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Offshore Company Formation Dubai: Professional offshore incorporations and offshore banking services
Offshore Company Formation Dubai
The basic requirement for all business activity in Dubai is one of the following three categories of licence:
These licences are all issued by the Dubai Economic Department. However, licences for some categories of business require approval from certain ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE; insurance companies and related agencies from the Ministry of Economy and Commerce; manufacturing from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health.
More detailed procedures apply to businesses engaged in oil or gas production and related industries.
Practising some trade activities (e.g. jewellery and insurance) requires the submission of a financial guarantee issued by a bank operating in Dubai.
In general, all commercial and industrial businesses in Dubai should be registered with the Dubai Chamber of Commerce and Industry.
Fifty-one per cent participation by UAE nationals is the general requirement for all Dubai-established companies except:
However, speaking in October 2004, following a visit by then US Trade Representative Robert Zoellick to the United Arab Emirates, Mohammed Al Muzakki, undersecretary with the UAE Ministry of Economy and Trade revealed that the government may consider allowing 95% foreign ownership of companies in sectors seen as beneficial to the regional economy.
Al Muzakki explained that:
"We are studying this law and might change it. Foreign ownership might increase to 95 percent of the project. But this will depend on a case-by-case basis, and the company's ability to transfer technology and its services to the country."
In the past, each emirate followed its own procedures governing the operations of foreign business interests. In practice, however, Dubai and the other emirates followed the same general system, whereby foreign companies operated in one of three ways: with a local sponsor, through a partnership with a UAE national or company, or through a private limited company or public shareholding company incorporated by Ruler's decree.
In September 2005, Khalaf Al Habtoor, member of the Dubai Economic Council, revealed that the UAE's Ministry of Finance and Industry was putting the finishing touches to new company laws.
The legislation being finalised by the UAE authorities will amend partnership rules, foreign ownership thresholds and IPO rules.
Under current rules, when a firm decides to float on the stock market, it must list at least 55% of its shares, leaving its former owners holding a minority stake. This has led many family-owned enterprises to avoid listing.
However, the proposed legislation would bring the listing threshold as low as 25%.
Al Habtoor, who consulted on the law during its development phase, confirmed that:
"The federal government is revising the company law which will bring down the listing ceiling, making it flexible for us...A change in this, offering flexibility, will help the UAE's family businesses to go public."
Since 1984, steps have been taken to introduce a codified companies law applicable throughout the UAE. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 - the "Commercial Companies Law" - and its by-laws have been issued. In broad terms the provisions of the Law are as follows:
The Federal Law stipulates a total local equity of not less than 51% in any commercial company and defines seven categories of business organisation which can be established in the UAE. It sets out the requirements in terms of shareholders, directors, minimum capital levels and incorporation procedures. It further lays down provisions governing conversion, merger and dissolution of companies.
The categories of business organisation defined by the law are:
In February 2008, the DIFC Authority (DIFCA) released for public consultation the Exempt Companies Regulations, a new set of regulations proposed under the Companies Law of 2006 and the Insolvency Law of 2004.
The new regulations are designed to assist financial institutions to carry out, among other things, securitisation transactions using the existing DIFC legal and regulatory framework.
Commenting on the imminent adoption of these regulations, Dr Omar Bin Sulaiman, Governor of the DIFC, noted: "With the increasing number and growing sophistication of transactions taking place in the Dubai International Financial Centre, the DIFC has again proved its commitment to international best practices - this time in the area of securitisation and other structured finance transactions."
"Through the adoption of these regulations, the DIFC demonstrates its willingness to support key players in their sectors of activity and respond to their requirements in a flexible manner while remaining faithful to its founding principles of integrity, transparency and efficiency."
"The simplicity of these new regulations also demonstrates the robustness of the existing legislative system, where it is now possible to introduce new areas of activity with relatively minor changes to our existing framework."
Nasser Al Shaali, CEO of the DIFC Authority added:
"As the DIFC continues its emergence as a leading international financial centre we are committed to providing the most mature, sophisticated infrastructure and legal framework to promote the development of a highly prosperous financial industry. By proposing the new regulations we aim to encourage securitisation transactions at the centre and cater and encourage the expansion of the products and services available at the DIFC."
Both Islamic finance and conventional finance transactions in the region often require the use of special purpose vehicles (SPVs). These SPVs, otherwise known as transaction-specific companies, are usually incorporated with the intention of being restricted in their operations, with no employees other than special directors.
The use of SPVs in the DIFC under the new regulations is simply for the purpose of facilitating sophisticated financing activity. This is likely to have a favourable impact on the region's increasing demand for SPVs, in both conventional and Sharia-compliant products.
A joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be prescribed. There is no need to license the joint venture or publish the agreement. The foreign partner deals with third parties under the name of the local partner who - unless the agreement is publicised - bears all liability.
In practice, joint ventures are seen as offering a suitable structure for companies working together on specific projects.
The law stipulates that companies engaging in banking, insurance, or financial activities should be run as public shareholding companies. Foreign banks, insurance and financial companies, however, can establish a presence in Dubai by opening a branch or representative office.
Shareholding companies are suitable primarily for large projects or operations, since the minimum capital required is AED 10 million (USD 2.725 million) for a public company, 40 million for banks and 25 million for insurance and investment companies, and AED 2 million (USD 0.545 million) for a private shareholding company. The chairman and a majority of directors must be UAE nationals and there is less flexibility of profit distribution than is permissible in the case of limited liability companies.
A minimum of 55% of the shares of a Public Shareholding Company must be offered to the general public, but this may soon change (see above.)
A limited liability company can be formed by a minimum of two and a maximum of 50 persons whose liability is limited to their shares in the company's capital. Such companies are recognised as offering a suitable structure for organisations interested in developing a long term relationship in the local market.
Companies Law stipulates that an LLC may engage in any lawful activity except for insurance, banking and the investment of money for others.
In Dubai, the minimum capital is at the time of writing AED300,000 (USD82,000), contributed in cash or in kind. While foreign equity in the company may not exceed 49%, profit and loss distribution can be prescribed. Responsibility for the management of a limited liability company can be vested in the foreign or national partners or a third party.
The following steps are required in establishing a limited liability company in Dubai:
The Commercial Companies Law also covers the formation and regulation of branches and representative offices of foreign companies in the UAE and stipulates that they may be 100% foreign owned, provided a local agent is appointed.
Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local agents (which should not be confused with the term "commercial agent"). Local agents -- also sometimes referred to as sponsors -- are not involved in the operations of the company but assist in obtaining visas, labour cards, etc and are paid a lump sum and/or a percentage of profits or turnover. In general, branches and offices of foreign commercial companies are not licensed to engage in importing activity except for re-export or in the case of products of a highly technical nature.
To establish a branch or representative office outside of the free zones in Dubai, a foreign commercial company should proceed as follows:
Branches and representative offices of foreign professional firms may be 100% foreign owned provided UAE nationals or 100% UAE owned companies are appointed as local agents. As mentioned previously, such agents are not involved in the operations of the firm but assist in obtaining visas, labour cards etc and are paid a lump sum as remuneration. The Economic Department is the authority in charge of licensing such branches or representational offices.
In setting up a professional firm, 100% foreign ownership, sole proprietorships or civil companies are permitted. Such firms may engage in professional or artisan activities but the number of staff members that may be employed is limited. A UAE national must be appointed as local service agent, but he has no direct involvement in the business and is paid a lump sum and/or percentage of profits or turnover.