For a Foreign Company aiming to extend its presence in the UAE and explore the profitable prospects in the MENA region, establishing a branch or Subsidiary stands out as a prudent choice. Unlike a branch that functions as an extension of the parent company, operating within constrained boundaries and carrying potential risks that directly impact the parent organization, a subsidiary operates independently as a separate legal entity. This independence grants it increased flexibility in conducting diverse business activities while minimizing the liabilities for the parent company. Opting for a subsidiary not only bestows operational autonomy but also guarantees enhanced safeguarding of the parent company’s assets and interests.
Benefits of setting up a subsidiary
Here are the benefits of establishing a subsidiary in the country. It covers essential aspects such as legal and regulatory factors, as well as the process involved in setting up a business entity.
Free Zone Company:
Establishing a subsidiary in a UAE free zone presents numerous advantages, such as complete foreign ownership, tax benefits, and simplified administrative procedures. Additionally, many free zones are specialized in particular industries, enabling businesses to select one that aligns with their operations. This specialization allows easy access to shared resources, expert knowledge, and specialized assistance, enhancing the overall business environment for companies operating within these zones.
Limited Liability Company (LLC):
Serves as a favored option for businesses aiming to establish themselves in the UAE mainland. This structure enables foreign investors to collaborate with UAE nationals or entities. The primary benefit of an LLC lies in its ability to grant entry into the extensive UAE market, extending beyond the confines of a particular free zone. It proves ideal for businesses seeking direct engagement with the local market, providing services nationwide, or participating in specific professional activities that necessitate a mainland presence.
In the UAE, offshore company formations are available in jurisdictions such as Ras Al Khaimah International Corporate Centre (RAKICC) and Jebel Ali Free Zone (JAFZA). These entities are primarily utilized for holding assets and conducting international business operations. The offshore company is not allowed to run business locally.
Licensing and Permits:
Getting a trade license for a subsidiary in the UAE varies based on the location (mainland or free zone) and the nature of the business activity. On the UAE mainland, the Department of Economic Development (DED) in the specific emirate where the subsidiary operates is the primary authority responsible for issuing permits and licenses. Each emirate, such as Dubai or Abu Dhabi, has its own DED Office. To initiate the process, you can either visit the DED office in your chosen emirate or utilize their online portal to submit essential documents like trade name reservation, Memorandum of Association (MOA), and other necessary documents.
In the case of setting up in a free zone, the respective free zone authority is responsible for the issuance of permits and licenses. Depending on your business type and industry, you might need additional approvals from the relevant authorities.
Legal obligation: Compliance
The legal obligations are essential for businesses, involving tasks such as filing annual financial reports and conducting audits as per UAE regulations. Additionally, companies must register for Value Added Tax (VAT) if their annual turnover exceeds the threshold of AED 375,000. Corporate tax registration is mandatory for all companies registered in the UAE. As you may be aware federal tax authorities have recently implemented the 9% corporate tax which will be levied on all the legal entities operating in the UAE. It is mandatory for all legal persons operating in the UAE to register for corporate tax.
The process of Setting up a subsidiary in the UAE:
The following are the different steps of the process for a subsidiary registration:
1. Selection of the right jurisdiction and Business Activity: Decide on the proper legal structure for your subsidiary: Mainland, free zone company offshore company, etc.). Then choose your business activities and ensure they align with the subject of the new company.
2. Choose a Business Name: Select a unique and approved business name in compliance with UAE regulations.
3. Registration and Licensing: Apply for the necessary licenses and permits from the relevant authorities based on your business activities and location (mainland or free zone).
5. Office Facility: When setting up a mainland subsidiary in the UAE, having a physical office within the specific emirate of operation is mandatory. Free zones, however, are notably more flexible. They provide many office choices tailored to diverse business requirements. These options such as Coworking space, flexi-desks, workstations, executive suites, as well as warehouses and industrial units.
6. Draft Legal Documents: Usually, you will require drafting of the Memorandum of Association (MOA) and Articles of Association (AOA) detailing the company’s structure, a trade license allowing specific business activities, and board resolutions approving the subsidiary’s formation. additional documents might be required as passport copies and visa details for shareholders and directors, and a lease agreement for the registered office.
7. Documents submission and license payment: Submit all required documents and pay the government fees for company registration and licensing.
8. Bank account opening: There are several local and international banks to choose from. The process will take approx 2 to 3 weeks. Here is the list of required documents for bank account opening:
- Trade licence
- Memorandum of Association
- Passport and visa copies of the authorized signatory
- Office lease agreement
- Board of resolution authorizing the appointed person to open the bank account
- Business plan
- Financial statement of the parent company
Are you looking to Setup a Subsidiary in the UAE?
With over 12 years of experience collaborating with both local and international companies, FreeZoneMarket.ae Powered by FZM Solutions DMCC specializes in providing tailored consultancy services for company incorporation in Dubai and the broader UAE.
We offer comprehensive assistance in establishing a subsidiary in the UAE, guiding you through local regulations, managing documentation, and liaising with government authorities on your behalf. Our expertise expedites the establishment process and ensures full compliance with all legal requirements.
Whether you require guidance on setting up a subsidiary, company incorporation, visa processing, or PRO services, please feel free to reach out to us at +971 48 76 9890 or via email at info@FreeZoneMarket.ae. We are here to assist you every step of the way.