How to start a business in UAE

To legally do business in Abu Dhabi, you need to incorporate a company and obtain a Commercial License, also referred to as a Trade License. Setting up a company in Abu Dhabi is likely to be very different from your home jurisdiction, so its vital to research first, understand the regulations, the ongoing commitments, restrictions etc…so that you can make an informed decision that is right for your business.

The first question you need to ask is what type of business will be most suitable for your planned activities. It would be incorrect to assume that the quickest/cheapest option is best – usually it isn’t suitable. A full market research and feasibility study is recommended. The type of business, but more importantly where your clients are located, is likely to determine whether your business should be onshore or in a free zone.

Onshore or Free zone?

Firstly you need to decide if you are setting up on the mainland or in a free zone. Abu Dhabi currently has four free zones, and a fifth is under construction:

TWOFOUR54 – the media free zone

Kizad – the industrial free zone

Masdar City – the renewable energy / green tech free zone

Abu Dhabi Airports Company – the logistics free zone

Abu Dhabi Global Market (ADGM) – currently being developed as a financial free zone (scheduled to open in 2015)

Free zone companies in Abu Dhabi

The free zones generally attract businesses from certain sectors. This is deliberate, so that they can supply goods and services to each other. This is important because legally, a free zone company must carry out their work within the geographical limits of the free zone, although meetings can be arranged outside of the free zone.

Benefits of being a free zone company include:

100% foreign ownership

100% corporate and income tax exemptions

100% repatriation of profits

No Customs Duties

Independent regulations

Restrictions of being a free zone company include:

Limited to operating within the geographical zone, or overseas

To deal with mainland clients, it would be necessary to engage with an agent or distributor

To export products onto the mainland Duty would be applicable

Government tenders and contracts generally require a mainland DED license

It can also be quicker and cheaper to incorporate a free zone company. However, this is not always the case – a recent comparison for a client looking to set up in a freezone actually revealed it was cheaper for them to set up onshore and the ongoing annual fees to operate were significantly cheaper onshore due to a requirement of the free zone for a particular sized commercial premise (please note, this is a client example with a specific operating activity and would not be the same in all instances).

Mainland companies in Abu Dhabi

Legal Structures

In many cases, the activities you want to engage in will determine the legal structure of the business; however, this is not always the case. There are three main onshore structures to be considered: Representative Office, Foreign Branch Office or Limited Liability Company (LLC).

Local Sponsors and National Service Agents

Setting up a business onshore in Abu Dhabi, it is a requirement to engage with a local partner either as a National Service Agent (for a Rep Office or Foreign Branch) or a Sponsor (for an LLC).

National Service Agent

The Service Agent facilitates a foreign company being able to set up as a Rep Office or Foreign Branch in Abu Dhabi. They also take on liability in terms of Labour and Immigration (visas). A Service Agent does not have any shareholding in the Abu Dhabi business and they will be remunerated in the form of an annual fee.

Local Sponsor

The sponsor holds the 51% Emirati share of an LLC. The type of arrangement will vary depending on the requirements for the local sponsor. An actively engaged sponsor will fund their 51% shareholding and also take their 51% share of profits. They will also be actively involved in decision making and the management of the business. A nominee sponsor will not fund the 51% shareholding, but will act as a silent partner and in effect hold the 51% shareholding in trust until such time the foreign party chooses to sell, share transfer or liquidate the business. With such an arrangement a side agreement is usually set up where the nominee signs management control of the business to the foreign party and elects for the foreign party to receive their share of the profits. The nominee sponsor is remunerated with a fixed annual fee. In both scenarios, the sponsor takes on Labour and Immigration liability for visas.

How to choose a local sponsor or service agent

It is important to understand what you want from a sponsor before meeting with potential candidates. Here are five questions to consider:

Do you want an actively engaged sponsor or a nominee sponsor?

If you sponsor promises opened doors, contracts and introductions, how will you ensure that they follow through?

Will your busy, high profile sponsor be available for document signings upon request?

What happens to the 51% share of your Abu Dhabi business if the sponsor should die?

What is your exit strategy and is it enforceable?

How much does it cost to set up a company in Abu Dhabi?

Freezone setup costs

Costs will vary by freezone, structure, activity, premises, and number of visas. However, these are the costs to be aware of:

  • Registration Fee (one time fee)
  • Name reservation fee (one time fee)
  • Annual License Fee
  • Annual rental for premises
  • Visa per person (lasts for 3 years)
  • Legal templates are usually used and personalised, accordingly.
  • Mainland setup costs

Costs will vary depending on structure, activity, premises and the number of visas. However, there are the costs to be aware of:

  • Government and third party fees (Trade License, Notary fees, legal translations, typing centres, government department registrations – mix of one time and annual fees)
  • Incorporation fees (submission of documents, arrangement of approvals/inspections – one time)
  • Sponsor fees (annual)
  • Legal fees (one time)
  • Commercial premises (annual)
  • Registration of new company with Immigration and Ministry of Labour (one off, with renewal of Establishment card only, every two years)
  • Visa per person (usually lasts for 2 years)

Note: If an individual is setting up an LLC, they will also be required to show share capital of AED150,000 throughout the incorporation process. Upon receipt of the Trade License, this share capital can be converted to working capital.

