Due to its strategic position, strong connectivity, and numerous services to assist with all aspects of business, the UAE has been a center of trade and commerce for the Middle East over the years. According to a 2016 analysis by the World Bank, the UAE is placed 31st in the worldwide ease of doing business index. This encourages more entrepreneurs to establish various types of businesses throughout the country. However, before starting a business, we strongly advise you to seek legal advice from Legal Consultants in Dubai for further information and procedures to take to guarantee that you follow the law.
Starting a new business in the United Arab Emirates
The UAE’s expanding prominence as a regional economic hub, as well as its business-friendly regulations and the absence of federal income taxation, serve as an incentive to start new businesses. However, there are a few things that startup owners should bear in mind before launching and successfully running their firms. It doesn’t matter whether you have all of the resources, a game-changing innovation, or a fantastic staff if you don’t understand the legal procedures and documents needed in starting and running a firm.
It takes a lot of planning to launch a startup, from coming up with a business idea to setting up a real office and lastly establishing the brand as a prominent player in the industry. The fundamentals of entrepreneurship are the same all over the world, with the exceptions being the business practices unique to the chosen region and the laws that regulate it. This is also true in the UAE, where the entrepreneurial environment and regulatory framework provide a good outlook for the region’s emerging entrepreneurs.
When starting a new business in the UAE, entrepreneurs must make various decisions, It’s also a good idea to know a Corporate Lawyer in Dubai to contact for assistance in case you’re not sure which path to take. Founders must decide on a company’s location and form, structure it and its ownership, hire personnel, sign into contractual agreements with consumers and suppliers, resolve conflicts, and so on. Understanding the legal framework in the UAE will greatly assist entrepreneurs in making the best decisions and future-proofing their businesses.
Legal peculiarities in the United Arab Emirates
The UAE legal system is the backbone of the rules and regulations that entrepreneurs must follow when starting a business. The UAE is mostly a civil law jurisdiction with French and Egyptian law influences. It also adheres to the principles of Islamic Sharia Law, which regulates areas of Muslim life such as personal matters and morality. Despite the importance of Sharia Law, it is crucial to emphasize that it is only applied in the UAE in the following areas:
- Divorce, wills, and inheritance are examples of personal affairs.
- Sharia-compliant commercial matters (for example, Islamic banking)
- When there is no explicit legislation on a topic, problems arise.
The UAE has federal and local legislation because it is a federation made up of seven-member emirates. Local laws and regulations govern subjects not covered by federal legislation inside an individual emirate, while federal laws and regulations apply to the country as a whole throughout all emirates. Major sectors such as immigration and labor relations are handled at the federal level, but company licensing is generally governed by relevant local authorities at the local level.
In the United Arab Emirates, the legal framework for commercial activity is defined at the federal level, with each emirate enforcing its own set of rules and regulations inside its own area. Companies operating in the United Arab Emirates must have a formal legal presence and be licensed. Some licenses, such as those for banks and financial services providers, legal firms, and pharmaceutical product manufacturers, require prior permission from various ministries and other agencies.
Commercial licenses are always tailored to the projected activity and location of the business. A license for a business endeavor given in Dubai, for example, does not automatically allow the business to operate in the emirate of Abu Dhabi. As a result, choosing a location for a new company organization is one of the most important factors for UAE startups, as it defines which legal body to approach for registration procedures. Meeting with lawyers and legal advocates in UAE will help you as an entrepreneur discover the advantages of picking one emirate over another, as well as what your alternatives are for expanding to another city.
Depending on the location of a target audience and firm needs, entrepreneurs may choose to form a mainland corporation, a free zone entity, or an offshore company. Here’s a quick rundown of these three alternatives.
Companies from the mainland
They are commonly utilized in the local UAE market for trading. Companies can be formed in the UAE in the following ways, according to Federal Law No. (2) of 2015 on Commercial Companies:
- Public Joint Stock Company
- Private Joint Stock Company
- Joint Liability Company
- Simple Commandite Company
- Limited Liability Company
In addition, the legislation establishes rules for corporations in terms of shareholders, directors, minimum capital requirements, and incorporation procedures.
One of the most significant considerations when forming a mainland company is that one or more UAE partners hold at least 51 percent of the company’s share capital. Furthermore, many types of operations (such as real estate brokerage) can only be carried out by UAE nationals. The maximum foreign equity participation for mainland enterprises is 49 percent due to the requirement of local participants. However, arrangements can be designed so that the ex-pat partner receives the majority of the profits. Another thing to keep in mind is the requirement of having a physical office on the mainland.
Each free zone has a regulatory authority that oversees and manages the enterprises that operate there in accordance with the free zone legislation. Free zones are often industry-focused and geared to specific businesses, therefore they only allow certain types of activities. The free zone entity can only conduct business inside the free zone in which it is registered.
The UAE has a significant and rising number of free zones, with some of the most well-known beings:
- Dubai International Financial Centre is a financial hub in Dubai (DIFC)
- Free Zone of Jebel Ali (JAFZA)
- Abu Dhabi’s Khalifa Industrial Zone (KIZAD)
- Free Zone at Sharjah International Airport (SAIF Zone)
- Free Zone of Ajman (AFZ)
- Free Trade Zone of Ras Al Khaimah (RAK FTZ)
- Dubai Multi Commodities Centre (DMCC)
Offshore businesses
If you don’t need a physical office, don’t need to issue resident visas, and your business’s activities are all done outside of the UAE, an offshore corporation might be a good fit. Offshore companies must do business from outside the UAE and are not permitted to do so within the UAE. They can, however, connect with local banks and appoint local legal counsel.
