Why Start Mainland Company Formation in Dubai?
Mainland company formation refers to establishing a company in mainland Dubai that is majority-owned by shareholders from outside the UAE. This allows foreign investors and entrepreneurs to have full ownership and control of a local Dubai company to conduct business and take advantage of the region’s favorable tax incentives, infrastructure, and strategic location.
Unlike other company setups in the Dubai free zones or offshore jurisdictions, a mainland company is considered a full-fledged UAE entity that can work seamlessly across Dubai and the UAE. Mainland companies are licensed and regulated by the Dubai Department of Economic Development (DED). They must have at least 51% local ownership according to UAE company law. However foreign shareholders can hold the remaining 49% and enter agreements like power of attorney and nominee services to attain full control and ownership.
Overall, mainland company formation provides foreign investors an optimal structure to tap into Dubai and the UAE while owning a licensed onshore entity. With the right local sponsorship and agreements in place, mainland companies offer foreign entrepreneurs the benefits of a UAE entity along with flexibility and ease of doing business.
Benefits of Mainland Company Formation in Dubai
There are several key benefits for foreign investors and entrepreneurs to set up a mainland company in Dubai:
Tax Incentives
Dubai offers very attractive tax incentives for mainland companies. There is no corporate tax or income tax, making Dubai a tax-free environment for business owners and employees. This helps mainland companies significantly lower their tax burden. The only tax that may apply is customs duties on imported goods, which range from 0-5%.
Ease of Doing Business
In comparison to other countries in the region, Dubai offers a very business-friendly environment. It is much easier for foreign investors to start and operate a mainland company in Dubai. The process is streamlined, with fewer regulatory hurdles. Dubai ranks high on global ease of doing business indexes.
Access to Markets
Dubai acts as a strategic hub and gateway for accessing regional markets in the Middle East, Africa, and South Asia. Setting up a mainland company in Dubai allows businesses to take advantage of Dubai’s extensive trade networks and partnerships. It provides a base for expansion into these surrounding high-growth markets.
Infrastructure
Dubai has invested heavily in advanced infrastructure, connectivity, and technology. Mainland companies benefit from world-class transport links, logistics networks, telecoms, and real estate. Dubai offers globally competitive infrastructure comparable to international business hubs. This creates an efficient base for companies.
Requirements To set up a mainland company in Dubai,
To set up a mainland company in Dubai, several requirements must be met:
Share Capital
The minimum share capital required is AED 300,000. At least 51% of shares must be owned by a UAE national or company wholly owned by UAE nationals.
Shareholders
Companies must have between 2 and 50 shareholders. A mainland company can be fully owned by foreign shareholders, as long as a UAE national is appointed as the local service agent.
Directors
There must be a minimum of 2 directors appointed to the company. If there are no UAE national shareholders, then the local service agent will be registered as the director. Foreign directors do not need to be UAE residents.
Registered Office
Mainland companies must maintain a physical office space in Dubai to be used as the registered office. Virtual offices are not permitted for mainland company registrations. The office space needs to be leased before starting the company registration process.
Procedures for Company Formation in Dubai
To form a mainland company in Dubai, there are several key procedures to follow:
Documents Required
The documents required include:
- License application form
- Passport copies of shareholders and manager
- No Objection Certificate (NOC) from the sponsor if one of the partners is on an employment visa
- Copy of tenancy contract if leasing an office
- Memorandum of Association
- Local service agent appointment letter
Fees
The fees involved in setting up a mainland company in Dubai are:
– License fee: Starts at AED 8,000
– Registration fees: AED 10,000
– Local service agent fee: Starts at AED 1,500 annually
There may also be visa fees, depending on the number and type of visas needed.
Timeline
The typical timeline for company formation is:
– 2-4 days for name reservation
– 2-3 weeks for license approval
– 1-2 days for registration and establishment card
So the total time is approximately 3-4 weeks for the entire company formation process.
The key steps are obtaining initial approval from the Department of Economic Development (DED), submitting all documents, waiting for final approval, and completing registration formalities.
