FAQ   »   Corporate-FAQ

Below are answers to some frequently asked questions about issues of business set-up in the UAE, UAE free zone settlement and offshore incorporation. If you have a question that is not listed here or need more information, we invite you for a free consultation.

BUSINESS START-UP IN UAE

FREE ZONES

OFFSHORE COMPANIES

BUSINESS START-UP IN UAE

What are the minimum requirements of setting-up a company in the UAE?

To set up a local company (Limited Liability Company - LLC) you must provide a minimum share capital of AED 300,000 divided into equal shares with a minimum face value of AED 1,000 per share.

A local company can only be established in the UAE provided its sponsor, a UAE national, holds at least 51% of the company shares. Another alternative is to do the business set-up as a professional license company based on the experience of the person involved.

FREE ZONES

What is a free zone?

According to the World Federation of Free Zones, a free zone is a portion of clearly defined and isolated land or setting, with a special tax, customs and imports regime, usually involving a status of extra-territoriality.

The main idea of establishing free zones in the UAE was for them to serve as a central business hub for companies willing to conduct business in the outer world, not specifically in the UAE. Therefore, UAE free zone companies are intended to operate within the corresponding free zone as a hub for the worldwide operations and are not licensed to operate within the rest of the UAE.

What are advantages of settling in a free zone?

Among numerous advantages for a foreign investor setting up his/her business in a UAE free zone there are:
  • No personal income or capital gain taxes in the UAE
  • 100% ownership of the business
  • No corporate taxes for 50 years
  • 100% repatriation of capital and profits
  • Modern efficient communications
  • No recruitment problems
  • Attractive working environment
  • No currency restrictions
  • Excellent support services

There are various facilities available in the free zone areas which are favorable for running business operations:
  • Land for lease provided for investor development
  • Pre-built warehouse / factory / office accommodation units for lease
  • Executive office suites in the International Business center for lease
  • On-site accommodation for investor's personnel
  • Transportation links by air, by sea and by road
  • Abundant and inexpensive energy
  • Favorable cost of living

How can you set up in a UAE free zone?

Each free zone has its own set of laws. However, you can set up your business in most free zones under one of the following ways:
  • Branch of a foreign company (outside of the UAE) or a branch of an offshore company
  • Free Zone Establishment/Company (FZE/FZC)
    FZE or FZC are limited liability entities owned by an individual or corporate entity. There are slight differences between the entities. For example, Free Zone Establishment has only one single shareholder. Free Zone Company has 2 to 5 shareholders. Free Zone Limited Liability Company – Natural Person (FZ LLC) is an independent company incorporated by an individual and whereby all the shareholders are natural persons. Free Zone Limited Liability Company – Corporate (FZ LLC) is a company incorporated by a corporation and whereby the shareholder of the FZC is a company.

What activities are allowed in UAE free zones? And how do you choose in what free zone to establish your company?

There are a whole panoply of factors to consider when determining which free zone would be most appropriate for the establishment of a new business entity. These factors include, for example, location, infrastructure and facilities, licensing process of the proposed activity, and the prestige of a particular free zone.

For example, in Dubai there are Jebel Ali Free Zone and Dubai Airport Free Zone which activities include import, export, manufacturing, processing, assembling, packaging, distribution, consolidation, storage and logistics. Dubai Healthcare City serves as a hub for healthcare-related businesses, Dubai Media City caters for broadcasting, advertising, and public relations; Dubai Internet City provides web-based services, IT support, and software development.

Experienced consultants will advise on the right choice of a free zone matching your business activities and undertake the full responsibility for preparing incorporation and registration documents for the establishment of your company.

Which free zone is more economical to set up a company in?

Each zone has its own set-up cost schedule and procedures. The cost of your free zone business set-up will depend on the following factors:
  • Nature and size of your operations
  • Allocated budget
  • Visa requirements
  • Size and rent cost of the office
  • Requirements of the business

For any requirement you have, it is always possible to find an appropriate free zone to establish your company.

Can you trade with the UAE if your company is registered in a UAE free zone?

Since free zones are not considered part of the UAE market, you cannot trade directly. However, you can appoint a local dealer or agent and trade with any local company in the UAE after having paid required customs duties.

If you set up a free zone company, will your employees have a right to live in the UAE?

Although free zones are not considered part of the UAE in the business terms, they are still part of the country's territory. Therefore, all employees of free zone companies must have valid UAE visas to have an official status in the country.

What is the minimum investment required to set-up a company in the free zone?

The average minimum investment for a business set-up in most free zones is around AED 150,000. However, this amount may vary according to the type of your business and your requirements. In any case, it is possible to find the most appropriate set-up cost in the free zone or avoid minimum capital investment by incorporating an offshore company.

OFFSHORE COMPANIES

What is an offshore company?

An offshore company is a firm which is incorporated in an offshore jurisdiction and pays no tax or low tax in that jurisdiction. It is not allowed to do business within the jurisdiction but can do business worldwide, open bank accounts worldwide, invest and generally conduct all legal enterprise activities it wishes.

The offshore company is usually restricted from entering into gaming activities, insurance, re-insurance and banking without additional licenses.

