The principal ways in which a foreign entity might establish a business presence in the UAE are:

(1) Limited Liability Company;
(2) Trading Branch or Representative Office;
(3) Professional Business;
(4) Unincorporated Joint Venture; or
(5) Free Zone Entity.

Except in relation to Free Zone entities, it is generally necessary to enter into some form of agreement with a UAE national (or a company owned by UAE nationals). This may be in the capacity of a majority shareholder (in the case of limited liability companies), a national agent or a local service agent (in the case of a trading branch or representative offices or professional businesses), or a partner (in the case of unincorporated joint ventures). The new Commercial Companies Law is eagerly awaited (as has been the case for some time), with the suggestion that it will reduce the level of local participation required, but it is anticipated that it will still enshrine the need for some minimum level of local involvement for some of the trading and industrial activities.

(1) Limited Liability Company
There are seven types of company referred to in the UAE Commercial Companies Law (Federal Law No. 8 of 1984 (as amended)) – general partnership, simple limited partnership, joint participation (unincorporated joint venture), public joint stock company, private joint stock company, limited liability company and partnership limited by shares.
The most common form adopted by foreign companies is the limited liability company and set out below are certain of the key issues to be considered in relation to such entities.\
Company name – The name of the company should be derived from its objects or the name of one or more of its partners, although this is not mandatory. It is possible to obtain the approval of the relevant authorities to a particular name prior to proceeding with an application for registration.

Local shareholding – The law currently provides that in most cases at least 51% of the total shareholding in a limited liability company must be held by a UAE national (or a company wholly owned by UAE nationals). There are exceptions providing that certain activities, such as real estate-related businesses, can only be conducted by entities that are 100% locally owned. A reduction in this minimum local shareholding requirement is anticipated to be enshrined in the new Commercial Companies Law, but a timetable for the issue and application of that law has not yet been fixed.

Minimum share capital – The minimum share capital requirements specified in the Commercial Companies Law were amended in 2009. Following the amendments, shareholders have the right to determine the share capital of the company, provided that the company will have sufficient capital to achieve its objects. The shareholders also have the right to determine the par value of the shares, as no minimum amount is prescribed.
Nevertheless, in practice, for certain activities the authorities may prescribe a minimum share capital and it is regularly the case that the shares of the company are required to be valued at a minimum of AED 1,000 each. In certain circumstances the share capital must be fully paid up and deposited with a locally registered bank. However, this requirement tends to differ between the Emirates. Contributions in kind are permitted under certain strict conditions.

Profit and Loss – The profits and losses of a limited liability company can be distributed between the shareholders in, subject to the comments mentioned below, whatever proportions they agree in the Memorandum of Association. The ratio does not need to reflect the shareholding and indeed often differs in order to dilute the mandatory 51% UAE national shareholding. It is not however permissible for the parties to express a profit share in the Memorandum of Association which purports to entitle the local shareholder to less than 20% of the profits.

Management – Limited liability companies should be managed by at least one but not more than five managers. The manager(s) may be an individual or a company. The role of the manager(s) may be compared to that of directors in other jurisdictions. The powers of the manager(s) and manner of appointment and dismissal should be specified in the Memorandum of Association (and possibly additional documentation, such as a separate management agreement). If the number of shareholders exceeds seven, it is also necessary for the shareholders to establish a “Board of Supervisors” comprising at least 3 of the shareholders. This Board is responsible for supervision of the managers/management of the company and has powers of inspection of financial and other documentation, supervision of the budget, preparation of the annual report and the distribution of profits. The Board of Supervisors reports to the shareholders.
The General Manager listed on the trade license, responsible for the day to day operations of the company and who can be appointed by a corporate manager, must be an individual.
Application for a trade licence for a limited liability company should be made to the competent local authority supported by documentation including:

(i) the proposed Memorandum of Association of the new company;
(ii) copies of each shareholder’s passport or, in the case of corporate shareholders, their Memorandum and Articles of Association and Certificate of Incorporation;
(iii) a Board Resolution of each corporate shareholder approving the taking up of shares in the new company and an associated power of attorney in favour of the authorized representative of the corporate shareholder;
(iv) a copy of the Manager’s passport and CV;
(v) a Power of Attorney in favour of the Manager;
(vi) a copy of the company’s lease agreement of commercial premises.

