Business Setup in UAE – A Guide on LLC Company Formation in UAE

LLC Company Formation in UAE

As you may understand, if any foreign citizen could come to UAE and independently form a company in any part of the country, it would have a much less positive impact on country's economy, especially, when there are almost no taxes in the country (at the moment the UAE introduced VAT only). The practice of a local business partner (local citizen) exists in many countries across the globe and United Arab Emirates is not an exception. Mandatory involvement of a UAE citizen as a Local Partner or a Local Service Agent in a local LLC in Dubai or other emirates, allows the government to increase local population business engagement rate. In this article, we will discuss in every detail UAE LLC company formation.

WHEN YOU DEFINITELY REQUIRE AN LLC COMPANY IN UAE

Registration of a local LLC company in UAE is the only setup option in the following cases:

1) If you wish to trade with goods and distribute them across the emirate. To clarify, your LLC in UAE can distribute goods independently, without the assistance of any local distributor. (Please note that free zone companies in Dubai and UAE can also trade with goods within the free zone, where they are registered. However, to distribute products outside of the free zone, free zone companies in UAE can only do it through a local distributor. As such, a free zone company will have to sign an agreement with a local LLC company in Dubai or another relevant emirate.)

2) If you wish to participate in government tenders. Kindly note that free zone companies in UAE cannot partake in state tenders!

3) If you wish to render services that require your presence in different geographical areas of the emirate. (E.g. event management, fit-out works, catering etc.).

START BUSINESS IN UAE WITH LIFELONG FRIENDSHIP WITH A LOCAL PARTNER

Since a Local Partner is a majority shareholder in an LLC company in UAE, holding 51% of the company's shares, it is essential to understand the importance of choosing a reliable and trustworthy partner.

It is always more comfortable to team up with a partner-investor, where both of you work jointly toward the common goal.

However, in real life most of the time businessmen do not seek such partnerships and prefer “silent partner” option instead. This approach suggests that a Local business partner receives fixed annual remuneration against the right to manage whole local LLC company and its profit. This arrangement is also properly documented. However, it is important to note, that 51% in a local LLC company in UAE belongs to a Local Partner by law. Therefore, shall any disputes between a foreign owner in LLC in UAE and a Local Partner arise, any additional agreements are deemed null and void, as 51% share in LLC company in UAE belongs to a Local Partner. As such, you should be aware of all potential risks and choose your future Local Partner carefully.

A general recommendation will be to choose a local company (a corporate entity) as a Local Partner for your LLC in Dubai. This would minimize any risks. In addition, you may want to hold your 49% in a local LLC company in UAE as a free zone or a UAE offshore company. This free zone or an offshore company can register all trademarks and any other intellectual property as well as assets in its name.

If you, however, wish to have an individual as a Local Partner (a UAE national), this must be a reliable and trustworthy partner. Let it be a long-standing contact of yours or a recommendation of a trusted business partner.

HOW MUCH IS THE FEE FOR A LOCAL PARTNER?

The amount of annual fee of a «silent» Local Partner is not regulated by UAE authorities. The reason is, as we mentioned before, there is no such legal term as a «silent» partner. However, since the practice of silent partner has a long history in the UAE, a certain fee range established in the market. The amount of remuneration depends on the nature of business, risks involved and the emirate, where business needs to be registered. It may range as much between AED 7,000 and AED 100,000.

OFFICE SPACE REQUIREMENTS

The rent of an office space is mandatory in order to be able to receive a business license in the United Arab Emirates. Certain types of business activities may require an office space of an exact size. There is no option for a local LLC company in UAE to rent a flexi-desk facility.

Since an LLC in Dubai can have an office in any part of Dubai mainland area, one can choose from a wide range of office facilities in the property market. One cannot say the same about free zone companies in Dubai, which are restricted to office rent in a free zone area they are registered in. Therefore, their choice is much more limited.

Cost of office rent may also vary depending on the area, size, furnishing and other factors. Current rental offers you may find on the web-site we recommend, which is Dubizzle.

If you lease a room in one of Dubai's business centers that can accommodate 2 to 3 employees, your average expenses will be AED 40 000 – AED 75 000 per year, which equals to USD 10 959 – USD 20 550.

SO, WHAT IS THE TOTAL COST FOR A LOCAL BUSINESS SETUP IN DUBAI?

Generally, costs associated with formation of a local LLC company in the UAE are higher than those of a free zone company in Dubai. The explanation is very straightforward: in case of a local LLC in Dubai you need to cover “silent partner” fee and rent a physical office space. That is why formation of a local LLC company in Dubai will cost you around AED 60,000 / USD 16,438 and above. This is inclusive of registration charges, license fee and office rent for a year.

Cost of local business setup outside Dubai emirate may be lower, AED 40,000 – AED 50,000 or USD 10,960 – USD 13,700.

Let's Summarize UAE LLC company formation key points:

Setup of a local LLC company in UAE is mandatory for free trade and distribution of goods/products across the emirate. Such company also allows you to participate in state tenders and to provide services that require your presence in different parts of the emirate in order to render them.
The is no legal term, such as a “silent partner”. Due to this, you need to be very careful when choosing a partner.
Size of Local Partner's annual fee may vary, depending on the industry and the size of the company.
Local LLC in Dubai and UAE cannot rent a flexi-desk. The company is required to rent a standard office space.
A local LLC company in Dubai will cost you around AED 60,000 / USD 16,438, including registration charges, license fee and office rent for a year. A similar company in Sharjah, Ras Al Khaimah or another emirate would require considerably less investment.

If you are looking to setup business in UAE, feel free to contact our team of professional business consultants and we would be delighted to guide you through the process.

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