DOING BUSINESS IN THE

United Arab Emirates

UNITED ARAB EMIRATES
Overview
The UAE is a federation of seven
Emirates bordering the Sultanate
of Oman and the Kingdom of
Saudi Arabia. The seven Emirates are
Abu Dhabi, Ajman, Dubai, Fujairah,
Ras al Khaimah, Sharjah and
Umm al-Quwain. The capital and
the largest city of the federation,
Abu Dhabi, is located in the Emirate
of the same name.
Like its neighbours in the Arabian
Gulf, the UAE is primarily known as
a petroleum-based economy which
has achieved tremendous economic
and social development in the last
two decades. Most of the UAE’s
petroleum reserves are located in
the Emirate of Abu Dhabi. Whilst the
petroleum sector has dominated
economic development in the UAE,
the country continues to diversify
into other sectors such as tourism
and healthcare. Although the country
is a federation, the member Emirates
largely pursue their own policies.
DLA Piper has had a presence in
the UAE since 2005, and has offices
both in Abu Dhabi and Dubai,
the two main financial and business
hubs in the UAE.
Legal background
the UAE Constitution apportions
powers between the federal
government (based in Abu
Dhabi) and the governments of
the constituent Emirates. Some
fields are regulated only at the
federal level (such as, for example,
immigration and labour relations)
although local interpretations and
practices sometimes differ from
one Emirate to another. Other
matters are regulated only at the
Emirate level (for example, each
Emirate retains sovereignty over its
own natural resources – including
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its petroleum reserves). Other
matters are regulated at both the
Emirate and federal levels. Company
formation is an example of a field
where both the Emirate and federal
authorities have important roles.
As the UAE is an Islamic country,
there are a number of fundamental
differences between the local
approach to commercial and legal
concepts and the Western approach.
Whilst substantial progress has been
made, the local legal and commercial
system is not as highly developed
as it is in countries with a longer
history of complex international
commercial interaction.
In addition, the absence of a
comprehensive official case reporting
system, the differing backgrounds
of members of the judiciary and the
lack of judicial precedent make it
difficult to predict the attitude that
will be taken by local authorities
and the courts to particular issues,
which inevitably imports a degree
of uncertainty into some areas of
business life. It is for this reason
that commercial counterparties will
frequently incorporate arbitration
provisions into their contracts.
After many years of speculation
regarding an overhaul of the local
companies law, UAE Commercial
Companies Law (UAE Law No. 2
of 2015) (“New Companies Law”)
came into force on 1 July 2015,
repealing in its entirety the former
UAE Commercial Companies Law
(UAE Law No. 8 of 1984) (“Old
Companies Law”).
The New Companies Law has
introduced a number of helpful
modernising changes while
preserving the status quo in other
areas. Some of the improvements
and modifications are discussed in
the following paragraphs.
Structures for doing
business in the UAE
Foreign companies wishing to
establish a business presence
in UAE commonly establish an
onshore entity as a representative
office (also known as liaison
office) (“Representative Office”),
a branch office (“Branch”) or
as a limited liability company
(“LLC”). Alternatively businesses
can be established in a free zone
as a branch office, a free zone
establishment (“FZE”) or a free zone
company (“FZCO”). Not all free zones
distinguish between a FZE (one
shareholder company) and a FZCO
(multiple shareholders company).
In order to conduct business
legally in an Emirate of the UAE
a company must have a legal
presence in that Emirate. Once
established, the entity can only
conduct activities in accordance with
its licence. This licence will specify
the activities that the entity can
undertake and the owners would
have applied for such activities
when establishing the entity. Set out
below are the different corporate
structures for establishing an entity
in the UAE onshore and the major
characteristics of each structure.
A. REPRESENTATIVE OFFICE OR
BRANCH
Foreign companies will often establish
a presence onshore in the UAE
(by onshore we mean outside of
a free zone) by setting up either a
Representative Office or a Branch.
These are not separate companies
but an extension of the foreign
company which has established them.
The primary difference between
the Representative Office and
the Branch is that the activities of
the Representative Office are limited

