The United Arab Emirates has recently become more and more open to foreign businessmen and is gaining in popularity. Registration of a company in the UAE and opening a bank account in this country have become a good option for business development for a number of reasons, which you can find in this article.
- income tax rate - 0%;
- capital repatriation tax rate - 0%;
- value added tax rate (applied for operations within the country) - 5%;
- automatic exchange of information for tax purposes (Common Reporting Standard) - the beneficiary of the company is not a subject to automatic exchange if he is the carrier of the UAE resident status (based on a resident visa);
- fast receipt of a tax resident visa (within 5 days);
- the possibility of opening accounts with banks in the UAE (ENBD, MASHREQ, NOOR and others);
- actual office as confirmation of the company's economic presence in the country - this service is included in the mandatory package of company formation in some free zones;
- there is no need to recruit a local director;
- there is no need to do an audit during the company renewing.
UNITED ARAB EMIRATES COMPANY TYPES
The first step to start a business in the UAE is choosing the type of company.
There are three of them, and each of them has certain advantages and disadvantages:
- International companies (International companies or offshore companies);
- Companies in free economic zones (Free Zone Company, FZC or Free Zone Esteblishment, FZE);
- Limited Liability Company (LLC).
International companies (International companies or offshore companies)
International companies can operate exclusively offshore. In other words, the company is not allowed to conduct business in the UAE, as well as with residents of the Emirates (companies or individuals).
This type of company is the most affordable option for registering a company in the UAE, since the company does not need to rent a physical office and annually renew a special license for a specific activity.
As of the end of 2020, there are three offshore zones:
- Ras Al Khaimah (RAK Investment Authority Free Zone - RAKIA);
- Ajman (Ajman Free Zone);
- Jabel Ali Free Zone.
Companies in free economic zones (Free Zone Company, FZC or Free Zone Esteblishment, FZE)
There are 36 free economic zones (FEZ or free zones) in the UAE.
Freezone is a territory allocated within the city, where a foreigner can register a company and be its full owner by 100%. In this territory, there are no requirements for the mandatory presence of a local partner or agent, but the company itself can carry out activities either in the territory of the FEZ or outside the UAE.
FEZs are concentrated in the following emirates: Dubai (20), Abu Dhabi (4), Sharjah (3), Ras Al Khaimah (3), Fujairah (3), Ajman (2), Umm al Quwain (1) ...
Such a company must have an actual office on the territory of the free economic zone, as well as have a license for the type of activity that is relevant for the company.
It is important to understand that not every free economic zone can obtain a license for the corresponding type of activity. Therefore, the issue of choosing the zone of registration of the company is a subject of special attention of the entrepreneur.
Companies of this type are obliged to submit financial reports to government authorities, duly audited by auditors. The financial year in the UAE coincides with the calendar year (January to December). The exception is the first year of the company's existence. In this case, the financial period starts from the date of registration of the company until the end of the calendar year.
The particular advantage of owning an FZC / FZE company is the right to obtain a UAE resident visa.
Limited Liability Company, LLC
This form of company is the most versatile tool for doing business, both within the UAE and beyond. The company's right to conduct business is not limited to the territory of a particular emirate or free economic zone.
The peculiarity of such a company is the need to attract a UAE citizen who will own at least 51% of the company's shares. This is a rudimentary rule of the UAE legislation, therefore, in 99.9% of cases, a nominal owner from among the citizens of the country is involved in order to comply with the law. The cost of the resident's services is paid in the form of remuneration on an annual basis.
Exceptions are companies that receive professional licenses, namely: law firms, companies providing medical services and others. In such cases, the 51% rule does not apply. LLC companies are required to lease office space, as well as be licensed to carry out the relevant type of activity. Owning an LLC also qualifies you for a UAE resident visa.
WHAT TO LOOK FOR DURING A COMPANY FORMATION IN THE EMIRATES
The most optimal company structure is one in which the same person acts as a shareholder and a director.
This structure helps to save money, since registering a company with one visa is cheaper than registering a company with two visas.
There is also a second important point: if the same person is an investor (shareholder of a company) and a manager (director of a company), then when receiving a resident visa, he does not need to visit the territory of the UAE once every six months. If a manager (director) receives a resident visa separately, then in order to maintain the active status of the received visa, he will need to fly to the UAE every 6 months.
