Last Updated on May 1, 2024 by Jamie Marshall
With its diverse population and continuously expanding economy, Dubai is an attractive option for those looking to set up businesses in the Middle East region; however, Dubai company formation can be tedious and the government has set up stringent rules regarding the type of business an individual or a foreign firm can set up as well as ownership guidelines for different types of businesses.
Setting up a business in Dubai is governed by the emirate individually under the guidance of a Federal Government. Within the Middle East, Dubai is one of the most attractive environments for new company formations, and the government of Dubai is making every effort to ensure a business environment that allows owners a fair amount of operational flexibility within a framework of rules and guidelines. Within the emirate, different types of businesses may also need additional approval from specific agencies prior to obtaining a license.
Type of Business Set-up
Having a business presence within the region has several advantages: it is much easier to research market prospects, build contacts and establish a relationship with potential clients and customers. Owing to the unpredictable nature of businesses in the UAE, many businessmen prefer to interact with known entities or those that come through recommendations. This is an important aspect of conducting business within Dubai, even more so than in other countries.
There are several types of businesses an individual or a foreign investment company can opt to set up in the region:
- Direct trade – Where business is conducted directly with dealers and distributors in the region.
- Branch office – Additional approval required by the Economic Development Department. Representative offices are allowed 100% foreign ownership with the appointment of a local sponsor. Although sponsors are not involved in the day to day running of the company, their primary purpose is to facilitate in obtaining legal documents such as visas and labour cards and they are usually paid a percentage of the company profits.
- Commercial businesses – Additional approval required by the Ministry of Economy and Commerce. Commercial businesses require a local individual or company appointee.
- Limited Liability Company – Requires local equity of a minimum of 51% with approval from the Economic Development Department. An LLC can be set up by a minimum of two and a maximum of fifty persons. Minimum capital investment is currently USD 82,000 or AED 300,000.
- Free Zone Companies – Companies set up and governed by free zone authorities where the company is wholly owned by the person who sets it up without the need for a local sponsor to act as liaison. Free zone companies have many benefits including exemption from import duties, easy recruiting procedures allowing access to competitive skilled labour and a high level of administrative support from free zone authorities.
Licensing requirements
All Dubai company formations need a license to operate legally in the emirate and in general, should be registered with the Dubai Chamber of Commerce and Industry. These licenses fall into three main categories:
- Commercial licenses – These govern all types of trading activities
- Professional licenses – These govern professional services, craftsmen and artisans
- Industrial licenses – These govern industrial and manufacturing activities
Most licenses are issued by the Dubai Economic Development Department. However a few industry specific licenses are issued by other authorities and ministries:
- Department of Tourism and Commerce Marketing – Issues licenses for all hotel and tourism related businesses
- Central Bank of the UAE – Issues licenses for all banks and financial institutions
- Ministry of Economy and Commerce – Issues licenses for all insurance companies
- Ministry of Finance and Industry – Issues licenses for all manufacturing companies
- Ministry of Health – Issues licenses to companies dealing in medical and health related products and services
Ownership requirements
In general UAE law stipulates that UAE nationals hold a 51% stake in all companies established within the country with a few exceptions:
- Where local nationals are required to have 100% ownership such as in general partnership companies.
- In free zone areas where 100% foreign ownership is permitted without the requirement of a local sponsor.
- In professional companies or those that deal with artisans where 100% foreign ownership is permitted.
- Where wholly owned GCC (Gulf Co-operation Council) companies enter into a partnership with UAE nationals
- Where 100% ownership for GCC nationals is permitted
- When registering a branch or representative office in Dubai
Procedure for registering a business in Dubai
Dubai company formation requires the completion of the following steps before a business owner is legally authorized to operate within the emirate of Dubai:
- Determine type of business and categories of activities to be practiced. Each business license can register up to a maximum of ten activities per license.
- Determine the appropriate legal structure for your business including ownership requirements.
- Confirm all the requirements required for a new business registration including all approvals from relevant authorities.
- Establish a trade name for the business. There are some terms and conditions that apply to approved trade names for businesses.
- Visit the relevant department or apply online for initial approval and registration of selected trade name.
- Once initial approval is received, the owner can then select a location for the office with approval from the Planning Department of the Dubai Municipality.
- Apply to the relevant department for a signboard permit displaying the approved trade name
There are several agencies that can facilitate business set-up within Dubai and the Dubai and Jebel Ali Free Zones for a fee. Even though the laws governing Dubai company formation and registration are quite stringent, these have been established to meet the legal requirements of all governing authorities while striving for maximum profits for business owners.