All mainland (onshore) UAE legal entities are required to be licensed by the Department of Economic Development (DED) and governed by the UAE Commercial Companies Law (CCL). The main advantage for foreign investors establishing a business in mainland UAE is that, unlike the Free Zones, there is no territorial restriction on business activities or the location of offices/premises. A mainland company therefore has the freedom to trade anywhere in the UAE or wider Gulf Cooperation Council (GCC) states, including all the Free Zones, and will have a far wider range of real estate options from which to choose.

Limited Liability Company (LLC)

The standard type of company in the UAE mainland is the Limited Liability Company (LLC). The DED is the government body authorised to issue all licences for LLCs and is responsible for classifying and regulating the types of economic activity that may be undertaken.

An LLC is not restricted on where it can trade in the UAE (unlike Free Zone companies) or GCC; furthermore there is no restriction on real estate ownership, or on the number of visas that can be obtained. There are no minimum share capital requirements. A mainland company is not required to pay the standard 5% customs duty on imported goods.

UAE Foreign Ownership Restrictions

The principle limitation for foreign investors setting up an LLC is the UAE foreign ownership restrictions. When setting up an LLC, the CCL prescribes that at least 51% of shares must be registered to a UAE/GCC national sponsor (either a UAE/GCC national individual or a corporate entity 100% owned by UAE/GCC nationals), often referred to as a local partner.

If your business requires you to trade on the UAE mainland with local companies then you will need a DED-licensed company and this will require a local partner. Many foreign investors are concerned by the foreign ownership restrictions and uncomfortable about relinquishing control of their company to a local partner. To allay these concerns, Sovereign has created a “corporate shareholder” model that allows clients to effectively maintain 100% ownership control of their business while remaining in full compliance with UAE companies law.

Sovereign Corporate Shareholder Model

Sovereign Corporate Services has created a number of 100% UAE-owned LLCs – e.g. a Sovereign Corporate Shareholder LLC – that it fully manages and controls through power of attorneys and other legal agreements. These companies can act as the 51% local partner (Corporate Sponsor) and, through a suite of risk mitigation documentation, pass all management control, financial control and the day-to-day running of the business back to the 49% shareholder in return for a “Fixed Annual Sponsorship Fee”.

Sovereign will not take any commercial role in the new company and its annual fee will be fixed such that there will be no variation dependent on increased turnover or profitability of the business.

The primary benefit of the Corporate Sponsorship model is that the investor will not be dealing with an individual person as a shareholder but rather with an international, fully licensed and regulated company that has no emotional ties to the business and no local vested interests.

Sovereign has multiple signatories who are available all year round and, as a company, a Sovereign Corporate Sponsor offers perpetual succession such that the business will not be affected by the ill-health or death of a local individual partner.

A Sovereign Corporate Shareholder LLC ca    n also act as the local services agent even where a 51% local sponsor is not required – for example, for a Professional Licence, Branch or Representative Office.

Strategic Partnership with Government of Dubai

Sovereign Corporate Services has entered into a formal, strategic partnership with Dubai FDI, the dedicated investment development agency within the DED. Sovereign has signed a Memorandum of Understanding (MoU) with Dubai FDI that sets out a commitment to attract foreign companies to establish and grow in the region and to optimise the services offered.

This partnership with Dubai FDI not only guarantees that foreign investors receive the best service available, but will also ensure that they can be fast-tracked through setting up procedures and introduced to a wider audience in the region.

Steps to setting up an LLC:

 A) Speak with one of Sovereign’s consultants who will advise on the correct legal structure based on the activities that a business intends to undertake in the UAE and its intended markets. A client may further choose to obtain a legal opinion to confirm Sovereign’s advice.

 B) If a mainland (onshore) legal entity is the preferred option, then a UAE local partner will be required to hold 51% of the shares in the LLC. See the Sovereign Corporate Shareholder model above.

 C) The required documentation will vary greatly depending on the type of business activity, including but not limited to:

• Certified passport copies for all shareholders and managers;
• Copy of the UAE residence visa, if applicable;
• No Objection Certificate (NOC) from current UAE residence visa sponsor;
• 2 x Certified proofs of address for each shareholder;
• 1 x Signed Sovereign Application Form;
• 1 x CV for each shareholder;
• 1 x Professional / bank reference letter for each shareholder.

 D) If the shareholder is to be a corporate entity, the required documentation will include:

• Memorandum and articles of company;
• A board resolution agreeing to incorporate a new LLC in UAE;
• A power of attorney (POA) to the General Manager to incorporate the new LLC.

E) All documents are required to be notarised and attested in both the applicant’s home country and at the relevant UAE consulate. The notarisation process should be commenced as early as possible because it can take a significant time.

 F) All documents must also be translated into Arabic by an official translator before they can be presented to the authorities in the UAE.

 G) All requested documents to be submitted to Sovereign, which will then manage the application process from start to finish.

Advantages of setting up an LLC in Dubai/UAE:

• The liability of the shareholders is limited to their shares in the company’s capital;
• An LLC may conduct any type of activity except for insurance, banking or investment;
• An LLC can legally trade anywhere in the UAE, including the Free Zones;
• No restrictions on the number of visas that can be obtained;
• No restrictions on the location where the company can rent/buy office premises;
• The government has permanently waived any paid-up capital requirements.

Disadvantages of LLC formation Dubai/UAE:

• Employee visas need to be renewed every 2 years (Free Zones run for 3 years);
• Longer time to establish than a Free Zone company, typically 8 to 10 weeks;
• External approvals may be required from UAE government ministries, which is chargeable and time consuming.

