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  • UAE RAK and Dubai Company Formation – Essential Information and Facts

 

UAE, RAK and Dubai company formation. Fee packages from USD$450 and annual fees from USD$1200. "FBS KOTSOMITIS", operating since 1998, is a well-known and established international professional services network with officially licensed and regulated local member / partner firms. Contact us to start process by sending an email to enquiries@fbsemirates.com or by using our contact form.

UAE RAK and Dubai Company Formation – Essential Information and Facts

UAE RAK and Dubai Company Formation - Company Types – Practical Information and Facts

Invest  in the UAE

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NOTES TO AID THE CLIENTS IN CHOOSING THE RIGHT TYPE OF COMPANY AND PLANNING THEIR INVESTMENTS IN THE UAE

Contents

(1) UAE Offshore Companies (‘Offshore Companies’) – used for international trading and holding but with local access to bank accounts and real estate ownership

(2) UAE Local Free Zone Limited Liability Companies (‘Free Zone Companies’) – used for local trading in Free Zone Areas (not in all the UAE) AND internationally as well as real estate ownership

(3) UAE Limited Liability Companies (‘LLC Companies’) – for unlimited UAE and international market access

(4) Bank account opening conditions / facts / practicalities

(5) General points on ‘offshore vs free zone companies’

(6) UAE Companies as Holding Companies

(7) UAE Companies as Trading Companies

(8) UAE Companies for investment in UAE Real Estate

(9) Inheritance / Succession Considerations

(1) UAE Offshore Companies – used for international trading and holding but with local access to bank accounts and real estate ownership

UAE Offshore Companies – the cheaper UAE alternative – are only allowed international (non-UAE) activities, of almost any kind in the same legal – company entity (in the UAE they can only have a bank account, hold shares in other UAE Offshore or Free Zone Companies and own UAE real estate).

No fixed place of business – office – is to be used in the UAE for carrying out business so in this sense virtual office services cannot include business address but only registered office and mail (UAE telephone no. can be used also via skype services).

These are non-tax resident entities and cannot enjoy UAE tax treaty benefits and do not entitle owners or managers to a UAE Residents VISA. As such they are cheaper. Compared to other offshore companies in other jurisdictions they are considered as significantly more prestigious as they do not appear on international black lists, give access to anonymous banking – no international information exchange agreements – without problems, for the company and its owners (non UAE companies e.g. Seychelles, BVI or UK companies experience considerable delays, costs and difficulties in opening a bank account in the UAE) and benefit from well capitalised and solid banks operating in a sound economic environment.

Application / Registration / Licensing Process:

Simple application to the authorities requiring only activity, bank references, passport copies and utility bills for the ultimate beneficial owners / shareholders.

One day registration once the above is provided.

Bank accounts (see also below notes on UAE bank accounts) – need for a physical visit to the UAE for bank interview and application submission – 2 days timeline after submission

Fees:

1st year – $2,740 (our fees: $450 for formation + $1200 for 1st year annual fees + government fees $1,090)

2nd and subsequent years – $1,880 (our fees $1200 + government fees $680)

(2) UAE Local Free Zone Limited Liability Companies (‘Free Zone Companies’) – used for local trading in Free Zone Areas (not in all the UAE) AND internationally as well as real estate ownership

UAE Free Zone Companies enjoy ALL the benefits and are allowed ALL the functions of offshore entities (see above) with the only major differences and added advantages being:

  • Activities are restricted to the scope of a specific license type applied for – services, trading etc. – and cannot do all in one - license fees apply from $5,000 p.a.
  • A fixed place of business – office or cheap flexi-desk from $1,400 p.a. – must be used with full virtual offices as well
  • Entitlement to a 3-year investor visa and ‘Emirates ID’ for each investor (inc. spouses and dependants)
  • These are onshore tax resident status with access to tax treaties and issue of certificate of tax residence.
  • They can trade with other Free Zone companies within their Free Zones or with companies in other UAE Free Zones, as well as internationally.
  • A license is issued at ANY Free Zone Authority of choice and this entitles trading with Free Zone Companies in all the Emirates. Additionally branches or subsidiaries of this FZ company can be set up in any other Free Zone area if a physical presence is required in more than one Free Zone.
  • They cannot trade outside the Free Zones, within the UAE. If services are bought or sold outside the UAE the Free Zone Company is appropriate for this activity.

Application / Registration / Licensing Process:

Simple application to the authorities (Requiring only activity, bank references, passport copies and utility bills for the ultimate beneficial owners / shareholders AND managers).