Costs
Forming a mainland company in Dubai involves various costs and fees. Some of the key costs to consider are:
License Fees
– Trade license fees charged by Department of Economic Development (DED) – Cost depends on type of license and activity. For example, a trading license costs around AED 15,000.
– General corporate fees charged by DED – Around AED 10,000.
– Fees for special licenses if required – Such as liquor license, tourism license etc. This could be AED 15,000 or more.
Compliance Costs
– Annual renewal fees for licenses, visas and other formalities. Budget around AED 10,000 per year.
– Fees for auditors and accountants to maintain regulatory compliance. Auditing fees can range from AED 10,000 to AED 30,000 per year depending on the size of company.
– Professional consultancy fees for advice on trade name registration, legal structuring, licensing etc. Budget AED 5,000 to AED 15,000.
Professional Service Fees
– Government relations consultant fees to assist with license approvals and processes. Usually 5-7% of total license costs.
– Setup fees and commission charged by company formation consultants. Around AED 10,000 on average.
– Lawyer fees for drafting agreements, contracts, leases etc. Budget AED 10,000 or more.
– Fees for brand creation, marketing, website development and other services. This can cost tens of thousands of dirhams.
So in total, budget around AED 100,000 to AED 150,000 to setup a mainland company in Dubai. There are also ongoing compliance costs each year for renewal of licenses and maintaining regulatory requirements.
Limitations
While mainland company formation in Dubai offers significant benefits, there are some key limitations to be aware of:
– 100% foreign ownership is prohibited in certain sectors of the UAE economy such as banking, insurance, telecommunications, etc. Local Emirati partners are required for mainland companies operating in these restricted sectors.
– There are minimum capital requirements to establish a mainland company in Dubai. The amount varies based on business activity, but ranges from AED 50,000 to AED 5,000,000. Sufficient capital must be injected into the company bank account.
– Approval from certain regulatory authorities may be required for specific activities. For example, trade licenses for medical, tourism, financial services require additional clearance.
– Access to land ownership is restricted. Only UAE nationals can have freehold title to land and property in Dubai. Foreign investors can own property through 99-year leaseholds.
– Importing goods and services without registering for VAT can be challenging. Mainland companies must comply with VAT regulations.
– Sponsorship of residence visas is subject to Emiratization quotas. Hiring expat workers may require recruiting UAE citizens too.
– Debt-to-equity ratios for borrowing can be restrictive for some businesses. Banks limit lending to mainland companies.
While Dubai offers a very business-friendly environment, those limitations are important to factor when establishing a mainland company. Proper structuring and planning is required to operate successfully within that regulatory framework.
Compliance
Setting up a mainland company in Dubai comes with certain compliance requirements that business owners need to be aware of. This includes regular audits, reporting obligations, visa rules, and duties of owners and shareholders.
Audits
Mainland companies in Dubai are required to undergo annual audits by an approved auditor registered with the Dubai Economic Department. The audit examines the company’s financial statements and ensures they are prepared according to International Financial Reporting Standards (IFRS) or other accepted accounting standards.
The audit report must be submitted along with the company’s financial statements to the economic department each year. Failure to comply with the audit requirement can result in fines or deregistration of the company.
Reporting
In addition to annual audits, mainland companies have regular reporting obligations to the Dubai Economic Department. This includes submitting financial statements, board resolutions, amendments to the company’s articles of association, and changes in ownership or management.
Companies must also file annual returns and declarations confirming they have complied with all applicable laws and regulations. The economic department has moved many reporting processes online to simplify procedures for companies.
Visas
Mainland companies are eligible to sponsor visas for employees, subject to meeting capital and other requirements. Shareholder visas are also available subject to 51% local ownership of the company. Dependents can typically also be sponsored.
There are several key considerations around sponsoring visas including minimum salary requirements, medical insurance, Emiratisation quotas, and timely application processing and renewals. Using a registered trustee or sponsorship agent can help navigate Dubai’s visa rules and procedures.
