Establishing a subsidiary company in the United Arab Emirates (UAE) can be a shrewd business strategy. Specifically, for international corporations that want to expand in the Middle East market. The UAE provides a diversified economy, a favorable business environment, and a world-class infrastructure. Thanks to all this, the United Arab Emirates is an attractive destination for companies that want to establish a local presence.
In this article, we will detail the steps necessary to set up a subsidiary Company in the UAE. We will discuss the legal requirements, tax considerations, and registration processes that companies have to take into account. Additionally, we will provide practical tips and helpful resources to ensure a successful establishment process. Of course, following the law in the UAE.
Characteristics of Subsidiary Companies in Dubai
A foreign company that wants to have a presence in Dubai will surely choose the subsidiary. The reason is that it is a legally independent company that operates under the laws of the United Arab Emirates and the Emirate of your choice. Compared to the branch, which is not considered an independent legal structure. That is, the parent company of a subsidiary may decide to complete other activities through a Dubai subsidiary. As a result, this can substantially increase your profits.
Even if the foreign company considers the subsidiary an independent entity, it will still be a shareholder. As a result, the final decision-making power lies with the subsidiary.
Entrepreneurs who create a subsidiary Company in the UAE have to consider the following:
- The subsidiary carries out its operations under any of the business structures covered by the laws of Dubai and the UAE.
- Private and public companies are the most popular types of structures for subsidiaries in Dubai.
- A foreign company may establish a subsidiary in a free zone in Dubai. Specifically, in the form of a free zone company.
- A subsidiary will be subject to Dubai tax legislation that will favor both the parent company and the local company.
- The subsidiary can benefit from greater protection thanks to the double taxation agreements signed by the United Arab Emirates.
Furthermore, if you want to know how to register a subsidiary Company in Dubai in 2024, you have to know that they are the same criteria as for foreign companies.
If you need more information about the characteristics of a subsidiary Company, you can trust the experience of our advisors. And not only that, we also help you on how to decide which is better: a subsidiary or a branch.
What Are the Types of Subsidiaries in the UAE?
If you want to start a subsidiary company in the UAE, you have to decide the type of company you want to register and incorporate. Below, you will see the types of subsidiaries that you can establish in the UAE
- Limited Liability Company (LLC)
- Public Joint Stock Company (PJSC)
- Private Joint Stock Company (PRJSC)
- Civil Corporation
If you already know what is subsidiary Company, you just have to decide the type of subsidiary you want to set up in the United Arab Emirates. To make a correct decision you have to know that this depends on several factors. For instance, the minimum share capital that you are willing to invest and the area where you want to set up the company (free zone or onshore). In addition, the complexity of the constitution process and many other aspects.
Limited Liability Company (LLC)
Currently, the Limited Liability Company (LLC) is the most popular form of business in the country. This type of subsidiary company allows for a minimum of 2 and a maximum of 50 shareholders. You have to know that the participation of shareholders will depend on the investment in business capital. As a result, commercial laws in Dubai offer shareholders complete personal protection against liability.
On the other hand, under the creation of an LLC, you have a greater commercial domain. That is a larger set of commercial activities for the establishment of the company. Whenever a businessman forms an LLC in Dubai, it is mandatory to partner with a local or national sponsor of the country. The sponsor will have 51% ownership of the company. But, the foreigner, in this case, can control the remaining 49%.
You have to know that trusted local sponsors act as silent partners for your business. That is, they allow you to have 100% operational ownership.
If you want to open an LLC, you just have to follow the following essential steps:
- Choose the business activities of the subsidiary Company
- Reserve the trade name of the subsidiary Company
- Select company location
- Obtain all necessary prior approvals.
- Acquire a commercial license according to your commercial activity.
Public Joint Stock Company (PJSC)
A Public Joint Stock Company (PJSC) is an organization whose capital is divided into tradable shares of equal value. In addition, there is a partner of the same who will be responsible only to the extent of his participation in the capital of the company. All this is by the Federal Commercial Law of the UAE and Public Limited Companies Law. In addition, the law requires a minimum share capital of AED 10,000,000 and 25% of this amount must be settled at the time of subscription.
On the other hand, 51% of the shares of PJSC have to belong to a national of the UAE. Furthermore, a minimum of 55% of the shares are required to be offered to the general public. Another important characteristic is that the PJSC must have at least 10 founders. There is an exception and this is in cases where a government entity is involved.
Likewise, any company in which Public Institutions or the State have some participation must be established as a Public Limited Company. In this case, the Board of Directors must have a minimum of three and a maximum of 12 directors. Finally, in this type of subsidiary company the president of the board of directors must be a local citizen.
Private Joint Stock Company (PRJSC)
A Private Limited Company is an organization with capital that is divided into negotiable shares of equal value. Furthermore, a partner of the company will be liable only to the extent of his participation in the capital of the company. All this is according to the Commercial Companies Law in the UAE. A PRJSC must have a minimum share capital of AED 2,000,000. Shares of this type of subsidiary Company cannot be offered to the public.
On the other hand, to establish a PRJSC, a minimum of three founding members is necessary. Additionally, 51% of the shares have to belong to a local citizen. The idea of establishing a Private Limited Company to carry out commercial, business, or industrial activities. A PRJSC does not allow professional activities.
Finally, a Private Stock Company is subject to all regulations applicable to Public Stock Companies. However, there is an exception to the regulations and rules relating to the public subscription of shares. A PRJSC can become a Public Joint Stock Company after two years of its incorporation by meeting some criteria.
A Civil Corporation is a partnership or association in which two or more people agree to carry out consulting or professional activities. Thus, they can subsequently respond to third parties through the payment of a consideration. An individual engages in a professional activity by applying their intellectual abilities or professional skills. For instance, medical clinics, legal consulting, management consulting, human resources consulting, and more.
On the other hand, civil companies follow Federal Law No. 5 of 1985 on Civil Transactions (Civil Code) and other statutes. A civil company has to be registered with the Department of Economic Development of each Emirate. Unlike commercial companies, civil companies must be exclusively owned by foreigners in general. However, you have to know that some professional activities may require local participation.
But, if there is no national partner of the UAE in a civil partnership, a local service agent must be appointed. The local service agent is a local citizen, whose main job is to act as a liaison between government departments and the entity. For example, the local service agent requests various work permits, approvals, visas, and more.
Finally, you have to know that the relationship between the local service agent and the principal entity is regulated by an agency agreement.
Registration steps for opening a subsidiary in Dubai
If you are wondering how to set up subsidiary company in the UAE, you just have to follow the following steps:
Select the precise jurisdiction: Initially, to establish a subsidiary Company in the UAE you have to decide where you want to establish the company. The options to establish your company are the following:
- Continental zone in the UAE
- Free trade zone
It is important to know the differences between the mainland and the free zone since these are the most popular. In addition, you have to know that each of them has different regulatory requirements when creating companies.
Select the type of subsidiary company: You have to decide the type of subsidiary company you want to establish. You can choose any type of company from the previous sections.
Appoint a Local Service Agent (LSA): If you want to establish a subsidiary Company in the mainland of the UAE you have to appoint a Local Service Agent (LSA).
Ensure the minimum required capital: Depending on the jurisdiction or commercial zone you want for your subsidiary Company in the UAE, you have to meet the minimum capital requirements. The amount of minimum capital will depend on the type of subsidiary company you want.
Decide and register the name of the subsidiary Company: To complete this step you have to make sure that the name is relevant to the line of business. Furthermore, it must not violate any moral code and cannot be the same as that of another company.
Present the necessary documents to the authorities: That is, present the following documents to open a subsidiary Company:
- Memorandum of Association (MoA)
- Articles of Association (AoA)
- Certificate of Validity from the parent company.
- Power of attorney that authorizes the general director of the subsidiary company to operate the business.
What Are the Benefits of Setting Up a UAE Subsidiary?
There are several benefits of starting a subsidiary Company UAE. Therefore, when you are wondering how to open subsidiary Company in the UAE, you must take into account the benefits that it will provide you. Below, you will see the main benefits of incorporating a foreign subsidiary in the UAE.
When you decide to establish a Subsidiary Company UAE, you can have 100% ownership in a company that is based in the country, even if you are a foreign citizen. In this way, the UAE allows 100% foreign investment in 13 sectors and 122 economic activities.
This opens up a huge scope of business activity for all foreign investors. Therefore, it makes the UAE one of the most attractive places for foreigners to decide to invest.
Exempt from taxes
Thanks to the lenient tax regime prevailing in the UAE, there is a huge benefit to setting up a subsidiary company in the country. Furthermore, at the moment, there are no income tax obligations. Nor, is there any corporate tax in the Gulf nation.
Therefore, taxation for foreign subsidiaries in the UAE is one of the simplest in the world. However, for your subsidiary company to function properly, you must know the corporate taxes in UAE. This way, your UAE subsidiary company will be able to operate and comply with all the country’s regulations.
Zero currency restrictions
In the UAE there are no restrictions on the transfer of currency inside and outside the country. Therefore, companies operating in the UAE will be able to freely transfer their money anywhere in the world without any restrictions.
Furthermore, the UAE does not have any type of exchange control. In this way, companies will be able to convert their local currency into any other currency and will not have any type of restriction. For this reason, the UAE is one of the most attractive destinations for investors from around the world.
No local sponsor is required
The UAE government allows certain foreign investors to own companies without the need for an Emirati sponsor. Furthermore, this rule applies to those foreign investors who have shareholder rights of 51%,
Therefore, eligible foreign investors do not need to have a local sponsor. For this reason, if you want to establish a subsidiary company in the UAE you do not need a local sponsor. This way, you will be able to own the majority of the shares and not transfer them to an Emirati partner.
What Are the UAE Laws for Subsidiary Companies?
In the UAE you can find a set of specific laws for different types of subsidiary companies. In this way, for Limited Liability Companies, a maximum of 50 partners and a minimum of 2 parents are allowed. Therefore, since the company has limited liability, the liability of each partner is determined based on the capital they contributed to the company.
In this way, the minimum capital needed for a limited liability company is decided by the corresponding Department of Economic Development (DED). On the other hand, a fundamental facet of the subsidiary laws of the UAE is the area in which it is decided to establish said company.
Therefore, if you decide on a free zone in the UAE as the registered office of your company, you must meet a set of lenient regulatory requirements. However, if you decide to establish your company in mainland UAE; It has to comply with a series of stricter laws. Among these, the local sponsor owns 50% of the subsidiary company of a Local Service Agent.
Furthermore, to create a subsidiary in the UAE mainland you need approval from the relevant DED. After you have decided on the location of your subsidiary company, you must decide on its business name. In this way, you must register it in the DED of the corresponding emirate. Therefore, you should keep in mind that the cost of establishing a company varies depending on the emirate in which you are located.
Learning how to open subsidiary Company in the UAE can represent an exceptional opportunity for international companies. In addition, they can take advantage of the opportunities offered by a very dynamic market with great growth. In this way, the UAE provides a very favorable business environment, with great tax incentives, a diversified economy, and a strategic location.
However, it is of utmost importance that companies can adhere to local regulations and legal requirements. This way, you can ensure that your operation is successful and sustainable. On the other hand, it has a wide variety of forms for its subsidiary company. Therefore, investors have a series of options that they should think carefully about before choosing one.
If you want to know more about how to set up a subsidiary Company in the UAE, we invite you to contact us. In addition, on our website, you can find a wide variety of information about the UAE and its economy.