to marketing type activities. They
are not permitted to perform any
commercial activity, including
any commercial activity which is
performed by the foreign company
which has established the Branch/
Representative office. In this
regard, there is also a limitation
on the number of employees that
the Representative Office may
sponsor (typically three or four).
The Representative Office serves
simply as an administrative and
marketing centre for the foreign
company which established the
Branch/Representative Office
and should not be entering
into contracts with or invoicing
customers in the UAE.
A Branch, on the other hand, is
permitted to perform contracts or
conduct other activities as specified in
its licence. It should be noted that the
activities of the Branch are confined to
those of the foreign company which
established the Branch as stated in
such company’s objects (i.e. bylaws/
memorandum of association) and
Branches are generally only allowed
to conduct professional activities, for
example an engineering consultancy.
It would not be possible to sell goods
through a Branch.
Both the Representative Office
and the Branch are required by
law to appoint a national agent
(colloquially called the local sponsor).
The national agent must be a UAE
national or a company wholly owned
by UAE nationals. The national agent
typically provides licensing, labour,
immigration and other governmental
services for the Representative Office
or the Branch for a fixed fee but does
not have any rights or entitlements
to the business of the Representative
Office/Branch.
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B. LIMITED LIABILITY COMPANY Law requires that a company
An LLC in the UAE is a company must have a sufficient capital for
with limited liability where An its business purposes. There is no
LLC in the UAE is a company with guidance on the meaning of this
limited liability where the number of phrase but typically companies
shareholders must not exceed fifty. are still abiding by the previous
In contrast to the Old Companies minimum capital requirements.
Law, single member companies are • The New Companies Law
now permitted for UAE nationals expressly permits shareholders
or companies wholly owned by to pledge their shares. However,
UAE nationals. there are certain challenges,
in particular with regard to
A shareholder is only liable to the enforcement.
extent of its share in the capital
C. ESTABLISHMENT IN A FREE ZONE
of the LLC. In addition, an LLC has
The UAE hosts many free zones
the following legal and commercial
which enable 100% foreign
characteristics:
ownership without the need of local
sponsorship. They also provide a
• A UAE national or a company
one-stop-shop of support services
wholly owned by UAE nationals
and other advantages such as high
must hold at least 51% of the
technology facilities and services
shares (please note however
and real estate infrastructure.
that UAE ownership may fall
below 51% where there is
Free zones are usually specialized
100% GCC ownership).
by industry and type of activities
• The memorandum of association
(e.g. media, education, internet and
may provide that the profit and
service providers, manufacturing,
losses will be shared in a ratio
information and communications
different to that of the share
solution providers). Each free
capital ratios. The UAE authorities
zone applies its own rules and
accept generally a maximum
regulations. If a free zone’s
ratio of 80% to the non-UAE
regulations are silent on a matter,
shareholder and 20% to the
the laws of the UAE and the local
UAE shareholder.
Emirate apply.
• Foreign investors often employ
various mechanisms to facilitate
An advantage of establishing an
full management control over the
entity in a free zone is that there
LLC and the complete repatriation
is no need for any participation
of profits. DLA Piper is able to
by a local partner and the entity
advise on such mechanisms.
is sponsored directly by the free
• Pursuant to a decree issued by
zone. Free zone entities can freely
President, His Highness
operate within the free zone and
Sheikh Kalifa bin Zayed Al Nahyan,
outside the UAE, but are restricted
LLCs are no longer required
from operating onshore without the
to meet the minimum capital
appropriate licence from the local
requirements of AED 300,000
onshore licensing authorities.
(in Dubai) and AED 150,000
(in Abu Dhabi and the other
emirates). The New Companies
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UNITED ARAB EMIRATES
Foreign direct
investment law
The UAE government has
announced the Foreign Direct
Investment Law (“FDI”), which
introduces new regulations setting
out that foreign investment in an
onshore company may exceed
49%, contingent upon which
economic sector the company will
be operating in. It will therefore be
possible for onshore companies in
certain sectors to have up to 100%
foreign ownership. The regulations
set out by FDI are still largely
under development, however the
UAE government has provided
preliminary guidance regarding
which sectors will benefit from
greater foreign investment and
which will be precluded from the
same. These sectors are categorised
into two distinct lists, namely the
positive list and the negative list.
The positive list will set out the
economic sectors which permit
foreign ownership in excess of
49%, whereas the negative list will
provide for the economic sectors
which do not. The positive list
has yet to be issued, however a
negative list has been released
within FDI and includes sectors such
as banking and finance, insurance
and petroleum related exploration
and production.
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Any sector which has not been
included in the positive or negative
list will remain at the discretion of
the UAE government.
Commercial agencies
in the UAE
The UAE Commercial Agency Law
seeks to govern arrangements
between a foreign company and
a local agent to ‘distribute, sell
or offer for sale a commodity
or service in the UAE in return
for a commission or profit’. No
distinction is made between a
commercial representative and
a distributor so the expression
‘agent’ is interpreted to
apply equally to a distributor,
a representative or a commercial
‘agent’. Only UAE national
individuals or companies wholly
owned by UAE nationals can act as
agents. The Commercial Agency
Law provides the local agent with
protection and privileges such as
exclusivity, ability to block parallel
importing and the right to claim
damages in certain circumstances.
The Commercial Agency Law
provides for the registration of such
agency agreements. However there
is some uncertainty as to whether
such agency agreements must be
registered and what happens if they
are not. The generally prevailing view
is that the Commercial Agency Law
only applies to registered agencies
and that unregistered agencies are
governed by contract law principles
embodied in the commercial and civil
codes. Accordingly, the local agent
of an unregistered agency may not
benefit from the protections afforded
under the Commercial Agency Law.
The establishment of a commercial
agency does not require a foreign
company to have its own licensed
presence in the territory. Accordingly,
this type of a structure is suitable for
foreign companies wishing simply
to sell their goods or services in
the territory without active local
operations. Some foreign companies
however use commercial agency
arrangements to enable them to
de facto operate locally under the
umbrella of the agent. In this way,
the foreign company does not
have its own separately licensed
presence but by virtue of the
agent’s sponsorship of the foreign
company’s personnel and allowing
the use of the agent’s office premises
etc., the foreign company acts similar
to a division of the agent’s business.
However, this approach results in
a considerable loss of autonomy
for the foreign company, as official
matters can only be effected with the
consent and assistance of the agent.

