Subsidiary Company Setup in UAE
For foreign companies, the UAE represents much more than a bustling market – it is the tactical getaway to the entirety of the Middle East, Africa, as well as South Asia. Thanks to its top-tier economy, state-of-the-art architecture, and modern regulatory environment, the United Arab Emirates is the leading destination for worldwide expansion.
However, expanding across new borders demands navigating complicated legal and regulatory frameworks. The most solid structure is setting up a Subsidiary Company. As opposed to a branch office, a subsidiary company provides distinct liability protection in addition to operational flexibility. Our detailed guide covers all the details about setting up a subsidiary company in the UAE. Let us get started:
Understanding What a UAE Subsidiary Company Is
A UAE subsidiary is a legal body set up within the United Arab Emirates that is majorly or completely owned by a foreign parent firm. Crucially, it is important to note that a subsidiary is a distinct business entity that is completely separate from its parent firm.
Although the parent company fully retains management control, the subsidiary company has its own separate liability. To put it simply, it means the parent firm is usually safe from all sorts of financial liabilities and debts of the entity in the UAE – a “fiscal firewall” that makes this particular business structure very attractive, especially for risk management.
Key Advantages of Setting Up a Subsidiary in UAE
Selecting the right license is one of the most crucial steps of forming your company in Fujairah Creative City Free Zone. Here is a brief overview of the different types of licenses available:
100% Foreign Ownership
Following the recent amendments to the Commercial Companies Law of UAE, international investors now have the freedom to earn the entirety of their subsidiary company both in Free Zones as well as the majority of Mainland sectors.
Protection of Liability
The LLC (Limited Liability Company) structure makes sure that the assets of the company are protected from all local operational threats.
Access to Market
A subsidiary facilitates a deeper market penetration, such as the ability to tender for contracts by government (mainly for entities in the Mainland) and hire staff members directly
Tax Efficiency
The United Arab Emirates provides one of the most competitive regimes of tax globally, with the standard CT rate of 9% on profits that go beyond the AED 375,000 mark as well as 0% on the qualifying income for entities in the Free Zone.
Difference Between Subsidiary and Branch Office
Tons of people, including investors, confuse a subsidiary company with a branch office. Here are the main differences between the two:
Feature | Subsidiary Company | Branch Office |
Legal Status | Distinct legal entity | Parent company’s extension |
Liability | Limited liability (the parent remains protected). | Unlimited liability (the parent is liable). |
Activities | Can undertake commercial activities, such as trading and more. | Restricted to the parent firm’s activities. |
Ownership | Complete foreign ownership permitted. | Complete foreign ownership. |
Taxation | Subject to 9% UAE Corporate Tax. | Subject to UAE Corporate Tax. |
Xpert Insight: If the objective is to trade, sign contracts in an independent manner, and ring-fence liability, a UAE subsidiary is generally the better option.
Step-by-Step Process of Setting Up a Subsidiary in UAE
Establishing a subsidiary company in the UAE involves following a particular sequence of bureaucratic steps. Forgetting a step, specifically regarding document attestation, can lead to major delay. Let us take a look at the elaborate setup process’ steps:
Step 1: Tactical Planning and Selection of Business Activity
Define your official business activities accurately. The United Arab Emirates has a distinct list of allowed activities. Not aligning your business activity with that of the intent of your parent firm can lead to major compliance issues in the future.
Step 2: Reservation of Trade Name
You must officially reserve a unique business name for your subsidiary company in the UAE. It must not be in violation of any public morals or overlapping with any pre-existing business entities.
Step 3: Document Attestation (The Important Hurdle)
This phase is the most complicated one. Corporate documents from the parent firm must be recognized legally by the United Arab Emirates. The attestation chain usually looks like this:
- Notarization in the origin country.
- Attestation by the MOFA (Ministry of Foreign Affairs) in the origin country.
- Attestation by the United Arab Emirates embassy in the origin country.
- Attestation by MOFA in the United Arab Emirates.
Required documentation generally includes:
- Incorporation Certificate
- MoA (Memorandum of Association) and AoA (Articles of Association).
- Resolution of Board Resolution in order to open the subsidiary.
- PoA (Power of Attorney) for the GM (General Manager).
- Good Standing Certificate
Step 4: Drafting the UAE MOA
You are required to officially draft a MoA for the UAE subsidiary. For companies on the mainland, this must necessarily be bilingual (in Arabic and English) and notarized.
Step 5: Securing Office Space (Lease or Ejari)
Having a physical presence in the United Arab Emirates is a must.