Name approval required first – +/- 2 days

Then licensing approval is required (business plan is required to be submitted). This can take some time depending on specific activity / project / circumstances – approximately 1 month.

Company registration follows (post-licensing approval). Need for physical visit to sign Memorandum of Association.

Bank accounts (see also below notes on UAE bank accounts) – need for a physical visit to the UAE for bank interview and application submission – 2 days timeline after submission

Residence VISA for owners AND staff (number of staff depends on size of space / premises opted for) can be processed. One week timeline, approximately and need for physical visit and medical tests. Can be combined with ‘bank account’ visit.

Emirates ID is given after 30 days from visa approval.

Fees and Costs for a small company with minimum space requirements:

1st year – $9,850 (our fees: $2,950 for formation, licensing and first year + fees + government fees $5,500 + premises cost $1,400). RESIDENCE VISA – optional: $5,000 per person = our fees $3,000+ government disbursements $2,000

2nd and subsequent years – $5,700 (our fees $1,950 + government fees $2,350 + premises cost $1,400)

Work involved in the set up stage:

  • Application and contact / representation for license
  • Registered Agent Services
  • Process and liaise with Property Departments re: Requirement for Land /   Premises (Minima apply)
  • Consulting work on Memorandum of Association and Shareholder Agreements
  • RAKIA License and Land fees (depends on case / licence type)

(3) UAE Limited Liability Companies (‘LLC’s) – for unlimited UAE and international market access

If local UAE market access is required then an ‘LLC’ is the suitable vehicle which is the same as a Free Zone company EXCEPT with 51% of the shares owned by locals (and additionally a requirement for a pre-approval to be issued by The Department of Economic Development and The Ministry of Economy). 

For this purpose (buying and selling inside the UAE) a local LLC is needed with a local sponsor (shareholder) which - using our strong local contacts and our Chairman’s recommendation eliminates all risks in trusting unknown parties. The result is that the local sponsor ends up with no control, no right to the 51% dividends which are LEGALLY waived in return for an agreed fee / or percentage return.

Benefit: Beneficial Owner is shown to be a local person.

Application / Registration / Licensing Process:

Same as Free Zone Companies except – in addition – an additional (1) pre-approval process at the Investment Authority necessitating an ‘approval’ at The Department of Economic Development and The Ministry of Economy and (2) Shareholder agreements to enable the appointment and govern relationship with the local sponsor.

Bank accounts (see also below notes on UAE bank accounts) – same as for Free Zone companies.

Residence VISA for owners AND staff (number of staff depends on size of space / premises opted for) – same as for Free Zone companies.

Emirates ID – same as for Free Zone companies.

Fees and Costs for a small company with minimum space requirements– excluding sponsorship fees and any special conditions / costs that the Authority might apply depending on project:

1st year – $4,950 (our fees for formation, licensing and first year). RESIDENCE VISA – optional: $5,000 per person = our fees $3,000+ government disbursements $2,000. Premises costs assigned by authority separately upon agreement.

2nd and subsequent years – $4,950 (our fees)

(4) Bank account opening conditions / facts / practicalities that apply mainly to UAE Offshore Companies OR ‘non-resident personal accounts’ of individuals without a UAE resident visa (n.b. Free Zone Shareholders do get a residence visa as opposed to offshore company shareholders and themselves and their companies do not suffer increased / enhanced due diligence procedures by local banks)

UAE bank account opening for offshore companies is a simple process but, as the UAE wants to protect its image as a financial center as well as its advantages, there are some conditions:

  • Client (UBO) must come to the UAE for a personal meeting with the bank to open a corporate and a personal account (we arrange the bank introductions) and satisfy the bank they are serious and professional and their companies will have specific activities (not more than one or two is recommended)
  • There is a minimum balance that must be kept in these accounts at all times (from $10,000 to $100,000 depending on the bank)
  • Proper and extensive KYC and due diligence to international standards are performed by all banks as part of the account opening process

Currently we cooperate with 2 government majority-owned banks RECCOMMENDED by the RAK Investment Authorities to which we can introduce you and your business:

Habib Bank (hbl.com) – Operating since 1841 with strong presence in ALL major financial centers like Switzerland and Luxembourg, flexible, very confidential understands the offshore business very well and we maintain a close contact with.

Abu Dhabi Commercial Bank (adcb.com) - one of the biggest and safest banks in the world … but slow in account opening like all big banks with a liking for bigger amounts of deposits and tough due diligence and the occasional rejections). However for free zone companies the process is a lot quicker.

