How to Set Up a Subsidiary in the UAE – What to Know Before You Start

If you’re looking to expand your business footprint, you should consider setting up a subsidiary in the UAE as a strategic move which offers access to a dynamic market and a wealth of opportunities.

The United Arab Emirates (UAE) stands out as one of the world’s premier business hubs, attracting a diverse array of international investors due to its strategic location, favourable tax policies, and robust infrastructure.

To set up a subsidiary in the UAE, you must navigate a series of legal and administrative steps. Understanding the corporate laws and regulations governing business operations in the UAE is crucial to ensure a smooth and successful establishment of your subsidiary.

Why Choose the UAE?

Before highlighting the details of setting up a subsidiary in the UAE, it’s important to understand why the UAE is an attractive destination for businesses. The UAE offers several advantages:

• Strategic Location: Situated at the crossroads of Europe, Asia, and Africa, the UAE provides excellent access to global markets.
• Tax Benefits: The UAE has a lenient tax regime with no income tax and a corporate tax rate of just 9%, making it an appealing choice for businesses.
• Business-Friendly Environment: The UAE government actively encourages foreign investment and offers various incentives to international businesses.
• Robust Infrastructure: The UAE boasts world-class infrastructure, including state-of-the-art logistics, communication networks, and modern office spaces.

Types of Subsidiaries in the UAE

When you decide to set up a subsidiary in the UAE, the first step is to determine the type of company you want to incorporate. Here are the primary options available:

• Limited Liability Company (LLC): Suitable for most types of business activities, an LLC allows foreign investors to own up to 100% of the company.
• Public Joint Stock Company (PJSC): Ideal for large businesses planning to go public, a PJSC requires a higher minimum capital investment and more regulatory compliance.
• Private Joint Stock Company (PRJSC): Similar to a PJSC but without the requirement to go public, a PRJSC is suitable for medium to large enterprises.
• Civil Corporation: Typically used for professional services, such as legal, consulting, and medical services.

Your choice will depend on factors such as the amount of capital you plan to invest, whether you prefer an onshore or free zone location, and the complexity of the incorporation process.

Steps to Set Up a Subsidiary in the UAE

Here’s a detailed, step-by-step guide to setting up a subsidiary in the UAE:

1- Choose the Right Jurisdiction

Decide whether you want to establish your company on the UAE mainland, in a free zone, or offshore. Each jurisdiction has distinct regulatory requirements and benefits:

• Mainland: Offers access to the local market; however, companies operating on the mainland are subject to a 9% corporate tax regime.
• Free Zones: Simplified setup procedures. Furthermore, companies which qualify as Qualifying Free Zone Persons can benefit from tax exemption. Examples of Free Zones include the Meydan Free Zone, Dubai Internet City, Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM).
• Offshore: Suitable for businesses primarily conducting operations outside the UAE, offering privacy and asset protection benefits.

2- Decide on the Type of Subsidiary

Select from the types of companies mentioned above based on your business needs and goals. Each type has specific requirements and implications for your business operations.

3- No longer required to Appoint a Local Service Agent (LSA)

Since 2021 mainland companies are no longer required to hire an LSA, making it simple for foreign investors to set up companies on the Mainland owned 100% by foreigners. Free Zones and Offshore companies didn’t require an LSA even before 2021.

4- Secure Minimum Capital

Depending on your chosen jurisdiction (mainland, free zone, or offshore) and the type of company, the minimum capital requirements will vary. For example:

• LLC: LLC in Dubai Mainland may require a minimum capital of AED 300,000. However, Free Zones in Dubai often do not have strict minimum capital requirements.
• PJSC: Requires a minimum capital of AED 10,000,000.
• PRJSC: Requires a minimum capital of AED 2,000,000.

The Department of Economic Development (DED) in the respective emirate or the relevant Free Zones Authorities will provide the final confirmation on sufficient capital for your company.