Below you can find information about the registration of an onshore company in the UAE (Ajman Media City Free Zone Establishment).
ADVANTAGES OF COMPANY REGISTRATION IN AJMAN MEDIA CITY FREE ZONE ESTABLISHMENT:
- when registering a company, it is possible to specify 5 types of activities at once;
- in one company, you can combine both trade and service activities;
- real office space is already included in the package at company registration. This is required to open an account with a local bank;
- all licenses are standardized based on ISIC / ISIC activity codes;
- each submitted document will have a QR code, so it can be verified online.
AVAILABLE SERVICES IN AJMAN MEDIA CITY FREE ZONE ESTABLISHMENT:
- Registration of the company and its maintenance (including substance - divided office space according to the concluded lease agreement, a plate with the name of the company in the lobby of the office center, access to the conference room);
- E-Channel connection (personal account on the website of the UAE Ministry of Internal Affairs);
- Obtaining and extending a resident visa (issued once every 3 years) - (recommended option - to open an account with a local bank);
- Opening corporate and individual bank accounts in the UAE;
- Registration Tenancy - (an apartment rental agreement for an individual) - an additional document that confirms (and can be used for any accounts outside the UAE) that the client actually lives in the UAE = is a tax resident of the UAE. Including some UAE banks want to see this document from the client to protect the client's account both from unnecessary questions from correspondent banks and to reduce the bank's own work on conducting transactions. As a rule, all banks require it in the first year, then individually;
- Preparation of VAT-reporting, accounting. Submissions can be made directly by the client (or a staff accountant) through the government website;
- Obtaining a VAT number.
Starting from the second year of the company's operation, it is necessary to pay for its maintenance (including subsistence), as well as the extension of the E-Channel.
REQUIRED INFORMATION TO START A COMPANY FORMATION IN THE UAE
To start the company registration process, you need to prepare:
- Three variants of the name for the company. We recommend that the title contains at least two words. In this case, the likelihood of coincidence of the name with an already existing name is much less;
- Scan of the passport of the director and shareholder for travel abroad. The scan should be made in maximum quality, in color, without trimming and fitting at the corners / sides;
- Photo of the director and shareholder (maximum quality scan) on a white background. Requirements for the format of the photo itself: 3 cm x 4 cm, color;
- Completed profile of the future company (we will provide you with a draft);
- CV of director and shareholder in English.
REGISTER OF BENEFICIARIES IN THE UAE
Beneficiary registers have been introduced throughout the EU and have been successfully operating in recent years. Many jurisdictions outside the EU, including offshore ones, have already announced that they are going to introduce registries of beneficiaries. In the UAE, at the end of August 2020, a Resolution was adopted on the introduction of the register of beneficiaries. According to him, until October 27, 2020, it was necessary to submit information about the beneficiaries to this register. Some emirates have published procedures for submitting information to local registration authorities. This procedure is already working in Dubai.
This innovation facilitates access to information for tax authorities in other countries. Such access will be provided in accordance with international agreements on the avoidance of double taxation. The UAE's jurisdiction is becoming more transparent and respectable.
According to general EU rules, the beneficiary of a company is a person who controls 25% or more of a legal entity. The details of such a person must be entered into the Register. Such a register can be public or closed, but government officials, as well as lawyers, notaries, and auditors will have access to it. Legal entities must periodically update the information in this Register. In the Emirates, the definition of a beneficiary is the same as in the EU: it is a person who is 25% or more of a legal entity. If it is impossible to determine the beneficiary, the director of the company is recognized as such.
New companies must indicate beneficiaries and shareholders when registering and issuing a license. Also, the companies themselves must maintain internal registers of beneficiaries and shareholders and, in case of changes, notify the register of the emirate.
The companies themselves are obliged to notify the Registry. In case of failure to submit or delay, they face fines.
Public companies (whose shares are listed on the stock exchange), state-owned companies (registered in the Emirates), companies from the DIFC zones (there is a register of beneficiaries here) and ADGM are not required to submit information about the beneficiaries.
