Dubai is a global business hub offering numerous advantages for entrepreneurs and corporations looking to establish themselves in a dynamic market. But, for the company formation in Dubai, you have to follow some legal steps and strategy.
In this blog, we’ll give an explanation of the company formation checklist in Dubai and relevant information about them. So, without any further delay, let’s begin this comprehensive guide.
Choose the Right Business Activity
The first step to setting up a business in Dubai is deciding the nature of your business and formation packages. Whether it is manufacturing, retail, services, or consultancy, the business activity should have legal structure and licensing requirements. The Department of Economic Development (DED) has a list of over 2000 activities, and your chosen activity will also determine whether you should operate on the mainland, in free zones, or offshore.
Select the Appropriate Legal Structure
Dubai offers several types of legal structures for businesses each suited to different business goals. The most common options for company registration include:
- Limited Liability Company (LLC): LLC is perfect for businesses. .
- Free Zone Company: Businesses within free zones can be 100% shares foreign-owned and benefit from tax exemptions, but they are generally restricted from operating within Dubai’s local market without a local distributor.
- Sole Proprietorship: For individuals wishing to fully own their business. Although they must bear unlimited liability.
- Branch of a Foreign Company: A foreign company can open a branch office in Dubai, carrying out similar activities to the parent company.
- Civil Company: It is suitable for professional services such as doctors, lawyers, and accountant
Your choice of structure to register your company will impact legal liabilities, profit-sharing, and ease of doing business within Dubai and internationally.
Choose a Suitable Location
It is important to decide where to establish your company. Dubai offers main jurisdictions, such as mainland, clear zones, and offshore.
Mainland businesses can operate anywhere in the UAE and beyond. It is a great option for those looking to target the local market, even if it requires a local sponsor.
Free zones, such as Dubai International Financial Center (DIFC), DMCC, Dubai South, DAFZA , and Jebel Ali Free Zones (JAFZA), offer 100% foreign ownership, tax benefits, and no customs duties. These zones are ideal for international businesses that do not primarily target the UAE domestic market.
On the other hand, offshore companies are used for asset protection, tax planning, and international trade. Even if they are not allowed to conduct business inside the UAE. Each zone comes with its own set of regulations and benefits, so your decision should be based on the nature of your business and target market.
Reserve a Trade Name
The trade name is an essential part of the company identity, and it must comply with the DED’s regulations. The name should not violate public morals, contain any religious or political references, or be identical to any existing company name.
Once you’ve chosen a name, you need to reserve it with the relevant authorities. It is always a good idea to have respective options, as some names might already be taken or restricted.
Submit the Initial Approval
Before proceeding further, you must obtain initial approval from the DED or the relevant free zone authority. This approval confirms that the politicians have no objection to your business activities and the chosen company structure.
For this, you will typically need to submit an application form, a copy of the passport(s) of the business owner(s), a copy of the reserved trade name certificate, and a detailed description of your business activities.
Draft and Sign the Memorandum of Association (MOA)
For Limited Company (LLC) and some other business types, drafting a Memorandum of Association (MOA) is a mandatory step. These papers outline the shareholding structure and the responsibilities of each partner. The MOA must be signed by all shareholders and then submitted to the DED or the relevant free zone authority.
It typically includes the company’s name, the business activity, share distribution among partners, and the rights and obligations of each partner.
Find a Local Sponsor (For Mainland Companies)
Certain Mainland companies activities require a local sponsor who must be a UAE national. This sponsor typically holds 51% of the capital shares in an LLC. Although their interest in the business is minimal depending on the agreement. In practice, profit-sharing, registered office, and operational agreements can be structured to favor the foreign investor.
However, different types of sponsorship agreements exist, including incorporation and individual sponsorships, which bid disparate levels of check and tractability for foreign investors
Lease Office Space
In Dubai, every company must have a physical address to operate legally. The official requirements for office space vary depending on the business structure and legally issued share capital.
For example, free zone companies must file a lease or purchase office space within the designated free zone, while mainland businesses can choose their location in Dubai.
Ensure that your office place complies with the requirements of your chosen legal power and note that certain business activities may have specific and correspondence place requirements. Many free zones offer free of charge flexi-desk or virtual office options, which can be notably useful for startups.
Apply for the Business License
Once all other steps are completed, you can proceed with applying for the necessary business license. The type of permit you employ depends on the nature of your business activity and company house.
Common licenses include the commercial license for general trading and commercial activities, the Industrial license for manufacturing or industrial activities, and the Professional license for offering professional services like consulting accounting or medical practices.
The relevant authority for issuing the license depends on your chosen location. For example, the free zone authority issues licenses for free zone companies, while the DED issues licenses for mainland businesses. Some business activities need to receive additional approvals from other government entities.
Open a Corporate Bank Account
Opening a bank account in Dubai is an important step in the business formation method. Different banks may have varying requirements, but most will ask for documentation. You need to provide a copy of the trading address, a passport copy of one shareholder, a copy of the MOA, and a resolution from the board of directors.
It is important to research which bank offers services that meet your business needs before opening a business bank account specifically if you are handling international transfers, require business loans, or need other corporate banking characteristics.
Final Thoughts
Forming a company in Dubai offers numerous advantages but it requires careful planning and compliance with legal requirements. By following this business formation checklist, entrepreneurs can ensure their business is set up for success in this fast-growing market.
Whether you choose to operate on the mainland or offshore, each step in this company formation process plays an important role in establishing a legitimate and thriving company in Dubai.
Follow the checklist right now to form a company or contact Xpert Advisory to obtain proper guidance and help related to the company setup process
Frequently Asked Questions
- How do I choose the right legal structure for my business in Dubai?
To choose the right legal structure in Dubai, consider your business activity, market reach, and ownership goals (LLC, Free Zone, etc.). Consult experts to align with legal requirements and documents.
- How can I ensure financial success for my business in Dubai?
Ensure financial success in Dubai by researching the market, optimizing costs, maintaining compliance, and leveraging tax benefits. Monitor cash flow, and consider expert financial planning.
- Can I fully own my business in Dubai?
Yes, you can fully own your business in Dubai by choosing a Free Zone setup or through recent amendments allowing 100% foreign ownership in mainland companies for specific activities.
