The United Arab Emirates (UAE) secures the position as one of the most prominent business centers, not just in Asia but also on the global map. Renowned for its encouragement of foreign investors and lenient tax regime, the Gulf nation is an excellent place to start and operate a business. If you wish to start your business in the UAE, you can opt to set up a subsidiary of your company in the country. This way, you can easily hire talented resources to work in your company and ensure compliance with the land laws.
Setting up a subsidiary in the UAE involves several steps and adherence to various corporate laws. Hence it is necessary to understand the legal regulations governing the incorporation of a wholly-owned subsidiary in the United Arab Emirates.
What Are the Types of Subsidiaries in the UAE?
Once you have decided to start a subsidiary business in the UAE, you must decide the type of company you wish to register and incorporate. Here are the types of subsidiaries that can be incorporated in the UAE.
- Limited Liability Company (LLC)
- Public Joint Stock Company (PJSC)
- Private Joint Stock Company (PRJSC)
- Civil Corporation
The decision on the type of subsidiary you wish to set up in the United Arab Emirates depends on several factors. It includes the minimum shared capital you are willing to invest, the area where you wish to set up the company (onshore or free zone), and the complexity of the incorporation process, among many others.
How to Set Up a Subsidiary in the UAE?
These are the proceedings you must follow for the incorporation of a foreign subsidiary in the UAE.
- Select the accurate jurisdiction for the company: The first step towards setting up a subsidiary company in the UAE is deciding where you wish to base the company. You can choose to set up your company in one of the following jurisdictions:
- ~The UAE's mainland
- ~Free zones in the UAE
Each of the aforementioned jurisdictions has different regulatory requirements for the setting up of a subsidiary company.
- Select the type of subsidiary company you want to set up: The next step is to decide the type of subsidiary company you want to set up. You can choose any of the company types listed above for the subsidiary incorporation in UAE.
- Appoint a Local Service Agent (LSA): If you choose to set up a subsidiary company on the mainland of the United Arab Emirates, you must appoint a Local Service Agent (LSA). The services of an LSA are usually engaged for a period of one year in exchange for a predetermined fee.
- Secure the required Minimum Capital: Depending upon the business zone or jurisdiction that you choose for your subsidiary company in the United Arab Emirates (mainland, free zone, or offshore), you will have to comply with different requirements for minimum capital. The quantum of the minimum capital shall also be influenced by the type of subsidiary company that you opt for.
In order to set up a Limited Liability Company in the UAE, the minimum capital requirement is AED 300,000. However, the Department of Economic Development with jurisdiction over the area where you seek to establish a company shall be the final authority with regard to sufficient capital for a company. The minimum capital for Public Joint Stock Companies in the UAE is AED 10,000,000. For Private Joint Stock Companies in the Gulf nation, the minimum capital requirement is AED 2,000,000.
- Decide and register a trade name for the subsidiary company: The next step is to select a trade name for your subsidiary company. You must ensure that said name is relevant to the company's line of business, is not in contravention with any moral codes, and is not already associated with any other company. The name should be distinct yet not complex. Unlike a branch office of a company, a subsidiary company can have a different name than that of its parent company.
For subsidiary companies that are to be set up on the mainland of the United Arab Emirates, the selected trade name must be registered with the relevant Department of Economic Development (DED). On the other hand, for the subsidiaries that are to be set up in a UAE free zone or offshore, the application for the registration of trade names must be submitted to the relevant Free Zone Authority.
- Submit the necessary documents to the requisite government authorities: You must submit the following documents of the company after getting them attested by the embassy of the United Arab Emirates in your home country as well as the Ministry of Foreign Affairs, United Arab Emirates.
- ~Memorandum of Association (MoA)
- ~Articles of Association (AoA)
- ~Good Standing Certificate for the parent company
- ~Power of Attorney, empowering the General Manager of the subsidiary company to operate the business of the subsidiary in the UAE as well as open bank accounts in the country on behalf of the parent company.
