Every foreigner who wishes to set up a Limited Liability Company (LLC) in Dubai needs a sponsor. If you want to operate “onshore”, within the jurisdiction limits of Dubai mainland, you will need the support of a UAE national who will act as an agent or shareholder with at least 51% of the company’s shares. The other jurisdiction for conducting business in Dubai is through more than 20 economic free zones where a foreigner can own 100% of the business.
Over the years, the Dubai government has made the process of setting up a business increasingly easier with a number of one-stop shop solutions and e-services catering to the growing number of businesses in the Emirate. However, business owners should carefully consider the options available before embarking on the process of setting up a business – the wrong choice of jurisdiction can prove to be a costly mistake in the long run.
Conditions for setting up an LLC with a local sponsor
If you choose to conduct business in Dubai mainland, you will need to apply for a Department of Economic Development (DED) license. Setting up an LLC with a local sponsor has many benefits including the option of trading freely in any part of the UAE with local or government authorities, setting up an office anywhere in Dubai mainland, access to an unlimited number of visas, the choice of more than 2,100 business activities, and more freedom in terms of nationality of ownership and visas, to name a few.
However, to set up an LLC in Dubai (outside of the free zones), an investor will need to fulfill certain legal requirements. The first is the shareholding structure requirements, which nowadays permits a single shareholder in certain cases. The second requirement is having sufficient funds to incorporate the company and the third is the ability to obtain an appropriate trade licence through the DED.
The sponsorship system of the DED license can be classified into three categories:
With this type of sponsorship, a UAE national company, not an individual, sponsors the foreign business. The company will own 51% of the shares and liabilities of a foreign owned company.
A UAE national will become the company sponsor, in his or her individual capacity, owning 51% of the shares and liability of the foreign owned company.
Local Service Agent
This type of license is appropriate for professionals wanting to set up a business offering their professional expertise. It also works for those wishing to set up a branch or representative office. The local service agent does not become a 51% shareholder; rather, they are paid a fixed annual fee to act as a representative of the foreign owned company in all administrative dealings.
The process of setting up an LLC with a local sponsor
Once you have registered with the DED, the body responsible for regulation of economic activity for all businesses outside of the free zones, starting a business consists of eight steps. The length of time it takes to complete these processes and procedures will vary depending on the structure of your business.
The eight steps include:
- Selecting a business activity
- Selecting a legal form
- Selecting a trade name
- Applying for initial approval
- Preparing an MOA & LSA agreement
- Establishing business location
- Getting approvals
- Collecting the business license
Changes brought in by the New Commercial Companies Law of July 2015
The Federal Law No. 2 of 2015 concerning Commercial Companies (“New CCL”) came into force on 1 July 2015 in Dubai, replacing the existing Federal Law No. 8 of 1984 concerning Commercial Companies (“Old CCL”). Noteworthy features of the New CCL include the recognition of the concept of holding companies, bringing the duties of directors and managers up to international standards and removing the cap on the number of directors and managers, allowing a sole shareholder to incorporate an LLC, allowing shareholders in LLCs to pledge their shares, the valuation of shares in kind and the fact that all companies are required to keep accounting records for a minimum period of five years.
How can DHP help you set up an LLC?
De Hoon & Partners (DHP) provides affordable international tax and legal advice for anyone looking to set up a business in Dubai. We will walk you through all the options available to you and help you decide on the best way forward for your business. Our expert team has more than 20 years of experience in providing tax advice, setting up international vehicles for estate planning, establishing advantageous financial and investment structure, and managing businesses.
Contact us here for more information and advice about setting up a company in mainland Dubai.