Mainland, Free Zone and Offshore companies
Company formation knowledge series
Issue 02 – Mainland, Free Zone and Offshore companies
There is no doubt that Dubai is a remarkable choice for setting up businesses, Dubai is recognized as a fertile land for investments and a dynamic environment for doing business on a global standard. Dubai excels in offering an infrastructure which enables investors achieve their goals within one of the world’s top business-friendly environments.
Dubai offers investors the choice of having their businesses formed in the mainland or within one of the many free zones in the emirate, these free zones, which exceeds 40 free zones and growing, offers purpose built solutions for many industries and trading businesses.
First let’s address setting up in Mainland Dubai.
Companies registered in Dubai’s mainland obtain their licenses from the Dubai’s Department of Economic Development (DED). While there are many legal company forms that can be incorporated under the DED, Limited Liability Companies (LLC) and Professional or Civil companies are the most popular forms of companies due to their nature.
The main benefit of a Dubai LLC is the freedom of doing business inside the country without jurisdiction limitations, and there is no minimum capital requirement, however, there is a restriction on foreign ownership when setting in mainland Dubai, as the DED requires a minimum of 51% shareholding to be owned by a UAE national or a company owned 100% by UAE nationals. Foreign investors can overcome this limitation by entering into an agreement with a UAE national to act as a nominee shareholder, holding the 51% of shares for the other party. This agreement should be of course documented in what is called a side agreement, as the main Memorandum and Articles of association of the company should be drafted according to the law and state that 51%, or more, of the company shares are owned by the UAE national.
Another option for doing business from Dubai’s mainland is:
Branch of a foreign company
Branches of foreign companies are sometime a good solution instead of opening a subsidiary, because the branch can conduct the same activities as the parent company, except for trading in mainland, which can be managed through trading agents, but the top advantage of setting up a branch of a foreign company is that it does not require a local partnership, meaning that the branch is 100% owned by its parent company, it does however require to appoint a local service agent, which is a UAE national, person or a local entity that does not own any shares in the branch, the local service agent in this scenario has only one purpose, which is to communicate with governmental bodies as the immigration and labour departments, issuing employment visas and other such services. Now we have arrived to the second part of the topic:
Setting up in a free zone
There are more than 40 free zones in the UAE and Dubai, some of which focus on specific industries, while most of them covers the majority of business activities like trading and services. Free zones does not require a local partnership in the company, meaning that 100% foreign ownership is allowed, and that’s why free zones are popular among foreign investors, the limitation is that free zone companies cannot conduct business in the mainland, and in the case of trading the free zone company should appoint a local trade agent if the company would like to distribute their goods in mainland, and of course customs duties will apply as in the case of any mainland business.
Another advantage is that free zones are considered as a one-stop-shop for company setup in terms that a company can conduct labour and immigration related services through the free zone, thus reducing the effort and time companies spend on such activities.
The last company type we will discuss here is Offshore companies, few fee zones in the UAE has offshore centers to register offshore companies, they are companies that are used mainly for holding other businesses or assets whether in the UAE or anywhere else in the world. Offshore companies cannot conduct business in the UAE nor sponsor employees, however a key advantages for offshore companies are 100% foreign ownership, no requirement regarding capital and quick setup.