Chapter 3
Establishing a Business
in the UAE
Entrepreneurs seeking to conduct business in the UAE must establish a legal entity and obtain a ‘business license’ or ‘trade license.’ Operating a business without this license is prohibited. The UAE offers multiple options for company formation, each with distinct advantages and considerations, tailored to different business needs and sectors.
A ‘business license’ or ‘trade license’ is not a regulatory license. It serves as proof that a company has been legally established and is authorized to conduct business activities within the UAE. This license does not regulate the specific operations of the company but merely confirms its valid formation.
A ‘business license’ or ‘trade license’ is typically valid for one year and must be renewed annually, with renewal fees required to maintain the company’s legal standing to operate.
The UAE offers a dynamic and diverse business environment, accommodating a wide range of business activities, including, notably, those in the burgeoning fields of crypto and web3.
Important:
It is critical to note that businesses intending to engage in Virtual Asset Service Provider (VASP) activities must be regulated by the appropriate financial regulator. Non-compliance can result in severe penalties, including fines of up to AED 50,000,000, criminal liability, and imprisonment for founders and managers.
Chapter 4: Virtual Asset Regulations
Options for Establishing a Business
Depending on the nature of the intended company’s activities, entrepreneurs have the following options:
- Mainland UAE (Onshore)
- Financial Free Zones such as DIFC or ADGM
- Economic Free Zones, over 45 zones, including those with a focus on crypto and web3 businesses.
- Offshore Free Zones
Legal Structures for Mainland UAE Businesses
When establishing a business on the mainland, companies must comply with Commercial Companies Law No. 32 of 2021 (Companies Law) and Federal Civil Transactions Law No. 30 of 2020 (Civil Transactions Law).
Entrepreneurs can choose from various legal forms:
An LLC is established through the relevant Emirate’s Department of Economic Development (DED). For example, in Dubai, it is managed by the Dubai Department of Economic Development and Tourism, while in Abu Dhabi, it is handled by the Abu Dhabi Department of Economic Development. Other Emirates, such as Sharjah, Ras Al Khaimah, and Fujairah, have their respective economic departments that oversee company registration and licensing. It requires 1 to 50 shareholders, referred to as ‘partners,’ and liability is limited to the share capital. This structure protects shareholders from personal liability beyond their capital contribution. The Companies Law allows foreign or local entities to incorporate and manage LLCs, either solely or jointly.
A branch functions as an extension of its parent company and does not possess a separate legal identity. It can only engage in activities identical to those of the parent company. The parent remains liable for the branch’s actions, and management is typically granted via a power of attorney. Additionally, the Ministry of Economy requires a AED 50,000 bank guarantee to secure against certain risks, such as staff absconding without proper closure.
Civil companies, governed by the UAE Civil Transactions Law, are established for activities that are not classified as ‘commercial’ by the relevant licensing authorities (e.g., engineering consultancy, legal services, medical practices, and accounting firms). However, a significant disadvantage is that shareholders are fully and personally liable for the company’s debts, making it a riskier option. Due to this significant liability exposure, we generally do not recommend civil company structures for most businesses.
A sole establishment is a business entity owned by one individual, who holds unlimited liability for the company’s obligations. Governed by the Commercial Transactions Law, it can engage in a wide range of activities including commercial, industrial, and professional. Sole establishments must appoint a UAE national as a local service agent, who assists with administrative tasks like license renewals and visa applications, typically for an annual fee.
51%
Until recently, incorporating a company in the UAE required a 51% Emirati national shareholder for most business activities. However, as part of sweeping legislative reforms aimed at modernizing the economy and enhancing the UAE’s global competitiveness, this requirement was removed under Federal Law No. 26 of 2020.
Currently, only certain strategic sectors, such as oil and gas, defence, and certain transportation activities, still require 51% Emirati ownership. This change has significantly opened up the business environment, allowing foreign investors to fully own companies in many industries without the need for a local partner.
Setting Up in Free Zones
Free zones in the UAE provide an attractive option for Founders, offering full ownership, some limited tax incentives, and operational flexibility. Free zones are a popular choice for international entrepreneurs looking to establish a presence in the UAE, offering a streamlined regulatory environment and a strong focus on supporting business growth and innovation.
Free zones are classified into two categories:
Financial Free Zones (DIFC and ADGM)
- Governed by Federal Law No. 8 of 2004, financial free zones are exempt from most federal civil and commercial laws but remain subject to federal criminal laws and anti-money laundering regulations.
- DIFC and ADGM offer favourable conditions for businesses in the financial, crypto, and fintech sectors. Both zones operate under a common law legal system and have implemented their own legal frameworks, providing a sense of familiarity and legal certainty for international founders. In addition, both DIFC and ADGM have their own independent courts and arbitration centres, further strengthening their dispute resolution capabilities. It should be noted, however, that the DIFC Arbitration Centre has been integrated into the Dubai International Arbitration Centre (DIAC), streamlining arbitration services in Dubai.
Economic Free Zones
Each Emirate in the UAE hosts a variety of economic free zones, each with its own regulations, governing bodies, processes, and fees. The licensing authorities within each free zone have the power to register companies and issue business licenses for specific activities. Although free zones follow their own specific regulations, they are still subject to Federal laws or Emirate-level laws where applicable.
Benefits of Free Zone Entities:
- 100% Foreign Ownership
Free zones in the UAE allow full foreign ownership, without the need for a local partner or shareholder. This differs from the mainland, where certain sectors may still require partial local ownership under specific regulations. - Some Tax Exemptions
Free zone entities enjoy tax benefits, including exemptions from import and export duties. Recent changes to UAE corporate tax law introduced a federal corporate tax, but many free zones still provide exemptions to qualifying businesses under specific conditions. - Capital and Profit Repatriation
Businesses in free zones benefit from 100% repatriation of profits and capital, allowing them to freely transfer earnings abroad without restrictions on currency conversion or repatriation limits. - Simplified Company Setup
Free zones generally have streamlined procedures for company registration, making it easier and faster to establish a business. - Flexible Employment Options
Free zone companies can hire employees from anywhere in the world without being subject to the Emiratization quotas that apply to mainland companies.
Free zones are governed by their licensing authorities. Businesses in these zones are also subject to the federal laws of the UAE in areas like criminal law, anti-money laundering, and data.
The UAE has over 45 economic free zones, each catering to specific industries like logistics, media, technology, and even crypto & AI.
Prominent Free Zones for Crypto and Web3 Businesses
As of 2024, some of the key free zones in the UAE for crypto and web3 businesses include the following.
Dubai – regulated by VARA
Dubai Multi Commodities Centre (DMCC)
Dubai Silicon Oasis (DSO)
Meydan Free Zone
Dubai Internet City
Dubai Media City
Dubai World Trade Centre
Other Emirates – regulated by SCA
RAKDAO
Twofour54
Offshore Free Zones
RAK ICC
JAFZA
Offshore company structures, such as RAK ICC and JAFZA Offshore, are primarily used for holding assets (e.g., shares, real estate, intellectual property). They also serve purposes such as international trading (outside the UAE), wealth management, tax optimization, asset protection, and providing privacy for shareholders. However, offshore entities cannot conduct business within the UAE mainland.
