DUBAI: According to official data issued on Tuesday, the United Arab Emirates recorded a 4.4 percent year-over-year increase in the overall number of businesses operating in its 44 free trade zones.
Introduction
In today’s interconnected world, expanding business operations beyond borders is becoming increasingly common. One effective strategy for international expansion is establishing a subsidiary company in a strategic location that offers a favorable business environment. One such location is Dubai, United Arab Emirates (UAE), which has emerged as a global hub for international business.
What Kinds of UAE Subsidiaries Are There?
After deciding to launch a subsidiary company in the United Arab Emirates, you need to choose the kind of business to register and incorporate. The subsidiaries that can be incorporated in the United Arab Emirates are as follows.
- Company with Limited Liability (LLC)
- PJSC, or public joint stock company
- Company with Private Joint Stock (PRJSC)
- Civil Organization
Your choice of subsidiary structure in the United Arab Emirates will rely on a number of variables. Among many other things, it covers the minimum amount of shared capital you are willing to deposit, the location of the firm (free zone or onshore), and the intricacy of the incorporation process.
Legal Framework for Subsidiaries in Dubai
Setting up a subsidiary in Dubai requires compliance with the legal framework and regulatory requirements set forth by the government. This includes the preparation and submission of various legal documents, such as the memorandum of association (MOA) and articles of association (AOA), which outline the structure, objectives, and operational guidelines of the subsidiary. These documents need to be drafted in accordance with the relevant laws and regulations of Dubai and the UAE. It is advisable to seek legal guidance to ensure compliance with all legal requirements during the setup process.
Step-by-Step Process to Set Up Your Subsidiary
Setting up a subsidiary in Dubai involves a step-by-step process that requires careful planning and adherence to local regulations. The process can be summarized as follows:
1. Choose the appropriate jurisdiction for the business: Determining the location of the company’s headquarters is the first stage in establishing a subsidiary in the United Arab Emirates. You have the option to incorporate your business in any of the following jurisdictions:
- The mainland of the UAE
- Emirates free zones
- Offshore
- The establishment of a subsidiary corporation is subject to certain regulatory procedures in each of the aforementioned nations.
2. Decide on the kind of subsidiary business you wish to establish: Selecting the kind of subsidiary business you wish to establish is the next stage. For the UAE subsidiary incorporation, you are able to select any of the company kinds mentioned above.
3. Select a Local Service Agent (LSA): Selecting a Local Service Agent (LSA) is mandatory if you decide to establish a subsidiary business in the United Arab Emirates’ mainland. Typically, an LSA is hired for a year for a fixed rate in exchange for their services.
4. Obtain the Minimum Capital Necessary: You will have to adhere to distinct minimum capital requirements depending on the business zone or jurisdiction (offshore, free zone, or mainland) that you select for your subsidiary company in the United Arab Emirates. The type of subsidiary company you choose will also have an impact on the minimum capital amount.
The minimum capital needed to establish a Limited Liability Company in the United Arab Emirates is AED 300,000. The Department of Economic Development, which oversees the region in which you intend to create your company, will ultimately decide whether or not a business has enough cash. In the UAE, public joint stock companies must have a minimum capital of AED 10,000,000. The Gulf nation’s minimum capital requirement for private joint stock companies is AED 2,000,000.
5. Choose a trade name for the subsidiary firm and register it: Choosing a trade name for your subsidiary business is the next stage. You have to make sure that the name is appropriate for the business, doesn’t violate any moral standards, and isn’t already connected to another organization. The name ought to be simple but unique. A subsidiary business may differ from its parent company’s name, in contrast to a branch office.
In order for subsidiary firms to be established on the United Arab Emirates’ mainland, the chosen trade name needs to be registered with the appropriate Department of Economic Development (DED). However, the application for the registration of trade names must be made to the appropriate Free Zone Authority for subsidiaries that are going to be established abroad or in a free zone within the United Arab Emirates.
6. Send the required paperwork to the appropriate government authorities: The company requires that you submit the following documents, which you must have attested by both the UAE Ministry of Foreign Affairs and the UAE consulate in your home country.
- Articles of Association (AoA) and Memorandum of Association (MoA)
- The parent company’s certificate of good standing
- A Power of Attorney gives the General Manager of the subsidiary firm the authority to manage the company’s operations in the United Arab Emirates and create bank accounts there on the parent company’s behalf.
7. Obtain a business license for your subsidiary company: You can apply for a business license in the United Arab Emirates for your subsidiary firm after submitting the documentation listed in the preceding point. Once the licensing cost has been paid and the company’s documents have been verified, your subsidiary company will receive a license to operate a particular business in the United Arab Emirates.
8. In the UAE, open a bank account: Following the acquisition of a business license for your UAE subsidiary, you need to make sure that all necessary administrative criteria are met, including:
- creating a corporate bank account in the United Arab Emirates
- the designation of a general manager or director for the subsidiary business
- Hiring personnel for the affiliated business
- obtaining work permits for the subsidiary company’s staff
- drafting official employment contracts for the company’s employees, etc.
9. Launch your company’s operations through the subsidiary: Launching the business through an office in the UAE is the last stage in establishing a subsidiary there.
Benefits of Setting p a Subsidiary
1. Total ownership for foreign investors: Even if you are a foreign national, you can have the liberty of owning 100% of a firm headquartered in the United Arab Emirates by opting to establish a subsidiary there. The United Arab Emirates (UAE) has granted full permission for foreign investment in 122 economic activities and 13 sectors, providing international investors with extensive opportunities for business ventures.
2 .Economic Development: Dubai’s strategic location and robust infrastructure make it a thriving business hub, offering access to major markets and transportation routes.