Mashreq Bank (mashreqbank.com) – Mashreq has provided banking and financial services to millions of customers and businesses since 1967. Mashreq is one of UAE’s leading financial institutions with a growing retail presence in the region including Egypt, Qatar, Kuwait and Bahrain. Mashreq is invariably among the highest performing banks in the Region.

Bank accounts take about a week after application and documentation is submitted to the bank.

Most clients prefer to apply to two (2) banks to minimize the chance of occasional rejection and also have a wider choice to decide which bank will suit their needs.

Bank account introductions and arrangement of meetings cost from $545 per bank per account. 25% discount applies if 2 banks are applied for.

Alternative solution for clients that do not require a UAE bank account for their UAE Offshore Company: Opening of a Cyprus Bank Account

On the negative side, we site the disadvantages of banking in the EU as mentioned in our previous newsletters. However, for smaller amounts (<$100,000) this should not be a major issue.

(5) General points on ‘offshore vs Free Zone companies’: 

Free Zone Companies are local tax-resident entities. They are not ‘under attack’ by the international community (OECD) as they possess adequate local substance and are widely recognised and acceptable. Bank account opening procedures for these type of companies are – naturally – simpler, quicker and with light ‘due diligence’ obstacles. After all the company is local and the owner is also a local resident (UAE resident foreign national with ‘Emirates ID’ and residence VISA as well as present in the UAE at least twice a year. The future: The Free Zone company will survive indefinitely as it is a truly local establishment with economic substance and resident owner in a big – economically – country / market in a world-class regional hub with real and advanced infrastructure where thousands of REAL and resident companies are operating (and not situated a small island where no such infrastructure and market size exists).

UAE offshore – paper – companies are also fully acceptable and do not appear in any ‘international black lists’, except being subject to stricter due diligence procedures by local banks.  Practical use in tax planning / acceptability: offshore companies can be used to invoice Cyprus or Malta companies or act as holding companies of Malta or Cyprus companies without problems from the local tax authorities. In other high-tax EU countries there might be problems relating to the acceptability of offshore company invoices. The future: Offshore companies internationally have an uncertain future in the next 3-5 years however at the moment they are used internationally by thousands of clients. The first problem, in time, might be increased difficulty to open bank accounts.

(6) Holding activities

Aim: To eliminate or minimize – among others – dividend, interest, royalty withholding taxes as well as capital gains taxes at the level of the subsidiary as imposed by local tax law in the country of tax residence of the subsidiary. In this sense tax leakages are optimally minimized. To do that – tax minimization – the holding company (recipient/owner of dividends etc.) must have access to the double tax treaty between the country of the holding and that of the subsidiary. In turn, to get this access it needs to be a tax resident company in the holding jurisdiction (such as a UAE Free Zone Company) and NOT a non-resident company (such as a UAE offshore company).

Only in cases the subsidiary is resident in a country where NO withholding taxes exist / are provided for by domestic tax law (and so a treaty is not needed to minimise taxes as there are zero withholding or capital gains taxes imposed by domestic law) would a UAE offshore company be suitable – such as Cyprus and Malta where UAE offshore companies can be used as holding companies without any problem. Moreover, one might have a 3-tier structure where UAE offshore owns Cyprus or Malta Company and in turn those own EU companies. This is a great structure as it combines BOTH treaty benefits and access to the very advantageous EU treaty directives which eliminate all withholding taxes within the EU (Parent-Subsidiary directive, Interest and Royalty directives and others).

So the choice is primarily a free zone company here which is able to obtain a ‘certificate of tax residence’, with the client / owner having a residence visa and emirates id (we can arrange easily, condition: twice a year short visits to the UAE). This can be combined, if preferred with a Cyprus or a Malta company (or not, as appropriate). Alternatively (if dividend or other withholding taxes do not exist at the subsidiary jurisdiction level) a UAE offshore company can be used without problems.

Special note: UAE holding companies – with UAE bank account – used to mitigate EU banking and financial risks UAE International Holding Companies

(Concerns mainly clients operating Malta Companies …but also Cyprus and other EU Companies or Non EU – Seychelles – Companies with bank accounts in the EU)

Malta

(scroll down for Cyprus and other EU structures)

Use of a “Double Malta-Malta” Structure (Malta Holding Company of another Malta Company – necessary to achieve the 5% effective corporate tax rate in Malta) – Recommendation / Suggestion to improve the corporate structure and avoid the EU banking and financial crisis risks.

We recommend inserting a UAE holding company ($450 SET UP FEE) “above” all existing Malta structures for the following reasons.

