What types of companies can be established in Dubai?

• Legal regulations concerning commerce in Dubai
• Different license types
• Available company structures
• Permitted business forms for foreigners
• Final thoughts

Legal Framework for Commerce in Dubai

The legal landscape for commercial activities in Dubai is primarily governed by Federal Law No. 8 of 1984, which was subsequently amended by Federal Law No. 13 of 1988 concerning Commercial Companies. This legislation traditionally stipulated that for all commercial entities established outside of the free economic zones, a local partner (a UAE national) must hold a majority stake of 51%.

The law also outlines the seven types of legal entities that can be registered in Dubai, detailing the liabilities of partners and directors, the minimum required capital, and the formal registration procedures.

Different Types of Licenses in Dubai

The government issues a variety of licenses, but three types are the most common. If your goal is to register a company in Dubai, you'll need to decide which license to apply for:

• Commercial
• Industrial
• Professional

A commercial license is issued to companies that will be engaged in trading activities of any kind.

If you plan to open a factory for the manufacturing or production of goods, you cannot operate without an industrial license.

A professional license is the choice for businesses whose employees will offer various services to the public.

The cost of a license is directly dependent on its type. The most affordable is the commercial license, which can be issued for around 15,000–20,000 AED. An industrial license is more expensive (starting from 15,000 AED), and the priciest is the license for service provision, starting from 50,000 AED.

Available Company Types in Dubai

There are three main types of companies in Dubai:

1. Mainland Companies, which can operate in any part of the country. For a foreigner to open a mainland company, they traditionally needed to find a local sponsor and assign 51% of the shares to them. If you don't have a personal contact you wish to partner with, you can use a common arrangement: find a local national, sign an agreement confirming they will not interfere in the business operations or claim profits, and in return, you pay them an annual sponsorship fee.
2. Free Zone Companies, whose activities are restricted to the free economic zone (FEZ) where they are registered. These types of firms can be 100% foreign-owned, conduct international business, lease facilities within the FEZ, and apply for a certain number of residence visas (depending on the office space). The main disadvantage of such businesses is the inability to trade directly with the mainland market outside their specific FEZ.
3. Offshore Companies, which cannot conduct any business activities within the UAE, let alone in other emirates, as they are primarily established for a legal address. This structure is often chosen by those who have established their business at home but want to reduce tax costs and open a corporate bank account. Owners of such businesses cannot lease property or apply for residency visas.

Requirements for Opening a Dubai Limited Liability Company (LLC)

The LLC is a very popular organizational structure. It allows for operations on a fully legal basis. A key consideration is the jurisdiction; a Free Zone LLC is generally restricted to operating within its designated economic zone, while a Mainland LLC can operate across the UAE.

For foreigners, the greatest advantage of a Free Zone LLC is the ability to have 100% foreign ownership, thereby eliminating the need for a local partner.

The process for registering an LLC (Limited Liability Company) in Dubai includes several steps:

1. Trade Name Registration. At this stage, you will choose a name and verify its availability.
2. Obtaining initial approval for business activity registration.
3. Applying for a license with the Department of Economic Development (DED). You must complete and submit your application to the DED.
4. Drafting the Memorandum of Association (MoA). This document requires proper notarization.
5. Notarization of the Articles of Association.
6. Renting an office space and getting approval from the Planning and Technical Department that the location is suitable for company registration.
7. Paying the license fees to the Department of Economic Development and receiving the license.

UAE Dubai Mainland and Free Zones

In the United Arab Emirates, there are two primary jurisdictions where you can operate: a free zone or the mainland. Registering a mainland company allows it to conduct operations throughout all the Emirates. A free zone company, however, only permits you to conduct business within its own territory; operating in other free zones or the mainland directly is not possible.

Free zones are distinct areas within the United Arab Emirates where local laws are established to allow for tax and other incentives. There are more than 50 free zones in the UAE, with over 20 located in Dubai alone.

A free zone can be a specific district or a business center within an emirate. For instance, Dubai Airport is itself a free zone, hosting aviation and logistics companies on its premises. A company registered in a free zone is exempt from most taxes – this is a major advantage.

For complete information, we add that in addition to mainland and free zone, entrepreneurs can open an offshore company in the Emirates, but this does not allow them to conduct any activities within the country, only abroad.

Most entrepreneurs prefer to register on the Mainland. This jurisdiction is often more suitable for businesses that require logistical flexibility, such as delivering goods outside of a single zone or to other emirates.

From an organizational standpoint, starting a business in Dubai is a straightforward process. The Emirates attract foreign entrepreneurs with almost no taxes and insurance premiums.

Tax Burden. On the mainland, you generally only need to pay one tax: a 5% Value Added Tax (VAT).

Restrictions. On the mainland, there are virtually no restrictions on revenue or the number of employees.

In 2021, significant amendments to Dubai's Commercial Companies Law came into effect. This enabled foreign entrepreneurs to own 100% of the shares in their mainland companies for many activities. Previously, founders were required to include an Emirati citizen, who would hold a mandatory 51% stake.

However, the changes in the law did not affect all sectors and fields. If a company founded by a foreigner wishes to provide banking or insurance services, the requirement to involve a local citizen remains mandatory.

Permitted Business Types for Foreigners in Dubai

A key structure for foreign companies to operate in Dubai is the IBC - International Business Company.

• An effective economic vehicle for conducting international operations and transactions while ensuring confidentiality for the beneficial owner.
• The opportunity to act as a shareholder in newly created businesses in Dubai or abroad.
• The ability to own real estate in permitted construction projects within the emirate of incorporation.

Get Information on Company Formation in Dubai