Here is all you need to know before forming a Company in the UAE

The United Arab Emirates (UAE) has emerged as one of the most attractive destinations for business formation and investment in the Middle East. With its strategic location, business-friendly environment, tax incentives, and state-of-the-art infrastructure, the UAE offers ample opportunities for entrepreneurs and companies seeking to establish a presence in the region with no minimum capital requirement for most business activities.

Business Formation

The First Step in setting up a business in the UAE is to select the most suitable legal structure. The options available include Mainland Companies, Free Zones, and Offshore Companies; where Mainland Companies allow for business activities across the UAE, Free Zones offer tax exemptions with other benefits and Offshore Companies are primarily used for international business and asset protection.

Licenses and Registrations

The next step in the business formation is to obtain the necessary licenses and registrations. The requirements vary depending on the chosen business activity and location; therefore, it is essential to understand the specific regulations and procedures of the relevant authorities, such as the Department of Economic Development (DED) for Mainland Companies and the relevant Free Zone authorities for businesses in Free Zones.

Ownership and Shareholding

Furthermore, with respect to ownership and shareholding, Foreign Investors can have 100% ownership and full repatriation of capital and profits in Free Zone companies and Offshore Companies. However, Mainland Companies require a local sponsor or partner who holds at least 51% ownership, in which, to ensure control and protection of interests, various legal arrangements can be made, such as a side agreement or a nominee arrangement with a trusted local partner.

Tax

UAE is a Tax-Free Haven with no personal income tax. Although, with the issuance of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business, businesses will become subject to UAE Corporate tax.  

Who will be subject to the UAE Corporate Tax?

The corporate tax is applicable on “Taxable persons”.

What is the rate of Corporate Tax in the Free Zones?

a free zone person that meets the conditions to be considered as QUALIFYING FREE ZONE PERSON can benefit from a corporate tax rate of 0% on their qualifying income and customs duty exemptions.

What is the rate of Corporate Tax?

The Corporate Tax is applied to the net income of companies and other commercial entities, as follows:

• 0% on business profits up to and including the threshold of AED 375,000 to support small businesses and start-ups, and
• 9% on taxable business profits exceeding the threshold of AED 375,000 beginning from the first financial year.

Employment Visa and Residence Permit

When establishing a business in the UAE, there forms a direct link between business formation and obtaining a residential permit, also known as a residence visa which allows you to legally reside in the UAE and engage in business activities. To obtain this residence visa, you will generally require sponsorship from your UAE-based company.

Therefore, establishing a business in the UAE offers numerous advantages, including a strategic location, favorable business environment, and tax incentives. By understanding the legal requirements, licensing procedures, taxation rules, and other key considerations, entrepreneurs and companies can navigate the process of business formation in the UAE successfully and capitalize on the vast opportunities available in the region. However, it is crucial to seek professional advice and assistance from local experts, including tax experts, lawyers and consultants to streamline the process and ensure compliance with local regulations.