Setting up a subsidiary in the UAE positions businesses at the heart of innovation, investment, and international trade. With UAE’s booming economy, investor-friendly policies, and world-class infrastructure, the region is a magnet for global businesses. But before diving in, it’s crucial to understand what is a subsidiary company and how it operates within the UAE’s legal framework. From tax benefits to operational control, this setup offers strategic advantages for international growth. In this blog, we’ll unpack everything needed to know to successfully establish a subsidiary in the UAE.
Subsidiary Company in the UAE
A subsidiary is a company that is owned by another company, which is usually referred to as the parent or holding company. In the UAE, businesses often create a subsidiary to expand their presence while maintaining legal and financial separation from the main organization. The subsidiary operates as an independent legal entity but is typically controlled by another company through majority share ownership. This parent and subsidiary structure allows the parent company to guide operations and strategy, often through appointments to the board of directors.
Establishing a subsidiary in the UAE provides significant advantages, including access to growing markets, favorable tax regimes in various free zones, and full compliance with local laws. Although the subsidiary is owned by another company, it can function autonomously, benefiting from the parent’s resources and support. This setup enables efficient local operations while aligning with the global objectives of the parent organization.
Types of subsidiaries in the UAE
In the UAE, businesses are able to form different types of subsidiaries with specific attributes for specific needs of businesses. Here are the key types of subsidiaries in UAE and the distinguishing aspect:
Limited Liability Company (LLC)
The LLC structure has flexibility in terms of low liability for shareholders. As a rule, this type of requires 51% of local ownership but foreign ownership up to 100% is allowed in some of the sectors. LLCs are widely used for operation of mainland in the UAE.
Limited Liability Company (Free Zone)
The Free Zone LLC also provides flexibility and limited liability but with the essential benefit of possessing 100% foreign ownership. Such a type is most appropriate for export involved enterprises or companies, which are interested in the tax benefit from free zones.
Public Joint Stock Company (PJSC)
A PJSC is a publicly traded company having several shareholders. It is a public investment opportunity and hence perfect for large-scale operations or companies that require to solicit capital through public investment. The structure is commonly adopted by companies that intend to list the shares at the stock exchange.
Private Joint Stock Company (PRJSC)
A PRJSC is privately owned and the number of its shareholders is limited (up to 200). This type of structure is suitable for family owned businesses or private equity firms where there are still greater degrees of flexibility as compared to a PJSC while at the same time making it possible for capital collection through private investment.
Civil Corporation
Civil corporations are meant for professional services and they are commonly owned by the UAE citizens, though foreign ownership is possible. These subsidiaries are widely used in such industries as law, medicine, engineering.
Offshore Subsidiary
Mostly for asset holding and international transactions, offshore subsidiaries are used. They provide 100% foreign ownership and are suited for businesses which would like to secure their assets or undertake global activities since they are not allowed to do business in UAE.
The type of subsidiary selected is determined by factors such as your business goals, the percentage of foreign ownership required, the area of operations (Mainland or free zone), and the amount of capital investment you are willing to make.
Documents Required for Setting Up a UAE Subsidiary Company
If you’re wondering, “What is a subsidiary company and how can one be established?” you’re in the right place. The first step involves understanding the legal documentation required. Below is the list of documents needed to form a subsidiary in the UAE:
Company Related Documents
- Memorandum of Association (MoA)
- Articles of Association (AoA)
- Certificate of Good Standing
- Parent Company’s Certificate of Incorporation
- Audited Financial Records or Statements
- Business License Application
- Trade Name Reservation Application
- Local Sponsor Agreement (if applicable)
- Lease Agreement for Office Space
- Business Activity Outline
- LSA Agreement (if applicable)
- Government Approvals
Directors and Shareholders Related Documents
- Passport Copies of Directors/Shareholders
- Proof of Address (Directors/Shareholders)
- No Objection Certificate (NOC)
- Power of Attorney
Miscellaneous Documents
- Parent Company’s Corporate Structure
- Bank References for Parent Company
- Legalized Documents (if applicable)
Steps to Start a Subsidiary Company in UAE
There are important steps that are made when starting a subsidiary company in the UAE. The process is simple, though each step should be well attended to detail. The following is a comprehensive guide supporting the procedure on how to set up a wholly-owned subsidiary company:
Step 1: Select the Jurisdiction
The first choice that one has to make is the location of the subsidiary. UAE has a range of jurisdictions with various benefits.