Employment in the UAE
Labour matters in the UAE are
predominantly governed by Federal
Law No. 8 of 1980 regulating Labour
Relations in the UAE (as amended)
(“Labour Law”). The Labour Law
applies to all staff and employees
working in the UAE, whether UAE
nationals or expatriates with some
limited exceptions. It is essential for
any company looking to establish
a presence in the UAE to consider
in advance the employment and
immigration matters which may
arise, such as providing employees
with locally compliant employment
contracts, ensuring employees
are engaged on the correct work
permits and properly managing
any secondment arrangements for
employees being assigned from
another jurisdiction to limit (where
possible) the employee’s ability to
claim dual employment rights.
From an immigration perspective,
the Ministry of Labour recently
published three new Ministerial
Decrees, which came into force on
1 January 2016, which deal with: (i)
the implantation of a new standard
government employment contract;
(ii) the termination of limited and
unlimited contracts; and (iii) the free
movement of employees in the UAE.
Employers need to be mindful
of the uncertainty created by
the new laws as to whether
they can still rely on the terms
of supplemental contracts in
addition to the new government
contract. Notice periods for
unlimited term contracts are now
capped at 3 months (and the cap
is being retrospectively applied)
thus potentially making it difficult
to attract senior employees to
work in the UAE who require the
comfort of longer notice periods.
The free transfer law of 2011 has
also been further liberalised by
new provisions on the granting of
work permits and implementation
of bans. Unskilled workers
may be granted a new work
permit on termination of their
employment provided they have
at least 6 months’ service with
their current employer and they
honour the notice and indemnity
provisions in their contract.
Previously, they would have been
likely to face a labour ban in the
same circumstances. This change
should create a more flexible and
open market for employers of
lower skilled workers.
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Real property in the
UAE
The UAE Civil Code codifies real
interests in land in the UAE with
‘absolute’ ownership (akin to the
common law concept of freehold)
being the most complete and
comprehensive right over real estate
available. Each Emirate promulgates
its own real estate laws dealing
with ownership (including foreign
ownership) and registration of real
interests in land.
For example, prior to 2006 no foreign
ownership of real estate in Dubai was
permitted by law. The introduction
of a ‘freehold’ law in 2006 provided
that non-GCC nationals and
companies owned in part or wholly
by them may acquire an absolute
ownership interest in real estate in
areas of Dubai designated by the
Ruler of Dubai (His Highness Sheikh
Mohammed bin Rashid Al Maktoum)
as available for foreign ownership. All
real estate rights must be registered
at the Dubai Land Department in
order to be valid.
Please visit www.dlapiperrealworld.
com, DLA Piper’s online guide to
international real estate, for further
information on the most relevant
laws to be aware of when investing
in UAE real estate.
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UNITED ARAB EMIRATES