5- Register a Trade Name

Pick a unique and relevant trade name for your subsidiary. Ensure it complies with local regulations, such as:

• Not infringing on existing trademarks.
• Reflecting the nature of the business.
• Adhering to moral and cultural standards.

Register the trade name with the appropriate authority, such as the DED for mainland companies or the relevant Free Zone Authority for others.

6- Submit Necessary Documents

Provide the required documents of the parent company for the subsidiary’s incorporation, including:

• Certificate of Incorporation;
• Memorandum of Association (MoA);
• Articles of Association (AoA);
• Certificate of Incumbency or Good Standing Certificate, mentioning shareholders and UBO’s;
• Board/Shareholder resolution to establish the subsidiary;
• Audited financial statements (last two years) – may not be required;
• Passport copies of UBOs, shareholders and key officials.

These documents (apart from the passport copies) need to be attested by the UAE embassy in your home country and the UAE Ministry of Foreign Affairs.

This list of documents can vary from case to case, depending on the rules applied by the DEDs in the respective emirate or by the Free Zones Authorities.

7- Obtain a Business Licence

After submitting the necessary documents and paying the required fees, apply for a business licence. The licensing process involves:

• Verifying company documents.
• Conducting due diligence.
• Paying the licensing fee.

Once approved, your subsidiary will receive a licence to operate in the UAE.

8- Post-Incorporation Compliance

Fulfil administrative tasks such as:

• Appointing a director or general manager.
• Opening a business bank account in the UAE.
• Recruiting employees.
• Securing work permits for staff.
• Drafting compliant employment contracts.

9- Start Business Operations

Once all setup steps are complete, you can begin business operations through your UAE subsidiary. Ensure ongoing compliance with local regulations and maintain good standing with regulatory authorities.

Benefits of Setting Up a Subsidiary in the UAE

Establishing a subsidiary in the UAE offers several advantages:

• Full Ownership: Foreign investors can own 100% of the company.
• Liability Segregation: Separate the liabilities of your parent company from those of the subsidiary, protecting the parent company’s assets.
• Tax Benefits: The UAE has a favourable tax regime, with no income tax and corporate tax at just 9%.
• Local Hiring: You can legally hire and manage employees directly in the UAE, streamlining your operations.
• Distinct Work Culture: Create a subsidiary-specific work culture that aligns with local norms and business practices, enhancing local integration.

UAE Laws for Subsidiary Companies

The UAE has clear laws for different subsidiary types. For instance, LLCs require 2 to 50 partners, and the minimum capital is set by the DED. Regulations vary between free zones and mainland jurisdictions:

• Free Zones: Offer more lenient regulatory requirements and, potentially, tax exemptions.
• Mainland: Stricter compliance and ownership regulations.

Setting up a subsidiary company on the mainland requires approval from the DED and involves registering a trade name with the relevant emirate’s DED. Costs vary between emirates.

Taxation and Incentives

Currently, the UAE has a corporate tax rate of 9%, which was introduced on June 1, 2023. Despite this, there are significant tax incentives and reliefs, effectively allowing most businesses to benefit from no corporate tax at all. Furthermore, there is no personal income tax or capital gains tax in the UAE.

All of this makes the UAE a very attractive destination for subsidiary companies.

Conclusion

Setting up a subsidiary in the UAE offers numerous benefits, from favourable tax policies to access to a dynamic market. However, it is also a complex and time-consuming process, requiring significant investment. By carefully navigating the legal and regulatory requirements, selecting the right type of subsidiary, and ensuring ongoing compliance, WellTax can support you in establishing a successful business presence in the UAE.

Whether you choose to set up on the mainland, in a free zone, or offshore, WellTax will help you in understanding the specific requirements and advantages of each jurisdiction to make informed decisions.

In conclusion, the UAE presents a compelling opportunity for businesses looking to expand internationally. By setting up a subsidiary in this strategic location, you can unlock new growth opportunities, tap into a thriving economy, and benefit from the UAE’s business-friendly environment.

For further information on how to set up a subsidiary in the UAE, please visit our Setting up a Business in the UK/UAE page.