- UAE Mainland: This is what should be chosen if one seeks to do business throughout UAE market. It provides full operation control but it is important to have a Local Service Agent (LSA) who will act as a representative of the company.
- Free Zones: Select a free zone for 100% free ownership, tax exemptions, and less complicated arrangements for set-ups. However, except for free zone area, business activities are not entertained.
Step 2: Choose the Subsidiary Company Type
Then, one has to make a decision on the type of subsidiary liked to be established. In the UAE, one of the most popular forms when it comes to creating companies is a Limited Liability Company (LLC) because this very form is flexible enough to meet a wide range of needs.
- LLC (Limited Liability Company): The Ministry of Economy in the UAE does not set any capital requirement that is to be met. However, for Free Zones, minimum capital varies on the administration controlling the zone.
- Joint Stock Companies: Public Joint Stock Companies must have at least AED 10* million share capital for share capital while the Private Joint Stock Companies need AED 2* million.
Step 3: Appoint a Local Service Agent (LSA) (Mainland Only)
For the mainland subsidiary companies, the appointing of an LSA is mandatory. The LSA will be helpful in dealing with the regulatory issues and provide a local representative in the UAE on the behalf of oneself.
- LSA Responsibilities: Local Service Agent will not have equity interest in the business, but will be called upon to make contact with other relevant local government authorities.
- Agreement Terms: This relationship is renewable, and it usually expires after a period of a year. The LSA will be charging for services that they offer.
Step 4: Determine the Minimum Capital Requirement
Although not all, some types of companies like the Joint-Stock companies require minimum capital.
- LLC Minimum Capital: Not applicable for LLCs but a capital value has to be included in the Articles of the Company.
- Joint-Stock Companies: A sum of AED 10* million for public companies and AED 2* million for private companies.
- Free Zones: Minimum capital amount may be different in a particular free zone.
Step 5: Trade Name Selection and Registration
Coming up with an uncommon and suitable trade name is very important for your subsidiary’s registration.
- UAE Mainland: Register the trade name in the Ministry of Economic Development (DED). Make sure that the name is in keeping with the local naming and does not offend cultural sensitivities.
- Free Zones: Present the trade name to relevant Free Zone Authority for approval.
Step 6: Prepare Required Documents
Next is to collect and prepare important documents, that have to be attested with the UAE Ministry of Foreign Affairs and applicants’ home countries UAE embassy. Key documents include:
- Memorandum of Association (MoA)
- Articles of Association (AoA)
- Good Standing Certificate for the parent company.
- Power of attorney of the subsidiary’s General Manager.
Step 7: Apply for Business License
Now that the required documents are in pocket the next step would be to apply for the required business license. In taking this into consideration, it may be:
- Mainland: A commercial, industrial, or professional license, depending on the type of your business activity.
- Free Zones: A specific trade license, which is based on the regulations of the free zone in question. After application has been reviewed and approved by the licensing authority, a business license will be given.
Step 8: Open a Corporate Bank Account
By securing business license, it is needed to open a corporate bank account to take care of the finances of subsidiary. Trade license, the evidence of the company address, information about shareholders and directors are the ones which are to be provided as the required documents. It must be noted that the process itself may have specific requirements in different banks, and thus it would be better to check it with a chosen bank before starting the process.
Step 9: Administrative Requirements
Now with business license and bank account taken care of, it is time to turn towards administrative setup. The following are the tasks needed to be done:
- Appoint a Director or General Manager: This person will oversee the subsidiary’s operations.
- Recruit Employees: Hire staff as required for your business operations.