Free zones are where offshore enterprises are registered and situated. In the UAE, there are now two free zones where offshore firms can be established:
- Jebel Ali Free Zone Authority
- Ras Al Khaimah International Corporate Centre
Legal paperwork for a company
Over the course of a company’s life, proper legal documentation is critical in protecting the organization and its owners. Here are some fundamental legal documents that any company created in the UAE should have:
Documents establishing the company:
The most critical legal paperwork for any business. They define the company’s goals, name, location, capital, and management structure, as well as the tasks and obligations of important members of the organization, as well as extensive descriptions of how they might be changed, and so on. Memorandum of Association, Shareholders Agreement, Board Resolutions, and other corporate bylaws are common examples of these documents.
Trade license: A trade license is a confirmation that a company is properly registered and authorized to operate in the United Arab Emirates. It provides information regarding the company’s form, trade name, permitted activities, registered address, partners, and management, and can be of various sorts depending on the type of business. It is critical to update the license as needed to reflect current business developments (new office address, new management, etc.) and to renew the license on a timely basis to ensure that it remains valid.
Employment contracts: Appropriate labor contracts with employees ensure that the company has established a legally binding relationship with individuals who work for it. To reduce the risks of future disputes, the employment terms and conditions should be stated in the contracts with precise clarity. The UAE Ministry of Labour and the applicable free zone authorities should both record labor contracts for mainland and free zone enterprises.
Certificate of trademark registration:
Trademarks and copyrights are protected in the UAE by national laws and internationally recognized conventions, however many startups neglect to protect their trademarks. It is a popular misconception that registering a company in the UAE automatically grants rights to the trademark associated with the registered trade name. This is not the case. To get exclusive rights to a trademark, trademark owners must apply for a registration certificate. Ignoring the process can lead to problems with intellectual property rights in the future.
Other things to think about
Companies in the United Arab Emirates must comply with visa and work permit rules. Employees who work for a mainland company would require the Ministry of Labour to issue them with labor cards and work permits (Ministry of Human Resources & Emiratisation). Employees working in free zone businesses will need work licenses or employment cards from the local free zone administration. Employer-sponsored residency visas are required for ex-pat staff. On the other hand, a female employee may be sponsored by her father or husband in some instances.
When there is a disagreement between the contracting parties, it is critical to understand how the disagreement will be addressed. The UAE recognizes the right to contract freedom because it is a civil law jurisdiction. Many contractual arrangements, particularly those involving overseas transactions, can now be regulated by English law, with disputes resolved through international arbitration centers or before DIFC Courts in Dubai or ADGM Courts in Abu Dhabi, rather than in UAE courts.
Binding arbitration is available to UAE entrepreneurs as a preferred means of resolving disputes. Since the UAE recently sanctioned the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards, arbitration decisions rendered in other countries can now be recognized in the UAE. Furthermore, foreign business parties doing business in the UAE frequently choose the London Court of International Arbitration (LCIA). Entrepreneurs can select between the Dubai International Arbitration Centre (DIAC) and the Abu Dhabi Commercial Conciliation and Arbitration Centre as local corporate organizations (ADCCAC).
The new federal bankruptcy law was passed in September of last year and went into effect on December 29, 2016. The law addresses one of the issues that local entrepreneurs face: financial defaults. Because of the flexibility and ease it provides, it aids in the process of dealing with such circumstances and promotes investment. In many aspects, the new bankruptcy legislation reduces the risks for new businesses, such as allowing entrepreneurs to avoid jail time even if they are unable to repay a loan. It allows debtors to remain in the country by reorganizing their debts. Another goal of the new legislation is to create a far more secure legal structure that will aid indebted businesses in avoiding bankruptcy.
The UAE government has taken numerous initiatives in recent years to make the legal procedures for registering, operating, and liquidating businesses in the UAE considerably more straightforward and pleasant for any firm, and to encourage entrepreneurs from all over the world to set up shop in the country. At the same time, there are a variety of choices for entrepreneurs to establish business organizations, and it is critical to understand all of the requirements before starting a business in the UAE. It is crucial for startup founders to seek legal assistance from competent lawyers who can guide them through all of the legal procedures involved in starting a business.
Fascinating facts
According to a World Bank assessment from 2016, the UAE ranks 31st in the worldwide ease of doing business index.
The Dubai International Financial Centre (“DIFC”) and the newly opened Abu Dhabi Global Market (“ADGM”) are two autonomous free zones that have their own set of rules (except for criminal laws) and are not subject to UAE legislation. The DIFC Courts and the ADGM Courts are responsible for resolving commercial issues in their respective free zones.
The United Arab Emirates currently does not have a federal income tax system. As a result, it is not a major problem for new businesses.
In relation to subjects not covered by federal laws, the government of each individual emirate can adopt local rules and regulations.
Entrepreneurs in the UAE should be aware of the following legislation.
- Commercial Companies Federal Law No. (2) of 2015
- 1985 Federal Law No. (5) On the United Arab Emirates’ Civil Transactions Law
- The Commercial Transactions Law was established by Federal Law No. (18) of 1993.
- The Commercial Transactions Law was established by Federal Law No. (18) of 1993.
- 2021 Federal Decree-Law No. 33 Concerning Labor Relations Regulation
- 2012 Federal Law No. (4) Concerning Competition Regulation
- Federal Law No. (37) Concerning Trademarks was enacted in 1992.
- Federal Law No. (7) of 2002 On Copyrights and Related Rights
- Federal Law No. (24) of 2006 On Consumer Protection
- Federal Decree-Law No. (8) of 2017 on Value Added Tax
If you’re an entrepreneur wanting to start a business in Dubai or one of the Emirates, MS Law, a leading law firm in Dubai, has experienced lawyers and legal advocates that can assist you to make the right decisions for you and your business. You don’t have to do all of the research and legwork on your own. We’re here to assist you in making the best decisions you can.
