Things to Consider for Navigating Dubai’s Legal and Regulatory Requirements for Businesses

Expert consultants specializing in company setup in the UAE have compiled a comprehensive overview of these requirements to help entrepreneurs navigate the legal landscape effectively.

As an expatriate entrepreneur exploring the possibility of setting up a limited liability company in Dubai, it's important to be aware that UAE law permits a minimum of 2 and a maximum of 50 shareholders for such companies. 

These LLCs are allowed to engage in any lawful business activity, with the exception of insurance, banking, and investment. To obtain the necessary approvals and licenses, it is mandatory to consult with the Economic Department and register the business with the Dubai Chamber of Commerce and Industry. Additionally, the proposed commercial name for the company must be approved by the Licensing Department of the Economic Department before proceeding with the company setup process.

When setting up a joint venture in Dubai involving a foreign and local partner, it's important to note that the local party must hold at least 51% of the equity. While official contract documents may not be required, it is necessary for the joint venture to have a clear focus on a specific project or technology. To ensure that the joint venture is structured properly and all legal aspects are addressed, it's advisable to seek guidance from Dubai lawyers who can assist with drafting, negotiating, and structuring the necessary agreements for strategic partnerships.

According to the UAE Commercial Company Law (13) of 1988, foreign companies are prohibited from assuming financial responsibilities. In order to establish a representative office in the UAE, foreign companies must register with the UAE Ministry of the Economy and the Dubai Department of Economic Development. Additionally, they are required to engage with a UAE National Local Service Agent, who can be an individual or a company owned by a UAE national.

Under UAE law, foreign companies are allowed to fully own branch offices; however, they must appoint a local service agent who is either a UAE national or a company owned by UAE nationals. It is important to note that branch or representative offices are not allowed to participate in import activities or generate profits.

In order to establish a branch office in a free zone in the UAE, companies are required to obtain license approval from the Ministry of Commerce and Economy. The authorized activities for the branch office must also be specified and recorded accordingly.

If a foreign company establishes a sole proprietorship in the UAE, the foreign company retains 100% ownership. As of now, sole proprietorship does not mandate the involvement of a local service agent or partner.

The economic substance regulations of the UAE, which were enforced in April 2019, require entities engaged in "Relevant Activity" to maintain an appropriate level of economic presence. This entails assessing the scope of their activities and ensuring compliance, including factors such as operational, financial, tax, legal, and governance considerations. Exempt entities are still obligated to file a Notification and provide supporting evidence.

The Tax Residency Certificate or Tax Domicile Certificate in the UAE is a valuable legal document that serves as proof of tax residency for companies or individuals. This certificate enables beneficiaries to take advantage of double taxation agreements between the UAE and other nations, avoiding the risk of being taxed twice on the same income. To obtain a TRC, specific eligibility criteria must be met, such as meeting the minimum residency period requirement in the UAE. These certificates are issued by the UAE Ministry of Finance and are beneficial for businesses and individuals seeking to minimize their tax liabilities while operating in multiple countries.

The UAE implemented Value Added Tax (VAT) on January 1, 2018, at a standard rate of 5%. VAT is an indirect tax that applies to the majority of goods and services. If you are a business owner, you are required to register for VAT if your taxable supplies and imports surpass AED 375,000 per year. After registration, you must levy VAT on your goods and services, submit regular VAT returns, and remit the collected tax to the Federal Tax Authority (FTA).

Certain goods and services, such as essential food items, healthcare services, and education, are either exempt from Value Added Tax (VAT) or subject to a zero rate in the UAE. It is essential to acquaint yourself with the list of exempt items to ensure accurate application of VAT.

The UAE introduced Excise Tax in 2017 as a levy on certain goods that are deemed detrimental to human health or the environment, such as tobacco products, energy drinks, and carbonated beverages. The tax rates differ based on the type of product. If your business involves the sale or distribution of these goods, you are required to register for Excise Tax, maintain accurate records, and remit the tax to the Federal Tax Authority (FTA).

It is imperative to ensure that your business adheres to the VAT and Excise Tax regulations in the UAE to avoid penalties or fines. Seeking professional assistance from tax consultants or accountants for tax registration, filing, and payments may be beneficial. 

For more information on the corporate tax implementation in the UAE for 2023, you can refer to our comprehensive guide.

Being knowledgeable about the tax regulations in the UAE will facilitate smooth business operations and mitigate any potential legal complications.