How to do business in United Arab Emirates

Onshore versus free/financial free zones 

The responses to this questionnaire are applicable only to the onshore (i.e. mainland) UAE legal system and companies operating within it. They do not consider the free zones or financial free zones. 

The overall legal system in onshore UAE is a civil law system influenced by Sharia (Islamic) law, with several federal laws that apply throughout the UAE.  

In addition, each emirate has its own laws and regulations that apply where there is no federal law, as well as its own free zones. 

The UAE has over 50 free zones outside of the onshore system. The UAE also has two financial free zones that operate as jurisdictions, with their own civil and commercial laws separate from the remainder of the UAE.  

Can a local company be 100% held by foreign resident shareholders?  

Pursuant to the new Commercial Companies Law (“CCL”) that came into force in January 2022, and earlier amendments to the foreign direct investment regime in the UAE (which was codified by the CCL), local (i.e. onshore) companies in the UAE can be 100% owned by foreign shareholders, subject to the regulations applicable to the relevant Department of Economic Development (DED) at each emirate level.   

The general rule that foreign investors can wholly own UAE companies does not however apply to any companies carrying on activities with a “strategic impact” and such companies will continue to be subject to the current local ownership restrictions (maximum foreign ownership rates to be determined by the regulators subject to the nature of the “strategic impact” activity in question). The CCL envisages that a committee will be formed by virtue of a UAE Cabinet decision, which would then issue a list of business activities that are of a “strategic impact”. The current list of “strategic impact” activities includes the following activities:  

• Security and defence, activities of a military nature (regulators being the Ministry of Defence and the Ministry of Interior) 
• Banks, money exchange, finance companies and insurance companies (regulator being the Central Bank) 
• Printing currencies (regulator being the Central Bank) 
• Telecommunications (regulator being the Telecommunication and Digital Government Regulatory Authority) 
• Hajj and Umrah services (regulator being the General Authority of Islamic Affairs and Endowments) 
• Quran memorisation centers (regulator being the General Authority of Islamic Affairs and Endowments) 
• Fisheries and fishery-related services. 

On that basis, clients are advised to check the business activities that are intended to be carried out prior to setting up their business in the UAE and to seek advice on whether any of the proposed activities constitute activities with a potential “strategic impact” which may lead to foreign ownership restrictions being imposed. 

What are the main legal forms of companies in your country?  

• Limited liability company 
• Single person limited liability company 
• Civil company 
• Sole establishment/proprietorship 
• Public joint stock company 
• Private joint stock company 
• Branch of a foreign company 
• Branch of local/Gulf Cooperation Council (GCC) company 
• Representative office of a foreign company. 

Must the managing director of the company be a resident and/or a national of your country?  

General managers of UAE onshore companies are not required to be UAE/GCC nationals. However, they must hold UAE residency.  

Are there any foreign exchange rules applicable to foreign investment in your country? If yes, please briefly explain. 

All investments in mainland UAE need to be in AED (Emirati dirham). Accordingly, share capital of local companies need to be in AED.  

Are there any Central Bank rules applicable to foreign investment in your country?  

The UAE Central Bank regulations are applicable to regulated companies, such as banks and financial institutions, operating onshore in the UAE.  

Companies with non-financial business activities operating onshore are not subject to Central Bank regulations.  

How long does it take to incorporate a company? 

The usual time frame for set-up of a UAE company is between 2 to 3 months from receiving the duly notarised and legalised incorporation documents, depending on the proposed business activities of the company; however, some business activities (e.g. financial, healthcare and engineering) would require additional approvals which may add to this timeline.  

What are the main taxes applicable to all businesses in your country?  

Corporate tax and VAT. 

What is considered a permanent establishment in your internal law? Is it different from the classical OECD definition of article 5?  

It follows OECD principles. 

Are there any thin capitalisation rules? 

There is a general limitation on net interest expenditure deductions. 

Are there any stamp/registration duties payable upon injection of equity?  

No. However, registration and licensing fees are payable for company set-ups.  

Same question on intra-group loans? 

No, although transfer fees can apply in certain circumstances. 

Is there a withholding tax on dividends?  

No. 

Is there a withholding tax on interest? 

No. 

Is there a withholding tax on services paid to foreign suppliers?  

No. 

How many tax treaties does your country have to date? Please list the main countries (notably EU) with which your country has a tax treaty in force. 

The UAE has 137 double taxation agreements (DTAs), mostly in force, including with Germany, France and Italy. 

What is the applicable rate of VAT/GST? 

5%. 

Under your internal law, is a capital gain realised by a non-resident shareholder taxable in your country? If there is a minimum shareholding, please indicate the rate applicable. 

No. 

In case of change of control, is there a rule providing for the loss of tax carried forward losses? 

Yes, in certain circumstances. 

Are there indirect sale rules incorporated into the tax legislation of your country? Please explain briefly.  

There are anti-avoidance rules under the corporate tax regime.