The United Arab Emirates ("UAE") offers multi-jurisdictional setting up opportunities for foreign companies (i.e. non UAE companies). Subject to business objectives and the preferred shareholding structure businesses proposing to set up in the UAE can register in the mainland (under UAE Commercial Companies Law ("CCL")), or in one of the numerous free zones which operate under self governing legal regimes.

Although the free zones continue to attract foreign entrepreneurs owing to their relatively permissive laws (mainly the right to hold 100% shares by foreigners) and ease of setting up, the CCL has seen positive changes that have made establishing a limited liability company in the mainland under the CCL simple and cost effective. As a result, the main land is now attracting more businesses.

One of the main changes is the amendment to Article 227 of the CCL which required the deposit of minimum share capital of AED 300,000. Previously this was a prerequisite for registering a company in Dubai. However, this has been removed which has consequently eliminated some steps to registering a limited liability in the mainland mentioned below:

  • Letter from bank confirming that the founders have deposited AED 300,000 in their bank account;
  • Document of confirmation from the auditor; and
  • A smart chip.

The above has helped decrease start up costs and registering time by around three to four weeks. The UAE government has created a regulatory regime to ensure a conducive corporate environment, foreign companies should be aware of the basic regulations in order to benefit from this new environment.

From a corporate governance stand point this would mean, at the bare minimum, having in place processes that ensure corporate compliance with:

  • The external regulatory regime under which the entity is set up and exists; and
  • The internal constitutive documents such as memorandum of association of the entity.

Such processes can include systems to ensure:

  • Timely renewal of commercial licence;
  • Conducting commercial activities within the scope permitted by its memorandum of association and commercial licence;
  • Valid visas of all employees of the entity;
  • Corporate decisions by appropriate forum with the company/management employee in accordance with the memorandum of association or any power of attorney given to any manager or employee.

Failing to ensure minimum standards of compliance are in place can result in statutory penalties and irregular corporate decisions that can potentially lead to complications in the future, such as a challenge by third party to the right of a person to represent the company.

Developing processes that incorporate best practices and ensure legal compliance can vary according to size and nature of business. However it is advisable to have within the organization at least one individual (administratively above the public relations officer of the company) responsible to:

  • Oversee compliance with all applicable external and internal corporate regulations;
  • Report to management periodically, or when requested, on connected issues;
  • Liaise with outside professional advisors to facilitate compliance; and
  • Most importantly, anticipate possible affect(s) on current administrative and operational activities as a consequence of any proposed changes in regulation.

In order to highlight how critical it is to keep abreast of latest regulatory changes, the proposed change in corporate ownership laws is a good example.

Currently, the CCL provides that all limited liability companies set up in UAE must have a UAE national as a shareholder who has 51% shares in the company with 49% being held by foreigners.

This position may soon change with the much anticipated amendment to the CCL that may allow foreigners to hold more than 49% shares in a limited liability company set up under the CCL.

The details of the proposed amendment(s) are not known publicly but some sources envisage that the foreign ownership shareholding being contemplated will be subject to permission of the Ministry of Economy and limited to commercial activities which are considered important for the UAE economy.

Notably, if the anticipated change is substantive in the sense of providing comfort to foreign shareholders in their ability to own majority shares in a company in the mainland rather than a free zone and thus have effective legal control over its operational affairs, this may affect how decisions are taken in connection with incorporating companies in the UAE insofar as this would make the local limited liability company in the mainland under the CCL a viable substitute for the free zone entity and potentially compete with the free zones for "corporate setting up space".

The limited liability company option in particular would be attractive for those businesses that wish to trade in UAE without trading restrictions, as strictly speaking; entities set up in the free zone cannot trade directly with third parties in the UAE except through distributors in main land UAE.

Going forward, notwithstanding the recent positive changes in law, there is a need for corporate managers to ensure internal systems employ at least minimum level best practices to ensure regulatory compliance. Timely knowledge of amendments to applicable laws may also warrant change in corporate strategy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.