How to Set up a Subsidiary Company in UAE?

Establishing a subsidiary company in the United Arab Emirates (UAE) offers numerous advantages for businesses seeking to expand their global presence. With its flourishing economy, strategic position, and business-friendly policies, Dubai has become a prime destination for enterprises. Companies can benefit from tax breaks, access to a broad market, and a favourable business climate. Setting up a UAE subsidiary involves choosing a location (mainland or free zone), meeting legal requirements, and obtaining operating licenses. This guide will walk you through the essential steps and legal regulations in setting up a subsidiary in the UAE, highlighting the registration process and necessary permissions. 

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What is a Subsidiary Company in UAE?

A subsidiary company in the UAE is a legal entity established by a foreign company to operate in the United Arab Emirates. It functions as a separate business with its own management and finances but remains under the ownership and control of the parent company. This structure offers several advantages, including limited liability for the parent company and the ability to tap into the UAE market with greater flexibility. There are two main locations where a subsidiary can be set up: the UAE mainland and the free zones. Each has its own set of rules and regulations.

Benefits of Starting a Subsidiary Company in UAE

There are numerous advantages to establishing a subsidiary company in Dubai, the "Gateway to the Middle East." Here are the key benefits to set up a subsidiary company in UAE:

• Strategic Market Access: Dubai's location between Europe, Asia, and Africa grants easy access to a vast and diverse consumer base. Its world-class infrastructure, including airports, seaports, and a robust road network, facilitates seamless connections across these continents. This allows your subsidiary to expand your reach and build a strong presence in these lucrative markets.
• Business-Friendly Environment: Dubai fosters a welcoming environment for businesses. With streamlined bureaucracy and a favourable tax policy, it offers a smooth operating landscape. Free zones within Dubai provide complete foreign ownership, with exemptions on corporate and personal taxes for a designated period. This translates to significant cost savings and profit maximisation for international investors.
• Complete Foreign Ownership: The UAE allows 100% foreign ownership in specific sectors, granting you full control over your subsidiary. This freedom extends to various business activities, providing flexibility and control over your operations.
• Limited Liability Protection: A subsidiary structure safeguards your parent company. The subsidiary's liabilities are separate from the parent company's, minimising financial risks to your main operations.
• Tax Advantages: The UAE boasts a lenient tax regime. No corporate or income taxes are currently levied, simplifying your subsidiary's tax obligations.
• Access to Local Talent: Establishing a subsidiary empowers you to hire local employees in the UAE directly. This eliminates the need for intermediaries and simplifies the recruitment process. Additionally, you can manage payroll and employee benefits efficiently through your subsidiary.

Documents Required for Setting Up a UAE Subsidiary Company

Establishing a subsidiary company in the UAE involves a specific set of documents to ensure a smooth registration process. Here's a comprehensive list of the essential paperwork you'll need:

• Memorandum of Association (MoA): This document outlines the subsidiary's core objectives, the scope of its business activities, and its share capital.
• Articles of Association (AoA): This document details the internal governance structure of the subsidiary, including procedures for meetings, voting rights, and profit distribution.
• Certificate of Good Standing: This document, issued by the authorities in your home country, verifies the legal existence and good standing of your parent company.
• Audited Financial Statements: Provide copies of your parent company's audited financial statements for the past two years. This demonstrates the financial stability of your parent company.
• Power of Attorney: Grant a Power of Attorney to the General Manager of your subsidiary, authorizing them to handle critical tasks like opening a corporate bank account.
• Passports: Submit copies of passports for key personnel in the subsidiary, such as Directors and the General Manager.
• Trade Name Reservation Application: Reserve a unique and appropriate trade name for your subsidiary company.
• Business Activity Outline: Prepare a document outlining the specific business activities your subsidiary plans to undertake in the UAE.
• LSA Agreement: If you choose to work with a Local Service Agent (LSA), provide a copy of the signed agreement outlining their services and responsibilities.
• Government approvals: Depending on your chosen business activities, you might require additional permits or licenses from relevant government authorities. Obtain copies of any such approvals received during the setup process.

How to Start a Subsidiary Company in UAE?

The UAE offers a dynamic business environment, and establishing a subsidiary company can be strategic. Here's a simplified process covering both the mainland and free zones:

Step 1: Select the Jurisdiction

The first step involves choosing where to base your subsidiary:

• UAE Mainland: Ideal for full operational control and access to the wider UAE market. Requires a Local Service Agent (LSA) for mainland setup.
• Free Zones: Offer benefits like 100% foreign ownership, tax exemptions, and streamlined procedures. However, business activities may be restricted to the free zone area.

Step 2: Choose the Subsidiary Company Type

Decide on the type of subsidiary you wish to establish. Limited Liability Companies (LLCs) are popular due to their flexibility, and it does not have minimum capital requirements as per the Ministry of Economy, UAE. For Freezone, the minimum capital depends on the chosen freezone authority.

Step 3: Local Service Agent (LSA) (Mainland Only)

If you are setting up on the mainland, you should appoint an LSA to help with regulations and act as your local representative for a designated fee.

Step 4: Minimum Capital:

There are no minimum capital requirements required to set up an LLC company, but UAE law directs investors to specify a capital value in articles of incorporation. On the other hand, the Joint-stock companies need to have 10 Million AED for a minimum share capital.

Step 5: Trade Name Selection and Registration:

Choose a unique and relevant trade name that complies with local regulations.

• Mainland: Register with the Department of Economic Development (DED).
• Free Zone: Submit your application to the relevant Free Zone Authority.

Step 6: Required Documents

Prepare and have attested (by your home country's UAE embassy and the UAE Ministry of Foreign Affairs) the following documents:

• Memorandum of Association (MoA)
• Articles of Association (AoA)
• Good Standing Certificate for the parent company
• Power of Attorney for the subsidiary's General Manager

Step 7: Business License

Once you submit the required documents and pay the licensing fee, you'll receive a business license authorizing your subsidiary's specific business activities.

Step 8: Open a Corporate Bank Account

Establish a corporate bank account in the UAE to manage your subsidiary's finances.

Step 9: Administrative Requirements:

• Appoint a Director and/or General Manager.
• Recruit and obtain work permits for employees.
• Draft employment contracts.

Step 10. Start Operations

With the necessary licenses, bank account, and staff in place, you can officially launch your subsidiary's operations in the UAE.

Conclusion

In conclusion, setting up a subsidiary company in the UAE (Mainland or Freezone areas) involves well-defined steps and adherence to specific legal requirements. The process includes selecting the appropriate jurisdiction, preparing necessary documents, and obtaining relevant approvals and licenses. The UAE offers a favourable business environment with tax advantages, strategic market access, and full foreign ownership in certain sectors. By following the outlined steps and ensuring compliance with local regulations, businesses can successfully establish a subsidiary in the UAE and leverage its economic opportunities for growth and expansion.

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