The incorporation process usually takes in the region of 2 to 3 weeks from the date of submission of all documents, although the competent local authority has discretion to request additional information or documentation as it sees fit which often affects the timing of the registration process.
The licence fee comprises several elements including a fee of 5% of the annual rent of the commercial premises. There are in addition administrative fees payable to the competent local authority, the Chamber of Commerce and the Ministry of Economy.
In circumstances where one or more of the shareholders does not in fact contribute to the share capital (his contribution being made by one or more of the other shareholders), it is usual to execute separate documents evidencing the agreement of the parties in relation to the management of the company, the division of profits and losses and the beneficial ownership of the shares. The validity of such agreements as regards management and division of profits has been widely accepted both by the competent local authorities and the local courts in principle. The position is less certain with regard to agreements in which a party that is not the registered owner of shares purports to hold the beneficial ownership of those shares. It is thought that in most cases the validity of such agreements would be upheld by the local courts inter se the parties, although in the absence of judicial authority on the point no guarantees can be given in relation to their legal status. It should be noted that the Federal Government has issued an Anti Concealment Law dealing with issues of undisclosed beneficial ownership, but that law is not currently applied.

(2) Trading Branch & Representative Office
It is possible for a foreign company to establish a federally registered branch office (trading) or representative (non-trading) office. In Dubai, it is also possible to establish a local branch office of a foreign company for professional services (eg management consultancy services), which does not require the foreign company to meet the stringent requirements of the federal Ministry of Economy.
In order to establish a federally registered branch or representative office, application must be made to the federal Ministry of Economy supported by various documents, including the applicant’s Certificate of Incorporation, Memorandum and Articles of Association, appropriately worded Board Resolutions, audited accounts for 2 years, Power of Attorney in favour of the General Manager and other authorised signatories appointed by the applicant and a notarized National Agency Agreement. The foreign company must usually also provide a bank guarantee (which must be renewed every year) in the amount of Dirhams 50,000 issued in favour of the Ministry of Economy along with its application for registration in the Register of Foreign Companies. The National Agency Agreement must be entered into between the applicant company and a UAE national or company wholly owned by UAE nationals. The premises proposed to be used by the branch or representative office must be approved and licence fees paid before the licence will be issued. In the case of a representative office application, the licence will contain a “no trade” restriction, effectively limiting activities to those of marketing and liaison.
Whilst the appointment of a national agent is required by law, the scope of the agent’s role is essentially a matter for agreement between the parties. At the very least, the agent should facilitate visa applications and other administrative issues, which require the agent’s signature as a matter of law. The agent may also agree to promote the foreign company’s operations in other ways using whatever influence the agent may have as appropriate. The agent is usually paid a fee for his services, expressed to be either a fixed annual sum or a sum calculable by reference to the level of business conducted or generated by the branch or representative office.

(3) Professional Business
Professional business is defined as “work based on investing mental talents and acquired information”. The conduct of professional business is governed by Local Orders in each Emirate.
If a non-national person or corporate body wishes to conduct professional business a UAE-national local service agent must usually be appointed. In the case of a group of non-national persons, they are required to establish a “business company” (akin to a partnership) in accordance with the provisions of the federal Civil Transactions Law, and usually to appoint a UAE-national local service agent in the event that none of the participants is a UAE-national.
In order to obtain a professional licence, application must be made to the relevant local authority supported by various documents. Corporate applicants must submit their constitutive documents, board resolution, power of attorney to a General Manager and Local Service Agency Agreement. Individual applicants must submit evidence of qualifications and experience in the field in question, and their passport copy.
Any individual or corporate body intending to conduct professional business pursuant to the relevant Local Order must also comply with the federal and local regulations governing the conduct of the intended business.