- Obtain a business license for your subsidiary company: After submitting the documents mentioned in the previous point, you can apply for a business license for your subsidiary company in the United Arab Emirates. After the payment of the licensing fee and successfully verifying the company's documents, your subsidiary company shall be issued a license to operate a specific business in the UAE.
- Open a bank account in the UAE: After obtaining a business license for your subsidiary company in the UAE, you must ensure the fulfillment of the requisite administrative requirements, such as:
- ~Opening a bank account for the company in the UAE
- ~Appointment of a Director and/or General Manager for the subsidiary company
- ~Recruitment of employees for the subsidiary company
- ~Securing work permits for the employees of the subsidiary company
- ~Drafting legal contracts of employment for the workforce of the company, etc.
- Start your business operations in the UAE through the subsidiary: The final step in setting up a subsidiary in the UAE is to start the company’s operations through an office in the country.
What Are the Benefits of Setting Up a UAE Subsidiary?
There are several benefits of a subsidiary company in the UAE. Here are the major benefits of the incorporation of a foreign subsidiary in the UAE.
- Complete ownership for foreign investors: By choosing to set up a subsidiary company in the United Arab Emirates, you can enjoy the freedom of having 100% ownership in a company based in the country, even as a foreign national. The UAE has permitted 100% foreign investment in 13 sectors and 122 economic activities, thereby opening up a wide scope of business activity for foreign investors.
- Segregation of liabilities: One of the major benefits of a subsidiary company in the UAE is that you can separate the liabilities of the parent company in your home country and the subsidiary company in the United Arab Emirates.
- Tax Benefits: Owing to the lenient taxation regime prevailing in the United Arab Emirates, you can benefit from setting up a subsidiary company there. At present, there is no income tax or corporate tax levied in the Gulf nation. Therefore, the taxation of foreign subsidiaries in the UAE is fairly simple.
- The ability to hire local employees: By setting up a subsidiary company in the UAE, you can legally hire employees in the country. The aforementioned process shall not require the intervention of any intermediaries. You can also manage the payroll, employee benefits, etc., through the subsidiary company.
- The opportunity to create a work culture separate from the parent company: Another key benefit of setting up a subsidiary in the UAE is that you can establish a work culture distinct from the one prevailing in the parent company. Not only is this flexibility advantageous from the perspective of adhering to the local cultural norms and moral codes, but also pivotal from a business point of view. Having a country-specific organizational and work culture can go a long way in ensuring the seamless operations of your subsidiary business in the UAE.
What Are the Documents Required for Setting Up a Subsidiary in the UAE?
The checklist for the incorporation of a foreign subsidiary in the UAE is quite extensive. You shall require several documents to ensure legal compliance for a foreign subsidiary in the UAE, such as:
- Memorandum of Association (MoA) of the subsidiary company
- Articles of Association (AoA) of the subsidiary company
- A document certifying the good standing of the parent company
- A Power of Attorney through which the General Manager of the subsidiary company can carry out various important tasks for the company, including opening a corporate bank account for the company in the United Arab Emirates
- The application for the reservation of a specific trade name for the subsidiary company
- Copies of the audited financial statements of the parent company, spanning two financial years
- Copies of the passports of important office bearers of the subsidiary company, including the Director and the General Manager
- An attested copy of the agreement signed with a Local Service Agent (LSA)
- A document stating the objective of the subsidiary company as well as its proposed activities
- A copy of the requisite government approvals required at various stages of the process of setting up a subsidiary company in the UAE
What Are the Forms of Subsidiary Companies Permissible in the UAE?
If you are looking to set up a subsidiary company in the United Arab Emirates, then you can select from the following types of companies.
- A Limited Liability Company
- A Private Joint Stock Company
- A Public Joint Stock Company
- A Civil Corporation
Each type of subsidiary company listed above has to comply with certain statutory regulations in the United Arab Emirates and the incorporation of each carries a specific set of costs. Therefore, you must select the type of subsidiary company after careful consideration.