“UAE – MALTA” STRUCTURE = UAE HOLDING COMPANY OF MALTA SUBSIDIARY

THE UAE-MALTA STRUCTURE IT IS THE MOST POPULAR STRUCTURE AMONG CLIENTS RECENTLY AS A HEDGE TO AVOID UNNECESSARY RISKS

  1. THE MALTA-MALTA STRUCTURE IS LESS OPTIMAL TAX-WISE THAN THE UAE-MALTA STRUCTURE
  2. THE MALTA-MALTA STRUCTURE IS LESS FAVORABLE FOR CONFIDENTIALITY PURPOSES AS MALTA IS UNDER THE EU EXCHANGE OF INFORMATION REGIME WHILE UAE IS NOT AND HAS NOT SIGNED ANY EXCHANGE OF INFORMATION AGREEMENTS WITH ANY OTHER COUNTRIES
  3. THE MALTA-MALTA STRUCTURE IS PROBLEMATIC FOR ENSURING SECURITY OF FUNDS IN MALTA BANKS, IF THERE IS AN “EU INDUCED” BANKING HAIRCUT/CRISIS IN MALTA IN THE NEXT FEW YEARS, AS IF THERE IS A UAE HOLDING COMPANY WITH UAE BANK ACCOUNT, FUNDS CAN AT A CLICK OF A BUTTON BE TRANSFERRED OUT WITHOUT THE BANK RAISING COMPLIANCE ISSUES FOR THE TRANSFER AS THE TRANSFER IS TO THE HOLDING COMPANY (WHEN BANKS ARE “SQUEEZED” THEY OVERZEALOUSLY APPLY COMPLIANCE PROCEDURES TO SLOW DOWN THE FLIGHT OF DEPOSITS).
  4. IT AVOIDS, IN THESE RISKY TIMES, “PUTTING ALL OUR EGGS IN THE SAME BASKET”
  5. MOST LOCAL PROVIDERS PROMOTE THE MALTA – MALTA STRUCTURE FOR PURELY COMMERCIAL REASONS AS THEY DO NOT HAVE A PRESENCE IN OTHER JURISDICTIONS – OUR FIRM IS IN A POSITION TO OFFER IMPROVED STRUCTURES DUE TO ITS SOLID INTERNATIONAL PRESENCE AND EXPERTISE

Cyprus and other EU Corporate structures as well as Non EU – Seychelles – Companies with bank accounts in the EU

For similar reasons (especially 2., 3. and 4.) the same is also recommended generally for other structures.

We recommend inserting a UAE holding company ($450 SET UP FEE) generally “above” all existing EU structures (or non-EU but with EU bank accounts) for the above reasons.

(7) Trading activities

A free zone company is a very suitable and tried and tested vehicle for trading purposes (please carefully read the notes below).

We highly recommend this.

The simple free zone company with 100% ownership by foreign nationals (but ‘soon to be’ UAE residents – by virtue of the issue of residence visa and UAE ID).

Note: If an EU VAT number is required for intra EU trading this can easily – our Malta office services – be achieved / obtained by establishing a branch of the UAE Free Zone Company in Malta. Note that this has practically no tax implications as there is 0% tax in Malta for the branch’s ‘outside of Malta activities’ (foreign branches in Malta only pay tax on local – Malta – income, which is not the case for international clients.

(8) UAE Real Estate Investments

Real Estate in the UAE offers attractive opportunities for high rental yields and capital gains in one of the most promising markets globally that has totally recovered from the global financial crisis.

The winning of the EXPO 2020 exhibition by the United Arab Emirates which is estimated by global investment banks to provide a more than 50% boost (*Barclays Investments) to the GDP of the UAE over the next 7 years … on top of a 4% a year growth. This along with local measures to ‘cool off the market’ (low loan to value ratios and increased transfer fees) should ensure minimal downside risk and healthy returns.

There are exciting opportunities for investment – please see our UAE Real Estate Investment Brochure which is attached.

Important Note: Our Firm (apart from the registered agent / corporate services official license) is also a holder – and active in – of a Real Estate Consulting Official License and able to assist you 100% in effecting your UAE Real Estate Investments.

(9) Inheritance / Succession Considerations

Real estate purchases and other investments must be effected using UAE offshore or Free Zone Companies. It is not recommended to hold real estate or other assets / investments in person as this will lead to complications on death / succession.

Holding shares of UAE companies – even anonymously – (RAK registry is under Common Law Rules) is a risk – free and efficient way to avoid all problems are shares are transmitted automatically to the successors / heirs by the production of a Will document at the registrar of companies (alternatively or in addition pre-signed transfer documents can be given to the chosen successors)

Author: Aris Kotsomitis

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