Duties of Owners
As a mainland company is locally incorporated in Dubai, owners and shareholders have certain duties and obligations. This includes attending annual general meetings, maintaining capital levels, submitting required filings, appointing auditors, and updating any changes in ownership or management.
Corporate governance requirements also apply including appointing a company secretary and registered agent. Owners may be held liable for defaults or violations committed by the company so staying legally compliant is important.
Alternatives to Mainland Company Formation in Dubai
While establishing a mainland company in Dubai has its advantages, there are other options for foreign investors to consider:
Free Zones
Dubai’s free zones allow for 100% foreign ownership and tax exemptions. Some popular free zones include:
– Dubai International Financial Centre (DIFC) – For financial services firms.
– Dubai Multi Commodities Centre (DMCC) – For trading companies.
– Dubai Healthcare City (DHCC) – For healthcare-related businesses.
– Dubai Knowledge Park (DKP) – For education-related companies.
Free zones have minimum capital requirements ranging from AED 50,000 to AED 1 million, depending on the specific free zone. The registration process can be faster than establishing a mainland company. However, free zone companies cannot operate outside of their designated free zone without a local service agent.
Offshore Companies
Offshore companies in jurisdictions like Ras Al Khaimah allow 100% foreign ownership and corporate tax exemptions. The minimum capital requirement is generally around AED 50,000. Registration can be quick and confidential. However, offshore companies have restrictions on conducting business within the UAE and require a local service agent.
Sole Establishment/Establishment
Foreign investors can also operate as sole establishments or establish a civil company in the UAE. This allows for 100% ownership by an individual. However, the business activities are limited compared to an LLC, and the owner has unlimited liability.
Comparison
Mainland LLCs have more flexibility for business activities across Dubai and the UAE. But free zones, offshore companies, and sole establishments offer quicker setup with less capital required. The choice depends on the specific business activities and goals.
Trends
The demand for mainland company formation in Dubai free zones has been increasing rapidly over the past decade, driven largely by foreign investors and entrepreneurs looking to set up operations and take advantage of Dubai’s business-friendly environment.
In particular, there has been a surge in interest from Chinese investors and companies looking to establish a foothold in the Middle East and expand their reach into regional markets. Dubai’s growing stature as a global business hub makes it an attractive base for mainland Chinese firms aiming to invest overseas.
Dubai has also seen a boom in its technology startup scene, with an increasing number of digital entrepreneurs and innovators from around the world leveraging Dubai-free zones to launch and grow their ventures. The UAE government has actively encouraged technology startups through various incentives, grants, and accelerator programs.
This growth in the startup ecosystem has further stimulated demand for mainland company formation as it enables easier access to funding, talent, and market opportunities. Free zone entities allow 100% foreign ownership and repatriation of profits, thus appealing greatly to international startups.
Going forward, mainland company registrations in Dubai from foreign investors and startups are expected to continue rising. Dubai is enhancing its positioning as a dynamic cosmopolitan business center and magnet for global commerce and innovation.
Conclusion
Forming a mainland company in the Dubai International Financial Centre (DIFC) or one of the many free zones provides foreign investors and entrepreneurs key benefits compared to setting up on the UAE mainland. The main advantages are full foreign ownership, zero corporate tax, flexible visa rules, and improved legal protections.
However, mainland company formation does still offer worthwhile advantages for some businesses. Doing business outside the free zones allows you to work with clients across the entire UAE, not just a specific zone. Mainland licensing also provides the prestige and perception of being fully integrated in the local economy.
For most foreign investors, forming in a free zone will be the best option. The legal autonomy, tax exemptions, and other benefits outweigh any limitations. However, mainland formation can make sense for large firms aiming to operate country-wide, or smaller companies focused on government and local business partnerships.
In summary, carefully examine your business activities and priorities when choosing between free zone and mainland licensing. Consider meeting with a business setup consultant to determine the optimal structure and location for your company. With the right strategy, the UAE offers excellent opportunities to launch and grow successful enterprises.