(4) Unincorporated Joint Venture
Pursuant to Section 56 of the Commercial Companies Law two or more parties can establish a private unlimited company, where the business is operated in the name of one of those parties (who must be licensed to carry on the business in question). These forms of arrangements are commonly referred to as unincorporated joint ventures, and are often used for short term operations, perhaps as a pre-cursor to the incorporation of a limited liability company.

(5) Free Zone Entity
The UAE now boasts a significant number of Free Zones including the Jebel Ali Free Zone, the Dubai Technology, Electronic Commerce and Media Free Zone (including Dubai Internet City and Dubai Media City), the Dubai Airport Free Zone, the Dubai Health Care City, the Dubai International Financial Centre, the Ras Al Khaimah Free Zone, the Sharjah International Airport Free Zone, the Hamriya Free Zone, the Ajman Free Zone and the Fujairah Free Zone, Dubai Commodities Centre, Dubai Outsource Zone, International Humanitarian City, Dubai Silicon Oasis, the Dubai Textile Free Zone, the Dubai Auto Parts City Free Zone and the Dubai Carpet Free Zone.
The main attraction of establishing an entity in one of the Free Zones is that there is no minimum UAE national shareholding requirement. The Free Zone authorities also generally guarantee investors that they will not be liable for corporation tax for a specific period of time. In the case of the Jebel Ali Free Zone for example this guarantee is for a period of 50 years and is renewable upon the expiration of the initial period.
This guarantee applies regardless of changes which may be introduced to national tax regulations. In addition, Free Zone entities are not liable for import or export duties for goods imported into and exported out of the Free Zone and may repatriate 100% of their capital and profits without penalty.
A Free Zone entity can usually take one of four forms:

(i) a branch office of a foreign principal company;
(ii) a Free Zone Establishment (a separate corporate legal entity with the foreign principal company or individual being the sole shareholder);
(iii) a Free Zone Company (similar to a Free Zone Establishment but with multiple shareholders); or
(iv) a Free Zone Offshore Company.

Branch office – In order to form a branch office in a Free Zone, the foreign company’s application must be supported by copies of its constitutive documentation, appropriately worded board resolutions and a statement regarding the amount of capital set aside for the promotion and support of the branch office operation.

Free Zone Establishment or Company – In order to form a Free Zone Establishment the corporate foreign entity’s application must be supported by copies of its constitutive documentation and appropriately worded board resolutions. In the case of individual applications, the application must be supported by a passport copy, personal profile and bank reference. As the Free Zone Establishment will be a separate corporate legal entity, further information is also required concerning the proposed share capital, the number of shares, the identity of local bankers and auditors and the appointment of directors and secretaries. In the case of a Free Zone Company the required documentation will depend upon the nature of the shareholders.

Free Zone Offshore Company – A Free Zone Offshore Company can be formed with one or more shareholders, but cannot be used for trading purposes. It can be used to hold assets, including property.

Special Categories In relation to certain activities proposed to be carried on by companies, branch offices, representative offices, professional businesses and joint ventures, the prior consent of a Federal Ministry or competent local authority is required before the trade licence will be issued. These activities include those relating to oil and gas, banking and investment, financial services, insurance, media, transport, construction contracting, telecommunications, real estate management, architectural and engineering consulting, tourism, shipping, civil aviation, legal services, medical services and education.
Taxation – There is no federal legislation imposing corporate or personal income taxes. In the 1960s the individual emirates did enact tax decrees providing for tax on corporate entities. The practical application of these largely identical decrees is limited almost exclusively to oil producing companies, certain related service industries and banks. Exemptions to this tax are available upon application, and even the vast majority of companies to which exemption has not been formally granted are for the most part not assessed to tax.
There are import taxes that are usually levied at the rate of 5% on goods entering the country, unless tax has already been paid in another GCC country, or the goods are entering one of the Free Zone areas for the purposes of re-export.