Tax in the UAE
Strictly speaking, all companies in
the UAE are required to pay tax on
their earnings on a sliding scale
up to 55%. However, in practice,
only oil, gas and petrochemical
companies, together with hotels,
cinemas and branches of foreign
banks have been required to pay
tax. Over the past few years, there
have been talks around introducing
a UAE federal corporate tax
although no formal announcements
to that effect have been made up to
date. In general, tax matters should
always be considered as part of any
establishment process in the region.
Also of note is that there is currently
no personal income tax and, there
are no restrictions within the UAE
regarding currency exchange or the
repatriation of capital and profits.
There is however some municipality
taxes paid on rent and certain
land transfer charges paid when
transferring real estate.
On 1 January 2018 the UAE
introduced value added tax (“VAT”).
The standard rate of VAT is 5%
whereas some supplies are exempt or
zero rated. VAT generally applies on
the supply of goods and services by
domestic taxpayers as well as on the
import of such goods and services.
Under circumstances, foreign
businesses with supplies in the UAE
may also fall within the scope of VAT.
General
This guide highlights certain
material legal matters which
DLA Piper believes are relevant to a
potential foreign investor in the UAE.
It does not constitute legal advice and
does not purport to address every
legal issue or provide a summary
of the current rules, structures or
regulatory framework.
The regulatory system in the
UAE is dynamic and subject to
frequent changes in application
and interpretation. This guide is
based on material available to
DLA Piper as at July 2016 and will
require amendment from time to
time as legislation is amended or
new policies or interpretations are
adopted by government authorities,
courts and/or regulators. It is
therefore necessary to obtain legal
advice and liaise with the relevant
government authorities in order to
seek confirmation as to how the law
applies to foreign investors in respect
of a particular investment or business
activity at the relevant time.
We hope that you find this guide
to be a useful overview of the high
level legal matters in relation to
doing business in the UAE. Please
do not hesitate to contact us if you
have any queries in relation to the
material set out in this guide or if
you require specific legal advice in
respect of an establishment.

For further information, please contact

Peter Somekh Will Seivewright

Regional Managing Partner, Partner,
Middle East Head of Corporate, Middle East
T +971 4 438 6327 T +971 4438 6150
peter.somekh@dlapiper.com will.seivewright@dlapiper.com

The information contained in this briefing does not constitute legal advice. Specific legal advice should be taken
before acting on any of the topics covered.

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