3. Liability segregation: Being able to keep the debts of your home country’s parent company and the United Arab Emirates subsidiary separate is one of the main advantages of setting up a subsidiary business there.
4. Tax Benefits: Establishing a subsidiary business in the United Arab Emirates can be advantageous due to the country’s lax tax laws. The Gulf nation does not currently impose corporation or income taxes. As a result, taxing foreign subsidiaries in the United Arab Emirates is not too complicated.
The hiring of local staff is permissible if you establish a subsidiary business in the United Arab Emirates. There is no need for any middlemen to get involved in the aforementioned process. Through the subsidiary business, you can also oversee employee benefits, payroll, and other matters.
5. Free Zones: Dubai has designated free zones that offer various incentives for businesses, such as 100% foreign ownership, tax exemptions, and simplified regulatory processes.
6. The chance to establish an office culture distinct from that of the parent company: The opportunity to create a work culture apart from that of the parent firm is another important advantage of establishing a subsidiary in the United Arab Emirates. This flexibility is critical from an economic standpoint in addition to being beneficial in terms of upholding local moral and cultural values. Ensuring the smooth functioning of your UAE subsidiary firm can be greatly enhanced by establishing an organizational structure and work culture that are unique to the nation.
Initial Approval and Choosing a Company Name
The first step in setting up a subsidiary in Dubai is obtaining initial approval from the Department of Economic Development (DED). This involves submitting an application detailing your proposed subsidiary company and its activities. Once the initial approval is granted, you can proceed with choosing a unique trade name for your subsidiary. It is important to ensure that the chosen trade name complies with the naming regulations set forth by the DED. To reserve the trade name, you will need to submit the necessary documents to the DED. The reserved trade name will be valid for a specified period, allowing you to proceed with the registration process. Consulting with business setup experts can help ensure a smooth initial approval and trade name reservation process for your subsidiary in Dubai.
Taxation for Subsidiaries in Dubai
Taxation is an important aspect to consider when establishing a subsidiary in Dubai. As of July 1, 2023, a new corporate tax regime has been implemented in the United Arab Emirates (UAE), including Dubai. Under this regime, all businesses operating in the UAE, including subsidiaries of foreign companies, are subject to corporate tax.
The corporate tax rate for subsidiaries in Dubai is a flat 9% for taxable profits exceeding AED 375,000. However, there are certain exemptions and deductions available, which can reduce the effective tax rate for some businesses.
It is essential for subsidiaries to understand the tax implications and compliance requirements to ensure proper tax planning and reporting. Consulting with tax experts or business consultants can provide valuable guidance on
Tax Exemptions and Incentives
Subsidiaries in Dubai may be eligible for tax exemptions and incentives, providing additional benefits and reducing the overall tax burden. Dubai offers a favorable tax environment, with various tax incentives aimed at attracting foreign investment and promoting economic growth.
Tax exemptions may be available for certain types of businesses, such as those operating in free zones or engaged in specific industries. These exemptions can include exemptions from corporate tax, withholding tax, or value-added tax (VAT).
In addition to exemptions, subsidiaries may also benefit from tax incentives such as reduced corporate tax rates, tax credits, or accelerated depreciation. These incentives aim to encourage investment, innovation, and job creation in Dubai.
Hiring Practices and Visa Requirements
Hiring practices and visa requirements are crucial considerations for subsidiaries operating in Dubai. Subsidiaries need to comply with local employment laws and regulations when hiring employees.
The hiring process involves obtaining work permits and residence visas for employees, which are issued by the relevant authorities. Subsidiaries should ensure that they meet the visa requirements, such as providing necessary documentation, medical examinations, and sponsorship requirements.
The Dubai Chamber of Commerce can provide guidance on visa requirements and assist with the necessary documentation. They can also provide information on labor laws, recruitment practices, and employee rights.
Conclusion
Setting up a subsidiary in Dubai offers a range of benefits and growth opportunities for your business. By understanding the legal framework, regulatory requirements, and financial aspects, you can establish a successful presence in the UAE market. It’s crucial to comply with taxation laws, employment regulations, and cultural norms to ensure smooth operations. With the right approach and guidance, navigating the process of establishing a subsidiary in Dubai can lead to long-term success and expansion. Make sure to plan diligently and seek professional assistance to streamline the setup process and maximize the potential of your subsidiary in this dynamic business environment.
About Arnifi
Arnifi is digital first Corporate service provider helping companies enter the Middle East region, starting with UAE and Saudi Arabia markets. Founded and backed by professionals from Amazon, Souq and other large companies operating in KSA – the team understands what it takes to succeed as a startup in both UAE and Saudi Arabian markets, apart from going through the setup process multiple times. Arnifi will provide a truly digital experience to entry and scale up of companies both UAE and Saudi Arabia. Discover tailored solutions and strategic partnerships that propel your business forward. Check out at – www.Arnifi.com for more details.
Frequently Asked Questions (FAQ)
What are the annual compliance requirements for a subsidiary in Dubai?
The annual compliance requirements for a subsidiary in Dubai vary depending on the legal structure, nature of the business, and applicable regulatory requirements. Subsidiaries need to fulfill their obligations, such as filing annual financial statements, renewing trade licenses, and complying with local regulations. It is advisable to consult with business consultants or legal advisors to ensure compliance with the specific requirements for the subsidiary’s operations.
Can a foreign company own 100% of a Dubai subsidiary?
Yes, a foreign company can own 100% of a Dubai subsidiary in certain free zones. Free zones in Dubai offer attractive incentives and allow full foreign ownership of subsidiary companies. However, outside free zones, a local sponsor is required for establishing a subsidiary, with the ownership structure typically being a Limited Liability Company (LLC). It is important to understand the specific regulations and requirements for foreign ownership in Dubai and consult with business setup advisors for guidance.
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