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A UAE Limited Liability Company (LLC) is a very popular legal entity in the United Arab Emirates (UAE).
The main law governing the formation of all companies is the UAE Commercial Companies Law of 2015 (CCL). Article 22 requires local majority ownership of at least 51% of the shares and share capital. Some types of business activities will require an even higher percentage ownership. However, profits and losses can be distributed in different manners. For instance, foreigners can take 80% while the local UAE sponsor takes 20%. Other compensation methods can be used such as paying the sponsor a fixed annual fee with 100% of the profits going to the foreign owners. Another method is to pay the sponsor a percentage of the sales.
The Sponsor can be paid a set yearly fee, a percentage of profits, or a percentage of sales. In addition, these ownership restrictions do not apply to legal entities formed in the UAE Free Zones.
The UAE (United Arab Emirates) is known as the “Emirates”. Situated on the Arabian Peninsula in the Persian Gulf, the UAE is very popular with foreigners as expatriates make up 84% of the entire population (8 million expats vs. 1.5 UAE citizens). Seven emirates combine for a UAE federation since 1971. Their political system is a federal monarchy.
UAE Limited Liability Company (LLC) Benefits
A UAE Limited Liability Company (LLC) has the following benefits:
• No Taxes: Every UAE company enjoys total tax free profits. However, U.S. taxpayers and anyone subject to global taxation must report all income to their tax authorities.
• Limited Liability: Shareholders’ liabilities are limited to their unpaid capital investment.
• Two Shareholders: The minimum number of shareholders is two to form a LLC.
• One Manager: A minimum of one manager is required to form a LLC.
• No Minimum Capital: There is no required minimum capital.
• Foreign Profits: Although foreigners can only own 49% of a LLC, a 100% profits to the foreigner contract can be achieved with the UAE sponsor.
UAE LLC Company Name
The LLC must choose a trade name which will not resemble any other UAE legal entity’s name. Then the applicant fills out a trade name reservation form with either the Dubai Department of Economic Development or the Abu Dhabi Department of Economic Development (collectively known as the DED).
LLC’s must end their company name with either “Limited Liability Company” or its abbreviation “LLC”.
Application is made with the DED by filing a trade name application form and a licensing application form. If one or both shareholders are corporations, then a copy of the Certificate of Incorporation along with a Memorandum of Association and a Board of Directors Resolution approval of the LLC Subscription. A Power of Attorney will also be necessary authorizing a person to act on behalf of the shareholders with forming the LLC. In addition, copies of passports of the shareholders and proposed general manager and directors.
Then the DED will issue an initial approval. Depending upon the LLC’s proposed activities, additional approvals may be required.
The Licensing Law of 2011 officially called “Law of the Organization of Economic Activities Practice in the Emirate of Dubai” streamlined the licensing process where the DED obtains the approvals from the required ministries and/or departments.
After the initial approval and approvals from required ministries and/or departments are obtained, the holder of the Power of Attorney will sign a Contract of Establishment of the LLC in front of a notary. This contract must be written in Arabic and is common to have a second original in English.
After the Contract of Establishment is signed, notarized and filed, the LLC can:
• Open a local bank account for the LLC;
• Obtain a Bank Certificate verifying the share capital deposit;
• Obtain an office lease;
• Publish the Contract of Establishment in the Companies Gazette issued by the Ministry of Economy; and
• Appoint an Auditor and file a copy of the auditor’s confirmation of appointment along with the auditor’s license.
When these steps are completed, the LLC must obtain a Commercial License from the DED.
Finally, after the DED issues the Commercial License for the LLC, the LLC must register with the local Chamber of Commerce depending upon which emirate the LLC’s office is located.
The Memorandum of Association must include the following details:
• Company name;
• Head office address;
• Shareholders’ names and nationalities along with their location of residence and addresses;
• Duration of the life of the LLC;
• Total share capital and amount of each shareholder’s contribution;
• Company manager’s names and nationalities;
• Profits and losses distribution;
• Method of notifications for meetings
Shareholders’ liability is limited to their shares in the company’s capital. Any unpaid shares will be the only shareholder’s liability.
A minimum of two shareholders are required to form a LLC. The maximum shareholders are 50.
The UAE prohibits foreigners from owning a majority of their legal entities. The LLC provides the maximum foreign ownership participation at 49%. This means that 51% of the LLC shares must be owned by a UAE national. Foreign investors have the option to choose one UAE national as a “sponsor” who is listed as a 51% partner. A different profit sharing arrangement is possible. For instance, in distribution of profit and loss, foreign investors can have 80% and 20% to the local UAE sponsor. Or, the sponsor can merely be paid a fixed annual fee or a percentage of the total sales where the foreign owners keep 100% of the profits.
The new Companies Law of 2015 allows shareholders to pledge their shares according to what is required in the Articles of Association and Memorandum. Pledges must be registered with the Commercial Register to be valid.
The company Manager can be a minimum of one or more with no maximum number. The Manager will administrate and have financial powers. Managers do not have to be shareholders. In addition, Managers do not have to be citizens or residents of the UAE.
The company’s Memorandum and Articles of Association will determine the maximum numbers.
The law requires every LLC to hire a licensed auditor and to file a copy of the auditor’s license and a letter from the auditor confirming the appointment.
Every company must maintain accounting records at their head office. International accounting practices and standards will be followed providing clear and accurate views of the profits and losses.
LLC’s must have a registered office in the UAE and appoint a local registered agent.
The UAE abolished the minimum capital law in 2009.
The contributions by shareholders to the capital can be in cash or like-kind. The valuation of like-kind contributions can be determined either by an agreement by all of the shareholders with approval by the DED; or by valuation performed by a DED approved financial consultant.
General Shareholders’ Assembly must be held at least once a year with 75% of the total shares being represented to establish a meeting quorum.
The UAE does not have a corporate tax, no income tax, no capital gains tax, no withholding tax, no dividends tax, no import or export tax, and no Value Added Tax (VAT) for LLC’s and other companies.
Oil companies and banks are the only companies paying taxes.
However, American taxpayers along with anyone subject to worldwide taxation must declare all income to their respective tax agencies.
All records filed with the DED are available for public inspection.
UAE LLC’s can registration may take from two to three weeks for approval.
Shelf limited liability companies are available for purchase in the UAE for a faster registration process.
Form a UAE Limited Liability Company (LLC) Conclusion
A UAE Limited Liability Company (LLC) has these benefits: no taxes, limited liability, two shareholders, one manager, no required minimum capital, ability to contract with UAE sponsor for 100% of the profits and English is popular.