FAQs

How Many Members Must an LLC Have?

=> Under the new UAE Commercial Companies Law, an LLC may be formed with a single shareholder, but it is common practice for foreign investors to have a minimum of 2 shareholders in order to meet the UAE foreign ownership requirements.

Is a Registered Agent required?

=> There is no requirement for a Registered Agent but due to the foreign ownership restrictions it is imperative that a foreign investor should seek advice and use a firm that has extensive experience and expertise in setting up UAE mainland LLCs.

Does forming an LLC offer any tax benefits?

=> Yes. An LLC is permitted to trade anywhere within the UAE and GCC. An LLC can obtain a Tax Residence Certificate from the UAE Ministry of Economy.

What types of licence can an LLC hold?

=> An LLC can operate under the following licence types:

• Commercial – covering all kinds of trading activity;
• Professional – covering professions, services and crafts;
• Industrial – covering industrial or manufacturing activities.

A common way for foreign companies to retain foreign ownership under the Commercial Company Law in the UAE is to incorporate a Branch or Representative Office (RO), which permits 100% ownership by the parent company. These forms do not have a separate legal identity and are therefore treated as an extension of the foreign company, which remains liable for their activities.

A Branch is permitted to engage in commercial activity in the UAE and to earn profits. It is licensed for the purposes set out in its commercial licence and may only engage in activities similar to those carried on by the foreign company in its home jurisdiction.

An RO is not permitted to earn profits within the UAE and its activities are limited to marketing or promoting the products and services of its foreign parent company in the UAE.

Both Branches and ROs must operate under the authority of a commercial registration and licence in the name of the foreign company, and both are required to appoint a National Service Agent (NSA), which has to be a UAE national individual or a 100% UAE national-owned corporate entity.

Key steps to set-up a Branch or Representative Office in UAE:

A) Speak with one of Sovereign’s consultants who will advise on the correct legal structure based on the activities that a business intends to undertake in the UAE and its intended markets. A client may further choose to obtain a legal opinion to confirm Sovereign’s advice.

B) Appoint a National Service Agent (NSA), which must be either a UAE national or a company wholly owned by UAE nationals. Sovereign Corporate Services has created a number of 100% UAE-owned LLCs that it fully manages and controls through power of attorneys and other legal agreements. These companies can act as the NSA.

C) The required documentation for registration and approval will include but is not necessarily limited to:

• Certificate of incorporation (or equivalent), memorandum and articles of association, and a certificate of good standing (where one can be obtained) from the parent company’s home jurisdiction;
• A board resolution to authorise the opening of the Branch or RO, to appoint a general manager and to grant a power of attorney to the general manager; and to confirm that the company accepts responsibility for the liabilities of the office when established in the UAE;
• Audited accounts of the parent company for the last 2 years;
• A statement setting out the company’s main operations and activities;
• Certified passport copy for the General Manager;
• 2 x Certified proofs of address for the General Manager;
• 1 x CV for the General Manager;
• 1 x Professional / bank reference letter for the General Manager.

D) All documents are required to be notarised and attested in both the applicant’s home country and at the relevant UAE consulate. The notarisation process should be commenced as early as possible because it can take a significant time.

E) All documents must also be translated into Arabic by an official translator before they can be presented to the authorities in the UAE.

F) All requested documents to be submitted to Sovereign, which will then manage the application process from start to finish. The licensing authority will be the Department of Economic Development, with the approval of Ministry of Economy.

Advantages of a Foreign Company office in Dubai/UAE:

• Foreign companies can retain 100% foreign ownership in the UAE;
• Foreign company is not required to show more than 2 years of incorporation and business experience in its home country (some Free Zones require longer);
• The company may legally conduct the approved activity in its licence anywhere in the UAE, including Free Zones;
• No restrictions on the location where the company can rent/buy office premises;
• The government has permanently waived any paid up capital requirements.
• As the NSA, Sovereign has multiple signatories who are available all year round, unlike individual local partners who frequently travel in the summer months.

Disadvantages of a Branch or Representative Office in UAE:

• A Branch is restricted in respect of its business activities, especially to trading in the UAE mainland. If the parent company conducts any activity that involves trading, it can only incorporate an RO for the purpose of marketing or promoting its products and services, or to facilitate commercial agreements between the parent and its customers. However most service activities can be conducted through a branch.
• Longer time to establish than a Free Zone company, typically 8 to 10 weeks;
• External approvals are often required from UAE government ministries and a bank guarantee of AED 50,000 (approx. US$15,000) will be required by the Ministry of Economy.

FAQs

What language should the company documentation be in for application to Department of Economic Development (DED) and Ministry of Economy (MoE)?

=> The local authorities only accept documents and application forms completed in English and Arabic. All documents must therefore be translated into Arabic by an official translator.

Do I need to rent an office to obtain the licence for a Branch or RO in the UAE?

=> A copy of a proposed lease of office space in the UAE will need to be submitted to the DED once it has received approval from the MoE.

Do I need to appoint a local services agent to incorporate a Branch or RO in the UAE?

=> Both a Branch and an RO are required to appoint a National Service Agent (NSA), which must be either a UAE national or a company wholly owned by UAE nationals. The appointment of an NSA is made by written agreement, which must be signed by the parties before a notary public in the relevant Emirate.

What is the NSA’s role?

=> The NSA is not responsible for the Branch or RO and does not take part in any operations, management or ownership of the office. Its role is restricted to liaising with government offices on administrative functions such as obtaining licences, permits and visas. The NSA is generally paid an annual fee for providing such services.