- Mainland: Needs a physical office space as well as a registered tenancy contract (Ejari).
- UAE Free Zone: Can range from a warehouse to a “Flexi-Desk” solution, as per the requirements.
Step 6: Issuance of License
Once all documents are officially submitted and the fees are paid to the concerned Free Zone authority or the DED, your trade license gets officially issued. Now, you are a legal UAE entity.
Step 7: Opening a Corporate Bank Account
With highly-strict standards of global compliance (AML/KYC), setting up a corporate bank account is a challenging task. You would be required to prove “Economic Substance” and offer a clear plan of business.
Step 8: Visa and Immigration
Register with MoHRE (Ministry of Human Resources and Emiratisation) to secure a UAE establishment card. You can then move on to processing the visas for your GM and other staff members.
Selecting The Right Jurisdiction (Mainland or Free Zone)
The most crucial tactical decision is where to officially register your subsidiary, i.e., either on the UAE Mainland or the Free Zones. Here is a detailed overview:
UAE Mainland
- Suitable For: Firms that need to directly trade with the UAE’s consumers, bid for government contracts, or open up retail spaces.
- Key Features: Regulated by the DED (Department of Economic Development). No longer needs a local UAE sponsor for the majority of activities.
Free Zones (such as DMCC, DIFC, ADGM, JAFZA)
- Suitable For: Companies focusing on foreign trade, re-exporting, or hiring professional services.
- Key Features: Offers total repatriation of both capital and profits, imports and exports that are duty-free, and potentially 0% CT (subject to meeting criteria of Qualifying Free Zone Person).
At Xpert Advisory, we usually witness entrepreneurs unsure of the specific category their business entity falls under. Our premier Company Formation Services are designed specifically to access your particular business model and align it perfectly with the licensing option that is the most cost-effective.
Taxation & Compliance: All You Need to Know
The regulatory landscape of the United Arab Emirates has significantly involved. Compliance is no more an option; it is very strictly enforced.
Corporate Tax (CT)
A standard 9% tax is applicable on taxable profits exceeding AED 375,000.
VAT (Value Added Tax)
A 5% VAT is applicable if the taxable supplies go beyond AED 375,000 annually.
UBO (Ultimate Beneficial Owner)
Companies are required to maintain an official register of the actual individuals who own/control the business entity.
ESR (Economic Substance Regulations)
Entities that conduct “Relevant Activities” must showcase they have the required amount of presence as well as staff members in the UAE.
Cost Considerations
The cost of establishing a subsidiary company varies majorly as per the jurisdiction as well as the office requirements.
- Government Fees: License fees, reservation of trade name, and securing initial approval.
- Attestation Charges: Per document. It can be significant, based on the total number of required corporate documents.
- Office Expenses: Annual rent, electricity, etc.
- Visa Fees: Per employee.
To obtain an accurate estimate as per your particular parent company structure as well as the preferred jurisdiction, we suggest requesting a specifically-tailored proposal.
Why You Should Choose Xpert Advisory
Setting up a subsidiary in the UAE involves the navigation of fiscal, legal, as well as administrative complications. This is where Xpert Advisory comes in. We do not merely process business applications; we structure businesses. We offer:
End-to-End Support
Right from drafting the initial Board Resolutions to the final stage of corporate bank account opening, we are with you every step of the way.
Jurisdiction Experts
Completely unbiased advice on setups in the Mainland versus those in the UAE Free Zones.
Post-Licensing Support
We manage VAT registration, CT compliance, as well as PRO services for you and your staff members.
All set to expand your business’ footprint in the United Arab Emirates? Get in touch with us today for a free of cost consultation and get started on the journey of turning your vision into a reality!
Frequently Asked Questions
1. Can an international company have 100% ownership of thier UAE subsidiary?
Yes. As per the recent regulatory changs, international investors can completely own their subsidiaries in every Free Zone as well as the vast majority of UAE Mainland economic activities, without requiring a local sponsor.
2. How long does the process of setting up a subsidiary take in the UAE?
Post the complete attestation of the parent firm’s documents (which is the lengthiest phase), the actual process of licensing in the UAE takes around 6-10 working days. The complete end-to-end process, including the bank opening phase, takes 1 to 2 months.
3. Do I require a physical office space?
Yes, all companies in the United Arab Emirates must have an officially registered address. On the UAE Mainland, this demands a physical office space as well as Ejari. In the UAE Free Zones, this can be either be a “Virtual” or “Flexi-Desk” agreement, but an actual physical address is legally mandatory. .