- Secure Work Permits: Obtain necessary work permits for foreign employees.
- Draft Employment Contracts: Ensure that legal contracts are in place for your employees in compliance with UAE labor laws.
Step 10: Start Operations
With all the preparations in place, it is required to start the operations of subsidiary in the UAE. The first thing to do is to make sure, the subsidiary’s office is 100% operational and meets the local laws, even in the aspects of health and safety. After the setup of the office, it is possible to embark on employee onboarding process to ensure that every employee is well integrated and legally allowed to perform their duties in UAE. One can now run the business in accordance to business plan and within the parameters of business license.
Benefits of Starting a Subsidiary Company in UAE
Forming a subsidiary company in the UAE offers a number of overwhelming benefits, including the ability to streamline operations and launch a new business effectively. Here are the key benefits:
Strategic Market Access
The UAE, especially Dubai, provides unprecedented reach to a varied consumer market in the European continent, Asia, and Africa. The country’s favorable position in the center (which aids easy trade) and the strong network and facilities for transport, such as airports, seaports, and highways, support the development of trade and market.
Business-Friendly Environment
The UAE’s regulatory environment is aimed at helping businesses with the simplified procedure for company formation, low bureaucracy and tax regime. Free zones also accrue some other additional benefits including 100% foreign ownership and tax free holidays for a certain period of time.
Complete Foreign Ownership
In many areas, the UAE permits full ownership of the subsidiaries by the foreigners. This gives the total control of subsidiary operations unlike other countries that limit the control of foreigners over their operations.
Limited Liability Protection
A subsidiary provides protection as it provides a legal separation of parent companies’ liabilities and the subsidiary liabilities. In other words, financial risks of the parent company are kept to a minimum, and its assets are protected from possible liability in the in the UAE.
Tax Advantages
UAE is characterized by an accommodative environment as far as taxes are concerned. The country does not charge corporate and personal income tax at the moment thus bringing down the cost of operation greatly. Also, free zones’ businesses tend to be exempted from additional taxes.
Access to Local Talent
Opening a subsidiary in the UAE gives a possibility to hire local employees on a direct basis, thus, simplifying the hiring process and removing intermediaries. There are ways of managing payroll and employee benefits in the UAE legal frame.
Enhanced Legal Protections
A subsidiary structure guarantees that the interests of the parent company are covered under the UAE laws, ensuring legal protection from the risks in business. This also serves to keep a clear cut between operations and liabilities between the parent company and the subsidiary.
Taxation rules and incentives for subsidiaries in the UAE
When planning to establish a subsidiary in the UAE, it is necessary to understand the country’s beneficial tax regime and offers for incentives. Below is given a sketch of the taxation system that should be of benefit to businesses:
Corporate Taxation
Starting from June 2023, a rate on corporate tax of 9% is levied for profits exceeding AED 375,000*. However, most businesses excluding oil and gas companies and foreign banks do not pay the tax hence creating a favorable business environment.
Value Added Tax (VAT)
UAE imposes a 5% VAT on most goods and services. In case the taxable supplies for a business in a given year are more than 375,000* in AED, it is a mandatory requirement to register with the Federal Tax Authority for VAT.
Transfer Pricing
To comply with global standards, subsidiaries have to abide by the arm’s length principle by the OECD with respect to the associated-party transactions to ensure that they charge appropriate prices in transactions with parent companies.
Double Taxation Agreements
The UAE has entered into contracts with many countries thus ensuring that businesses are not double taxed over the same income, therefore helping businesses that typically operate across the borders.
Tax Incentives
Free Zones present great tax incentives such as corporate tax exemption for a period of time, exemption of customs duty, as well as possibility of 100% foreign ownership which attracts foreign investment in the country.
Depreciation
Capital assets of the businesses can depreciate in the UAE, and thus, decrease the taxable income while alleviating the finances.
Global Compliance
The UAE abides by the OECD directives such as Common Reporting Standard (CRS) and making the country’s tax system transparent for international business engagement.