Ongoing costs

There are a number of annual costs:

Annual costs to maintain a free zone entity in Abu Dhabi

License fee

Premises rental

Corporate PO BOX

Annual costs to maintain a Rep Office or Foreign Branch Office in Abu Dhabi

PRO Service fees to manage the Trade License renewal

Trade License fee

Chamber of Commerce registration

Ministry of Economy registration

Nadafa (Centre of Waste Management) fee

Annual audit by a locally-registered Auditor

Premises rental

Corporate PO BOX

Annual costs to maintain an LLC in Abu Dhabi

PRO Service fees to manage the Trade License renewal

Trade License fee

Chamber of Commerce registration

Nadafa (Centre of Waste Management) fee

Premises rental

Corporate PO BOX

Trade License Activities

It is important to apply for the correct activity on your Trade License as it will have various impacts:

The activity(ies) selected should reflect the activity(ies) of the business

The activity should be reflected in the Trade Name of the company

It will reflect the type of premise required

It may trigger approvals/registrations with certain government departments, e.g. vocational training companies need to be registered and approved with ACTVET and construction and engineering companies need to be registered via a process called Classification

Companies wishing to engage directly with the National Oil & Gas companies need to obtain Supreme Petroleum Council (SPC) approval which once obtained shows as an additional activity on the Trade License

Commercial Premises in Abu Dhabi

Every company is required to have a premise that relates to the activities on their trade license, e.g. a trading company will be required to have a store or warehouse, whilst a management consultancy will be required to have an office space. The space should be large enough to carry out the business of the company and to comfortably accommodate the number of visas required. An inspection of the premises will be conducted during the incorporation process, so they should also be fitted out appropriately. It is not allowed to operate businesses from home. A few business-types are allowed to operate from commercial villas, such as nurseries and beauty salons; but for most businesses this is not permitted. In Abu Dhabi, commercial leases need to be TAWTHEEQ leases, which means they are registered with the Abu Dhabi Municipality; however, there are exceptions such as premises in the Musaffah industrial zone.

Legal documents

As mentioned above, free zones generally provide legal templates.

Legal documents required to set up a Representative Office or a Foreign Branch Office in Abu Dhabi

The following parent company and signatory’s documents will be required:

Certificate of Incorporation of the parent company

Memorandum of Association (MOA) /Articles of Association (AOA) of the parent company

Board Resolution to open a Foreign Branch Office of the parent company in Abu Dhabi

Undertaking Letter from the parent company guaranteeing full financial commitment for the Abu Dhabi entity

A Power of Attorney (POA) to the General Manager giving signatory rights

All of the above documents must be:

Certified by the Notary Public in the country of origin

Legalised by the Ministry of Foreign Affairs in the country of origin

Legalised by the UAE Embassy in the country of origin

Additional documents required, which do not require the certification and legalization are:

Passport Copy of the proposed General Manager

Auditor’s appointment letter from a UAE auditor

National Service Agent identification documents

That National Service Agent Agreement will need to be drafted, legally translated into dual text and duly signed at the Notary Public.

Legal documents required to set up an LLC in Abu Dhabi

If a foreign company will be holding the 49% share of the Abu Dhabi LLC, the following documents will be required:

Certificate of Incorporation of the parent company

Memorandum of Association (MOA) / Articles of Association (AOA) of the parent company

Board Resolution to establish an LLC in Abu Dhabi

Power of Attorney to the General Manager

All of the above documents must be:

Certified by the Notary Public in the country of origin

Legalised by the Ministry of Foreign Affairs in the country of origin

Legalised by the UAE Embassy in the country of origin

If individuals will be holding the 49% share of the Abu Dhabi LLC, the following documents will be required:

Copy of passport of the foreign individual partners with either:

Visit visa copy and last entry date to UAE

Cancelled visa page, if previously held a visa in the UAE

Visa page, with accompanying NOC from current employer

In both instances, the Abu Dhabi LLC’s Memorandum of Association will need to be drafted, legally translated into dual text and duly signed at the Notary Public.

Its worth engaging a locally-based firm to either draft or at least review your company documents. They will be familiar with the local laws and regulations, as well as certain terms and words that are accepted by the Notary Public.

Timescales

When the legal documents are in executional format, the incorporation process for an LLC can be set up in approximately two to three weeks (if no special approvals are required) and a Foreign Branch Office or a Representative Office will take a little longer – approximately three weeks to obtain the Trade License and then there is a period of 30 days in which to lodge a bank guarantee and complete the registration process with the Ministry of Economy.

Now you know what is involved, are you ready to start a business in Abu Dhabi?

If so speak to EmiratesZone Group of Companies, Abu Dhabi’s company formation specialist dedicated to helping foreign companies and individuals set up their Abu Dhabi businesses correctly and cost effectively. By understanding clients’ activities and goals for doing business in Abu Dhabi, EmiratesZone helps them to understand the most suitable routes to market, including the risks, regulatory requirements, and ongoing commitments so that they can make an informed decision that is right for their business and its objectives. EmiratesZone provides a professional, dedicated corporate sponsorship platform for onshore companies with a focus on providing the foreign party with security, control and 100% of the profits. EmiratesZone can also manage the incorporation process to ensure a smooth setup. To chat to us call (+971) 508 33 4444 or email us at info@emirateszone.ae and be sure to keep up to date with regulatory changes and news affecting company formation and doing business in Abu Dhabi by following EmiratesZone across the following social media platforms: