When it comes to starting a business in the UAE, local ownership restrictions are some of the reasons why some people hesitate to become entrepreneurs. Unfortunately, many are not aware that under current rules. Full foreign ownership of a mainland company is possible under three circumstances.
- Establishing a professional services company
- Setting up a branch of an overseas company
- Branch of a Freezone company
1. Professional Services Company
A professional services company in UAE is a firm that provides services based on the expertise of the staff and/or owner(s). For example, an accountant can start a professional company – since its business is dependent on the expertise and academic qualifications of the staff constituting it. Some other examples of professional companies are legal consultancy, IT consultancy, marketing, administrative services, training, and education.
Foreigners can wholly own a professional company. So, it only requires a UAE national as a “Local Service Agent” (LSA) which can be a person or a corporation (if the agent is a company, it shall be a UAE company, and all its partners shall be UAE nationals) – who does not hold shares in the company. It is customary that the local service agent receives a fixed annual charge for the facilitation of local government services. It is possible to obtain a power of attorney from the local service agent so that an expat can execute all government functions if needed.
2. Branch of an Overseas Company
If you already have an active company in your home country and wish to expand your business in the UAE, opening a branch could be the best solution for you to retain 100% ownership. A branch is not required to have a local national as a shareholder; instead, you can opt for an LSA like a professional company. The caveat is that the branch company must engage in the same line of business as the parent company. If your parent company trades in air conditioners, then your branch company must do the same. It cannot, for example, expand into the trade of vehicles. However, if the parent company can engage in a dozen activities, so the branch company can either do all or select a few for its UAE operation.
If you don’t have a company in another country, some expats buy off the shelf companies from jurisdictions where such companies exist. However, you must factor in ongoing administration fees and tax implications for your parent company before you decide to take this option to secure your interests in a local establishment.
3. Branch of a Free Zone Company
Many entrepreneurs start in the UAE with a Freezone company in an inexpensive jurisdiction. Once the business takes off, the next evolution is to start a local company. Much like a foreign branch, you can start a branch through a local service agent.
There are downsides to consider with this type of business setup. You will be running two entities with two UAE sites and twice the renewal fees. If your profits can justify it, then it is not a problem, but many small and medium businesses find this type of setup not to be sustainable. The alternative of having a free zone company and using a local distributor can work out cheaper than doubling your administrative costs.
Changes to Local Ownership Laws
In July 2019, the UAE cabinet approved 122 economic activities across 13 sectors as eligible for up to 100% foreign ownership. Exactly when we can expect to see the new law implemented across the UAE remains unclear. As it stands, there are not many details on the activities or the sectors that are approved. What we do know is that the UAE is committed to increasing expat investor confidence in the local market.
Although, it is not yet clear to what extent existing businesses would be able to take advantage of this new cabinet decision. However, such companies cannot be prevented in principle from making an application to the Department of Economic Development (DED) of the relevant Emirate when the changes are official.
Leave a reply