The administrator of a company, even if it is liquidated, is obliged to keep information about it for 5 years, including information about who is the beneficiary. That is, the tax authorities of the beneficiary countries can check the beneficiary's data in the Register and charge additional penalties for not notifying the CFC (controlled foreign company), for non-filing of reports, and so on.
If you already have a company in the UAE, we will help you clarify what information is in the register, as well as calculate the consequences of disclosing information about the beneficiary for the entire structure, if any.
UAE BANK ACCOUNTS OPENING AND MAINTENANCE
UAE banks have long been included in the top 100 banks in the world and have attracted clients from the CIS countries. Here, the transaction fee is not in the form of a percentage, but in the form of a fixed amount. There is no limit on transactions - both in size and quantity per month. All world currencies are available - USD, GBP, EUR, CNY, AED.
But the times when it was possible to open an account for an offshore company are long gone. In 2015 - 2016, a massive transition from offshore companies to companies registered in the FEZ began. Banks began to analyze the profiles of such companies more thoroughly. As a result, the procedure for opening an account for a company registered in the FEZ at the moment takes longer than before - approximately up to 2 months, depending on the complexity of the case.
The speed of opening an account is influenced by: the nationality of the client, the type of company, the types of activities of the company, the presence of a subsistence (real office space). Bankers pay attention to the client's experience in the stated area and the availability of money. Experience can be confirmed by the presence of a company with a related type of activity or a certificate from the place of work with a related type of activity. To check the availability of money, the bank will request bank statements for the last six months.
We recommend registering a company in the UAE and opening a bank account in the UAE for two reasons:
- UAE banks have few tools to check a non-resident company that wants to open an account. Therefore, for such clients, a larger minimum account balance is set.
- The corporate documents of the company, as well as the documents of the shareholder and director, will need to be legalized through the consulate (the UAE has not joined the Hague Convention and does not recognize the apostille). This is an expensive procedure.
It is advisable to open an account in an Emirati bank immediately after the registration of the company. As a rule, banks are suspicious of companies that have existed without an account for six months or more.
The banks of the Emirates have certain requirements for the balances on the company's accounts - each has its own amount of the minimum balance and the first payment that will go to the account. As a rule, the average monthly balance should be from 10 thousand dollars and more, depending on the chosen bank. It is advisable to open accounts in several banks so that the company's operational activities do not stop if one of the accounts is blocked / closed.
To open an account, a UAE bank does not need a resident visa if you keep a substantial balance on the account. But, nevertheless, its presence is a big plus, since the beneficiary of the company will not be subject to automatic exchange.
Most Emirati banks also require an apartment rental agreement for an individual - Tenancy, which was mentioned above.
Recently, some banks are already beginning to check whether the company has a physical office: a banker can ask for a photo or can personally come to the office. Not all freezones have office space, which is included in the service package, or which can be purchased / rented for an additional fee.
Each bank has its own list of countries with which it does not work. Therefore, in the process of analyzing the case, namely the list of counterparties for incoming / outgoing payments, the most appropriate options for opening will be selected.
Banks have certain restrictions on working with beneficiaries from some jurisdictions, which reflect the country's immigration policy. For example, First Abu Dhabi Bank opens accounts for Iranian citizens.
Recently, thanks to the establishment of relations between the UAE and Israel, Israeli companies can open accounts with banks in the UAE. Israelis can become shareholders of companies. Transactions between countries are also carried out.
To use the account successfully, you need:
- Carry out the types of activities specified in the license;
- The activity must correspond to the type of company (if you have an offshore company, then you cannot accept payments within the UAE);
- Keep a certain balance on the account, do not allow frequent zeroing of the account (on average 50-60k);
- If possible, avoid making payments under loan agreements. In the process of servicing the account, Emirati banks are very suspicious of loan agreements. The presence of such a document will be the reason for a more thorough check by the bank's compliance.
- To respond to letters / calls from bank managers in a timely manner.
We will be happy to accompany you in the process of registering companies in the UAE and will provide you with full consulting support in relation to companies on all possible issues.
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Do not want the UAE company? Follow the links below:
- Company formation in Bulgaria;
- Company formation in Canada;
- Company formation in Hong Kong;
- Company formation in Poland;
- Company formation in Estonia;
- Company formation on Cyprus;
- LP formation in the UK;
- LTD formation in the UK;
- Company formation in Georgia.