nationals & GCC nationals.

iii) Civil Company: A Civil Company is a business partnership for professionals in recognized fields such as doctors, lawyers, engineers and accountants.It can be 100% owned by foreign partners by appointing a Local Service Agent (LSA).The Service Agent has no rights to the assets or to the profits of the company. The Service Agent is normally remunerated for his services by way of a fixed annual fee stipulated in the local service Agreement.

iv)Branch of Foreign Company: A Branch of a Foreign Company is 100% owned by the parent company and conduct the same business as the managing firm. Local Service Agent (LSA) needs to be appointed if the parent entity is owned by any non-GCC nationals.A branch of a foreign company can practice professional, commercial or industrial activities.

v) Representative Office: A Representative Office is not a business structure in its own right but it is a business activity that a branch can conduct. It can promote and market the parent company's business – but not conduct the business operations. Local Service Agent (LSA) needs to be appointed if the parent entity is owned by any non-GCC nationals. For all new entrepreneurs, it is always necessary to seek advice from their Business Consultants in order to choose the right type of License by minimizing the associated risks pertaining to Local regulations. We at Flyingcolourwith the team of asset managers, business consultants; have a sound knowledge of local laws and regulations, which will eventually help you to frame a suitable structure for your business.

This blog is written by Mr. Senthil, Business Consultant in Flyingcolour business setup services. Please call 04-4542366 for more detail information.