What Are the UAE Laws for Subsidiary Companies?
The United Arab Emirates has a specific set of laws in place for different types of subsidiary companies. For Limited Liability Companies, a minimum of two parents and a maximum of 50 partners are permissible. And since the company carries limited liability, the liability of each partner is determined on the basis of the capital contributed by them towards the company. The minimum capital required for a Limited Liability Company in the UAE is decided by the relevant Department of Economic Development (DED).
Another important facet of the subsidiary laws of the United Arab Emirates is the area you decide to set up a subsidiary company. Should you opt for a free zone in the UAE as the registered office for your subsidiary company, you shall have a lenient set of regulatory requirements. On the contrary, if you decide to set up a subsidiary company on the mainland of the UAE, then you shall have to comply with a stricter set of laws. This includes the requirement of a local sponsor to own 50% of the subsidiary company of a Local Service Agent (LSA) to help you with the incorporation process.
Setting up a subsidiary company in the UAE's mainland requires the approval of the concerned Department of Economic Development (DED). After deciding the proposed location of your subsidiary company in the UAE, you must decide a trade name for the company and register it with the DED of the relevant emirate. The cost of incorporation of a company also varies from one emirate to another.
What Are the Post Incorporation Compliances for a Subsidiary Company in the UAE?
Once the incorporation of the subsidiary of a foreign company in the UAE is complete, there are certain other compliances that must be considered, for instance:
- Opening up a corporate bank account
- Recruitment of the workforce for the company
- Creation of employment contracts that are compliant with the local labor laws
- Securing work visas for the employees of the company
- Ensuring that the registered office of the subsidiary company in the UAE is compliant with all the local laws
What Are the Taxes for Subsidiary Companies in the UAE?
Presently, there is no Corporate Tax regime in place in the United Arab Emirates. As a result, a majority of the business entities operational in the UAE are not subject to any corporate taxes. However, in January 2022, the Ministry of Finance of the Government of the UAE announced the implementation of a Federal Corporate Tax (CT) from June 1, 2023 onwards.
What Are the Tax Incentives for Businesses Setting Up Subsidiary Companies in the UAE?
The major tax incentive for businesses setting up a subsidiary company in the UAE is that there are no corporate or income taxes prevailing in the country at the moment. With the exception of foreign oil companies dealing in upstream petroleum business and the branches of foreign banks in the country, no other entity is required to pay any corporate taxes in the United Arab Emirates. The minimum compliance vis-a-vis taxation makes the administrative burden of companies in the UAE all the easier.
Other Important Considerations
Setting up a subsidiary company in the Emirates is time consuming and extensive. There are many important decisions to be made, including the jurisdiction of the company and the legal form of the company, to name a few. The incorporation of a wholly-owned subsidiary in the UAE carries a substantial cost and investment in terms of time and effort. Therefore, you may require the assistance of an organization that has expertise on the subject.
How Multiplier's Employer of Record Can Help You Hire Employees and Expand in the UAE?
Whether you decide to start your business operations in the United Arab Emirates with the setting up of a subsidiary or through a branch office, Multiplier can help you navigate through the maze of legal compliance and complex legal processes. Our excellent Employer of Record (EOR) suite has been designed to help businesses with a variety of significant tasks.
With Multiplier's EOR suite, you shall have the expertise and infrastructure to hire talent in the United Arab Emirates. This service is available even if you do not establish a subsidiary company in the country. This way, you can test the waters and establish a presence in different nations without necessarily setting-up subsidiary companies in each nation. Furthermore, such an approach can help you hire talent at a much cheaper cost.
In addition to the hiring and onboarding of a global workforce, we also provide services such as payroll management, compliance with local laws, drafting of multi-lingual contracts, and management of the risks that are associated with employing a workforce in a foreign country. Choose Multiplier today and make your foray into the United Arab Emirates' corporate vista seamless and efficient.