Cost of Setting Up a Subsidiary in the UAE
After knowing enough regarding of what is a subsidiary company, formation of Subsidiary Cost in the UAE is important that requires a number of different costs, dependent on whether one likes to set up business on the mainland or within a free zone. Below is a breakdown of what is a normal cost for the items:
Mainland Setup Costs
- Initial Setup: It normally costs between AED 15,000* to AED 30,000*. This will consist of registration of trade name, first approvals from the government, drafting of the Memorandum of Association (MoA), and trade license payments.
- Local Sponsor Fees: For mainland companies, there is a need to obtain a local sponsor in order to hold 51% of his shares (exempted). Local sponsor fees go from AED10,000* to AED 25,000* per annum.
- Office Space: Physical office is compulsory for mainland businesses. Office space to rent can begin at AED 30,000* a year with prime areas over AED 70,000* a year.
Free Zone Setup Costs
- License & Registration: In popular free zones, licensing deals begin at approximately AED 11,900* for a zero-visa package, and it can go up to AED 25,500* on a license that includes visa provisions.
- Office Space: Free zones provide flexible office services. From AED 6000*, shared desk, annual private office space ranges from AED 15000*-AED 40000* that depends on the zone, type of office.
Additional One-Time Fees
- Name Reservation: AED 600*–1,000*
- Initial Approvals: AED 120*–350*
- MoA Drafting: AED 1,500*–4,000*
- Legal Attestations & Stamping: AED 1,000*–5,000*
Visa and Immigration Costs
- Investor Visa: AED 4,000*-6,000* (for 3 years)
- Employee Visa: AED 3,000*–5,000* per visa, and more medical and ID costs
- Dependent Visa: AED 3,500*–5,500*
Ongoing Costs
- License Renewal: This is usually equivalent to the initial setup cost and it costs AED 8,000*-15,000* for companies located in the mainland and between AED 5,000*-50,000* for free zone enterprises.
- Annual Audit: Audit fees are AED 5,000*–10,000*, depending on the size of a company.
- Chamber of Commerce Membership: AED 1,200*–3,000* annually
- VAT Registration: AED 500*–3,000* (one-time fee)
Conclusion
Understanding what is a subsidiary company helps clarify that it is a business controlled by a parent company, which holds a majority or full ownership stake. By setting up a subsidiary, companies can grow their operations, manage risk and penetrate new markets without relinquishing a lot of control and separation from the mother vessel of the business. Whether set up locally or internationally, subsidiaries offer numerous advantages, including limited liability, operational flexibility, and the ability to benefit from different legal frameworks and tax regimes.
Ready to expand your business with a subsidiary company in UAE? Let Xpert Advisory be your trusted partner in establishing a fully compliant subsidiary. We offer expert business setup services tailored to your goals, handling everything from legal documentation to visa processing. Contact us today and take the first step toward a successful expansion!
FAQs
What Are Examples of Subsidiary Companies?
In the UAE, examples of subsidiary companies include local branches of multinational corporations operating as separate legal entities. These may also be classified as an associate company when the parent holds significant influence but not full control.
What Are the Benefits of a Subsidiary Company?
The benefits of a subsidiary company include operational efficiency, stronger corporate governance, and business diversification across markets or sectors; even when a subsidiary is fully owned, these companies operate with flexibility and can often operate independently under the parent company’s oversight.
How to Form a Subsidiary Company In the UAE?
To form a subsidiary company in the UAE, the parent organization must consolidate ownership and structure. The parent company typically holds a controlling interest in the subsidiary, with the share of the subsidiary being at least 50 percent, and usually ranging from 51 to 99 percent. In accordance with UAE laws, the parent company may appoint directors and define the subsidiary’s Articles of Incorporation.
Are An Affiliate Company and Subsidiary the Same?
No, an affiliate company and subsidiary are not the same. In a subsidiary, the parent company holds a controlling interest in the subsidiary company, while in an affiliate, the parent company owns a smaller, non-controlling stake. Both structures help manage financials and expand into new markets strategically.
