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Dubai: Types of Company

Introduction

The basic requirement for all business activity in Dubai is one of the following three categories of licence:

  • Commercial licences covering all kinds of trading activity;
  • Professional licences covering professions, services, craftsmen and artisans;
  • Industrial licences for establishing industrial or manufacturing activity.

These licences are all issued by the Dubai Economic Department. However, licences for some categories of business require approval from certain ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health.

More detailed procedures apply to businesses engaged in oil or gas production and related industries.

Practising some trade activities (e.g. jewellery and insurance) requires the submission of a financial guarantee issued by a bank operating in Dubai.

In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.

Fifty-one per cent participation by UAE nationals is the general requirement for all Dubai-established companies except:

  • Where the law requires 100% local ownership;
  • In the Jebel Ali Free ZoneDubai Internet City, Dubai Airport Free Zone, Dubai Media City or the Dubai International Financial Centre;
  • In activities open to 100% AGCC (Gulf Cooperation Council) ownership;
  • Where wholly owned AGCC companies enter into partnership with UAE nationals;
  • In respect of foreign companies registering branches or a representative office in Dubai;
  • In professional or artisan companies where 100% foreign ownership is permitted.

In September 2005, Khalaf Al Habtoor, member of the Dubai Economic Council, revealed that the UAE's Ministry of Finance and Industry was putting the finishing touches to new company laws.

Al Habtoor, who consulted on the law during its development phase, confirmed that: "The federal government is revising the company law which will bring down the listing ceiling, making it flexible for us...A change in this, offering flexibility, will help the UAE's family businesses to go public."

The legislation brought the listing threshold down from 55% to 25%.

Since 1984, steps have been taken to introduce a codified companies law applicable throughout the UAE. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 - the "Commercial Companies Law" - and its by-laws have been issued. In broad terms the provisions of the Law are as follows:

The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organisation which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.

The categories of business organisation defined by the law are:

General partnership company 
Partnership-en-commandite 
Joint venture company 
Public shareholding company 
Private shareholding company
Limited liability company
Share partnership company 
Partnerships

Partnership companies are limited to UAE nationals only. The Dubai government does not presently encourage the establishment of partnerships-en-commandite or share partnership companies.

On December 4, 2011, the UAE cabinet approved the draft of a new companies law which is expected to come into force during 2012. Under the new law, companies in certain sectors may be incorporated with one foreign shareholder. At the same time the new law will abolish the 49% maximum shareholding by foreigners. The minimum capital requirement for small private ventures of DH150,000 (US$40,838) will also be abolished.

In February 2008, the DIFC Authority (DIFCA) released for public consultation the Exempt Companies Regulations, a new set of regulations proposed under the Companies Law of 2006 and the Insolvency Law of 2004.

The new regulations are designed to assist financial institutions to carry out, among other things, securitisation transactions using the existing DIFC legal and regulatory framework.

Commenting on the imminent adoption of these regulations, Dr Omar Bin Sulaiman, Governor of the DIFC, noted: "With the increasing number and growing sophistication of transactions taking place in the Dubai International Financial Centre, the DIFC has again proved its commitment to international best practices - this time in the area of securitisation and other structured finance transactions."

"Through the adoption of these regulations, the DIFC demonstrates its willingness to support key players in their sectors of activity and respond to their requirements in a flexible manner while remaining faithful to its founding principles of integrity, transparency and efficiency."

"The simplicity of these new regulations also demonstrates the robustness of the existing legislative system, where it is now possible to introduce new areas of activity with relatively minor changes to our existing framework."

Nasser Al Shaali, CEO of the DIFC Authority added:

"As the DIFC continues its emergence as a leading international financial centre we are committed to providing the most mature, sophisticated infrastructure and legal framework to promote the development of a highly prosperous financial industry. By proposing the new regulations we aim to encourage securitisation transactions at the centre and cater and encourage the expansion of the products and services available at the DIFC."

Both Islamic finance and conventional finance transactions in the region often require the use of special purpose vehicles (SPVs). These SPVs, otherwise known as transaction-specific companies, are usually incorporated with the intention of being restricted in their operations, with no employees other than special directors.

The use of SPVs in the DIFC under the new regulations is simply for the purpose of facilitating sophisticated financing activity. This is likely to have a favourable impact on the region's increasing demand for SPVs, in both conventional and Sharia-compliant products.

In September 2009, Prime Minister of the UAE and Ruler of Dubai, Sheikh Mohammed Bin Rashid Al Maktoum enacted updates to the Dubai International Financial Centre’s (DIFC) Companies Law and Insolvency Law.

The updates in the Companies Law cover certain registration requirements specified by the DIFC Registrar of Companies while the updates to the Insolvency Law incorporate changes in applications and procedures for winding up Protected Cell Companies (PCCs). PCCs are self-insurance structures that provide a simple and cost-effective solution to companies wishing to establish a captive insurance company.

The updates to the Companies Law include the abolition of the procedure for approval of a company’s Articles of Association by the DIFC Registrar of Companies and the requirements for recognised companies to file an annual return. It also provides clarifications on the right of shareholders and directors to participate in shareholder or directors meetings. The Insolvency Law has been updated to include minor amendments arising from the introduction of the proposed updates to the Companies Law and the amended Insolvency Regulations of 2009.

Omar Bin Sulaiman, Governor of the Dubai International Financial Centre said: “The updates to the two laws form part of DIFC’s efforts to constantly update its legal framework to meet the changing needs of the industry and to stimulate the growth of new sectors and niche areas in the financial services industry.”

DIFC also issued new regulations that incorporate the updates to the Companies Law and Insolvency Law. The new regulations will help the insurance industry in offering innovative new products and services out of the financial district.

The enactment of the laws comes following the completion of a public consultation process, as part of which DIFC invited public comments on proposed updates in the laws.

 

 

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