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  • UAE System, Laws and Regulations for Foreign Investors, Permitted Activities


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UAE System, Laws and Regulations for Foreign Investors, Permitted Activities

What in simple terms is the basic structure of the system in the UAE relating to companies (Free Zone or Offshore) operated by foreign investors, who are Non-UAE nationals, and their operation?

Rationale relating to initiatives given to foreign investors

The Free Zone system was “built” in a certain way in order to facilitate the operations of foreign investors (“non-UAE nationals”) and provide initiatives to (1) set up operate businesses in Dubai in dedicated Free Zones which provide unparalleled infrastructure and (2) allow multi-year residence visas to investors and their foreign staff BUT at the same time, reasonably, “protect” the local market from a sudden and large-scale “invasion” by foreigners who at the moment can trade freely internationally, within companies in their Free Zones or with companies in other UAE Free Zones and across Free Zones in general.

Having said that, it IS possible to trade in the UAE but with conditions. Either via a UAE limited liability company having 51% local stake (but can be structured so the local party has no management rights and practically restricted dividends) OR through a local commercial agent (not recommended) OR a service agent for professional firms (recommended).

This, reasonably, is to give time to local infrastructure, business and human capital ample time to develop in order to compete at par with foreigners before opening the local economy fully or more at least. Significant steps in that direction are taken every year (lately allowing freehold ownership by foreigners in designated areas and other significant initiatives).

Laws and Regulations in the UAE for Foreign Investor Companies

There is the Federal Law which applies to all 7 Emirates and supersedes the “domestic” laws of each emirate. In addition within each emirate there are Free Zones which have their own laws and regulations which might be different from UAE laws (and from Free Zone to Free Zone they may differ but many elements are common) as they are structured to facilitate business for foreigners. For example in DIFC (Dubai International Financial Centre – the Financial Services Free Zone) English law was adopted as the prevailing law, in order to facilitate these activities!

Permitted type of activities

This is not like Malta or Cyprus where the Articles of association / laws allow many activities in ONE company. Activity licensing for each entity mentioned above is as follows:

(a) For a free zone company ONE must get A TRADE license for EACH ONE activity e.g. consulting OR trading etc. and holding shares or participating in ventures is allowed.

(b) For offshore companies many activities are allowed for one company

Restricted activities for offshore are:

  • Financial – Aviation- Media – precious metals- oil and gas

As accepted ones are :

  • Business and Management consultancy
  • General Trading
  • Holding companies and holding shares in other companies in the UAE or outside
  • Trading (Shall be specified)
  • Owning Free hold properties

Accounting, Reporting, Audit

Offshore Companies need to keep books of account and prepare financial statements but no audited financial statements are required.

Free Zone Companies Companies need to keep books of account and prepare financial statements AND audited financial statements.

Investment restrictions

Islam forbids gambling in any form. Consequentially, derivatives, forwards, options and futures are prohibited. Other forbidden practices include short selling, margin, and scalping trading. Day trading is considered akin to maisir. Marketable securities generally have a multi-day settlement period, during which time the underlying instruments, while cleared, are not formally registered in the name of the purchaser. As day traders do not wait for settlement to complete, they are using a type of credit cushion provided by their broker.[3] Day traders also very commonly rely on a margin account to finance their trading activity.

The payment or receipt of interests are considered usury and unjust. Debt is also disapproved making investments in highly leveraged companies unacceptable. Funds cannot pay fixed or guaranteed return on capital. Instead of borrowing and lending, Islamic finance relies on sharing the ownership of the assets and therefore risk and profit/loss. Companies involved in prohibited business activities cannot be part of a Shariah fund strategy. Prohibited business activities can relate to food (production and sales of alcoholic beverages including pubs and restaurants, pork products, tobacco), gambling (casinos, on-line gambling, betting, lottery schemes), adult oriented (video, magazines, on-line material, strip clubs), dubious, immoral and illicit trades (prostitution, drugs).

Can FZ or UAE Offshore Companies trade within the UAE or hold shares in other UAE companies? Are there any restrictions?

Companies with Trade or Industrial licenses can only conduct business within the Free Zone or abroad.

To sell their products in the UAE, they should

(a) use an UAE official agent. Usually 5% duty for “export” within the UAE. But services and products can be obtained from and within the UAE without one.


(b) set up a UAE LLC (Limited liability company) which needs to have a 51% local stakeholder – can be arranged but have to pay fees for this local “sponsor” for facilitation

UAE Free zone companies in one free zone can trade with companies inside that free zone or with companies in any other UAE free zone AND internationally with foreign companies but not inside UAE (outside free zones) or with UAE residents.

UAE Offshore and Free Zone companies can have shares in other UAE companies, Free Zone or Offshore.

UAE Offshore companies can trade or internationally but not inside UAE or with UAE residents.

Important – Restrictions:

The restrictions on UAE offshore and onshore / free zone companies DO NOT apply to their foreign subsidiaries which are not bound by UAE rules and can operate freely according to the laws of the other country!

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