What does "tax free" mean?

With regard to offshore business, tax free means the offshore company does not pay tax to the country it is incorporated in. It may, however, under such circumstances, still owe tax in other countries, depending upon the tax residency of the Directors and Shareholders.

What is a "jurisdiction"?

The jurisdiction is the country in which the offshore company is incorporated. The company is said to be domiciled in the jurisdiction and the laws governing the operation of the company are that of the jurisdiction. These laws dictate such things as whether the company can have bearer shares, the number of Directors required, how Director and Shareholder's meetings are to be held and so on.

What are "Bearer Shares" and "Registered Shares"?

Bearer Shares are shares with no name on them. They are payable to "Bearer". Such shares provide more privacy than Registered Shares which do have a name on them and are generally registered in the jurisdiction of incorporation. Bearer Shares are also advantageous in that such shares can easily be passed to others without formalities.

The Bearer is the owner and therefore the shares can be also sold to others and simply given to them as proof of ownership. Also, in case of death, Bearer Shares can be left to children or others without any need for probate or other formalities. Registered Shares, however, must be re-registered and re-issued.

One disadvantage of Bearer Shares is that not all banks will open bank accounts for companies with Bearer Shares. If you wish to have Bearer Shares for your offshore company, HMLC consultants will recommend appropriate banks.

What is the function of the offshore company's Director?

The Director(s) of the company directs the overall policy of the company and is involved in its day-to-day operations. However, the Director can appoint a manager who will act on her/his behalf. The Director(s) appoints the officers of the company (Manager, etc.) and is responsible to the Shareholders of the company.

There can be one or several Directors. Some jurisdictions, such as Panama, require that there be three Directors. Most jurisdictions only require minimum one Director.

The Shareholder(s) may also be the Director or may wish to appoint a "Nominee" Director. The Nominee Director is usually provided by the incorporation agent that the Shareholders have used to incorporate the company.

What are the advantages of appointing a Nominee Director?

The Nominee Director is usually provided by the incorporation agent. There are certain reasons to appoint a Nominee Director:
  • In some countries the physical location of the Director is different from the country of incorporation, whereas the Nominee Director is always located in a zero tax country.
  • The use of a Nominee Director provides for greater privacy and asset protection.
  • Unless the Shareholder is familiar with company paperwork such as resolutions, meeting and other structural details, preparation of post-corporation papers, opening bank accounts and other procedures can become very time-consuming. In some jurisdictions, the Director must sign various papers before the incorporation can proceed, thereby delaying the incorporation process. A Nominee Director speeds up this process and leaves the Shareholders free to get on with the business, instead of its paperwork.
  • The Nominee Director handles the annual filings which may be required in some jurisdictions, such as annual Director's or Shareholder's meetings.

What is a "Shelf Company"?

A "Shelf Company" is an offshore company which has already been incorporated but has not been used. It is "on the shelf" waiting for purchase. Once purchased, the company can be immediately used while the incorporation agent prepares the necessary paperwork to provide proof of ownership to the new shareholder for banking and other purposes.

Shelf companies are purchased primarily for two reasons:
  • Speed. The company is ready to be used immediately once it is purchased.
  • History. Individuals often want companies which have some history, i.e. they have existed for some months or years.

What are the main advantages of offshore incorporation?

  • Reduce of taxes from payments under dividends and interests
  • Protection against lawsuit judgments
  • Avoidance of double taxation
  • Informational confidentiality of your business activities
  • Low operation costs
  • Unlimited market opportunities
  • Flexibility and easy way of company establishment

Who uses offshore?

Individuals and corporate entities interested in minimization of costs are often the ones to incorporate an offshore company:
  • High net wealth individuals: International Investors, Entrepreneurs, Property Owners
  • TNCs: Financial institutions and Financial institutions
  • The Offshore Sovereign States

Isn't it illegal to move assets offshore or have "offshore bank accounts?

It is legal to have accounts, funds, reserves, liabilities, assets etc. almost anywhere in the world. When you do not declare assets or profits, that should be declared according to your domestic tax code, (IRS, Revenue Canada, Inland Revenue etc), you are subject to certain penalties and fines or more. The key elements are if the assets and profits are "reportable items in that current year.

Setting up offshore is not illegal; however, withholding information about your offshore investments is illegal in some countries. The question of legality often arises from propaganda supported by high-tax jurisdictions to keep their residents (and their tax money) at home. An offshore jurisdiction should be perceived as a foreign country – but with certain advantages. These can take the form of banking secrecy laws, advantages in forming companies for international trade or investment operations, no interest tax, no inheritance taxes, no capital gains tax, no individual tax, and many others.

Depending on your personal needs or preferences, there will normally be one or more offshore jurisdictions offering the services you are looking for. Please contact us for a Free Initial Consultation or email us at info@hmlc.ae.

Can an existing business be moved offshore?

Some companies move parts of their business offshore almost immediately as separate subsidiaries and profit centers.

However, you will need to look at your business with a view to re-organize your activities and maybe look for new business opportunities on a cross-border basis into other countries. The possibilities are quite extensive, and HMLC consultants are able to assist you when it comes to applying offshore advantages to your existing company operations.