Dubai is a leading business hub. Investors and entrepreneurs from different countries strive to start their businesses there. One of the main reasons that attract entrepreneurs is Business Law in Dubai. Business Law in Dubai makes it hassle-free and straightforward for businesses in multiple ways. With the right understanding of its accommodating laws and the various ways you can set up your firm, Dubai is amongst the best regions to establish a new venture or expand an existing one.
Business Law in Dubai
Mainland vs. Free Zone: Which One’s Better for Your Firm?
It is great to take the leap and set up your organization. However, it is crucial to understand the type of company you should register as properly. This is because the company’s type defines its daily operations. At the same time, you must also look into the other affecting factors. These include ownership, place of work, and scope of business, amongst others.
Mainland Companies in Dubai enjoy the freedom to work in any place in the UAE. However, a foreign investor is allowed only a 49% share, while 51% of the company’s share would have to be owned by a citizen of the country.
On the other hand, Free Zone companies are allowed to work only in their zones. Nevertheless, the firms in these zones enjoy a much more relaxed business law, and incentives are better too. Dubai has 40 business zones, including the International Airport and the Dubai Techno Park. Foreign investors operating in the Free Zones can hold 100% of their companies’ shares as opposed to the Mainland Companies.
Basics for Expats
Dubai has a large pool of expatriates from all across the globe, most of whom wish to own businesses in the city they now call home. The business laws in Dubai are extremely accommodating regarding expats registering their businesses. However, there are a few things to keep in mind here.
As a limited company, you, as an owner, will enjoy all the privileges just as a local company when setting up a business. This holds true only in adherence to the mainland or free zone laws. Sectors such as investment, banking, and insurance also should not be included.
You would also need to get a license and approval from the Economic Department and register your business at the Dubai Chamber of Commerce and Industry. Business owners can choose between a joint venture with a local company or a sole proprietorship.
According to a legal expert, Dr. Hassan Elhais;
“Joint ventures are beneficial if you have a specific project or technology. For a strategic partnership, lawyers in Dubai can advise on structuring, drafting, and negotiating.”
Foreign Ownership
Dubai business laws recognize foreign ownership laws which grant ownership to foreigners the to own up to 100% of a company in specific industries and sectors. This is because certain sectors need particular ownership requirements, making it a bit challenging for foreign investors as they will be required to either partner with a local individual or secure a special license and permit to operate in those sectors. A good example is the oil and gas sector, where a foreigner must have a local partner who owns at least 51% of the company.
Equally, in the banking sector, it is mandatory for a foreign bank to establish a local subsidiary with a minimum capital requirement. In Dubai, foreign ownership is governed by the Federal Decree-Law No. 26 of 2020, which amended the Federal Law No. 2 of 2015 on Commercial Companies (CCL). Before establishing one, you can consult with a qualified company lawyer at Legamart for more insight into the rules and regulations of constituting a company in Dubai as a foreigner.
Dubai business laws further invalidate the requirement for commercial companies to have a Dubai citizen as a major shareholder or agent, hence, giving full ownership to foreigners of all nationalities of onshore companies established by them.
Bankruptcy Law
Bankruptcy Law is one of the most talked-about business laws in Dubai. This is because of the hassle it caused in 2008 and settling said hassle in 2017. Therefore, it is essential to understand this business law properly before deciding.
Federal Law No. 18 (1993), or the old law, aligned itself to the framework of the Commercial Companies Law, the Civil Code, and the Commercial transactions law. Due to this, owners who declared bankruptcy faced harsh consequences and criminal charges. With the new law, Federal Law No. 9 (2016), the business law has set up a Financial Restructuring Committee and strives to find new alternatives to insolvency. Overall, the law is less harsh and more understanding for individuals. Thereby making Dubai’s business sector a booming industry where everyone feels secure in their investments.
However, it is always a good idea to advance with caution. This is because the laws may provide more leeway, but they are still stringent and very strict with their penalties. Prison sentences of up to 5 years and a fine of Dh 1 million are not uncommon if you mess with this business law.
Economic substance regulations
The Economic Substance Regulations or the ESR (Cabinet of Ministers Resolution No. 31 of 2019), as issued on 30th April 2019, conform with UAE’s commitment towards ensuring the corporation and transparency in international taxation. Under these regulations, companies coming within the ambit of free zone companies and companies carrying out ‘Relevant Activities’ as provided in the regulations are required to maintain an adequate ‘economic presence’ in the country.
The application of these regulations commenced for the financial years commencing from 1st January 2019. Businesses that come within the ambit of these regulations are required to submit an annual notification form to their respective regulatory authority, along with the submission of an Economic Substance Report, which is required to be submitted within 12 months from the end of any financial year.
If the business has not earned any income from any ‘Relevant Activity’, or if the legislation has exclusively exempted the activity, then these requirements are not required to be fulfilled. However, a notification form is still required to be submitted.
Failure to comply with these regulations results in penalties, administrative sanctions, and/or the revocation, suspension, or non-renewal of an entity’s trade license/permit.
Regulations for an individual in the business economy
If you are an individual who wishes to commence a new business in UAE, you are required to follow a few regulations related to economy and exchange. Some of the essential pre-requisites for starting a business in any of the UAE Emirates, including Dubai, are:
- Obtaining business licenses covering a wide range of trading actions.
- Obtaining proficient licenses covering professions, administration, craftsmen and specialists.
- Obtaining mechanical licenses for setting up any modern or manufacturing activity.
These licenses are provided by the Department of Economic Development, which is specific for each Emirate of the UAE. Certain businesses may require additional permission from the various ministries of the region, including the Central Bank of UAE, the Ministry of Economy and Commerce, etc.
Some of the general classes of business associations in Dubai are:
- Joint Venture companies
- Private Joint Stock companies
- General Partnership companies
- Limited Liability Companies
- Partnerships
General laws applying to all business ventures
Regardless of what sector you choose to set up your business in, there are several business laws to follow. These laws include those that govern Electronic Transmissions and Commerce laws. Also, these comprise Federal Law No. 4 (1979), which combats Commercial Fraud, Federal Law No. 20 (2016) on Mortgage to secure debt, Customs law of the GCC States, and the Protection of Intellectual Property and Trademark laws.
The business sector in Dubai is growing at a rapid rate, and the business law setup accommodates the ventures perfectly. However, knowing all aspects of the law is imperative before setting up your business venture.
Also, you can ask for help from our legal consultants in the United Arab Emirates.
Laws and policies related to online businesses in Dubai
When it comes to the legal framework for eCommerce in Dubai, the primary legislation is the UAE Federal Law No. 2 of 2019 (Use of Information and Communication Technology in Health Fields (Cybercrimes Law)), along with UAE Federal Law No. 1 of 2006 (Electronic Commerce and Transactions (E-Commerce Law)). The principal regulatory body that ensures compliance with the eCommerce laws is the Dubai Department of Economic Development (DED).
According to these legislations, any business that wishes to engage in eCommerce activities in Dubai must obtain the necessary permits and licenses first. Such permits and licenses are issued by DED depending upon the nature of eCommerce activity. The main aim of these licenses is to ensure that the consumer rights of individuals are protected. Hence, businesses are required to disclose clear and accurate information related to their products and services.
Federal Law No. 3 of 2020 governs the collection, storage, and processing of personal data in the UAE. In accordance with these laws, businesses are required to obtain explicit permission from users before they go ahead with collecting their personal data. Further, it is the responsibility of the businesses to ensure that they provide robust protection for the protection of any sensitive information collected.
How can corporate and commercial lawyers help you?
Corporate and commercial lawyers usually deal with commercial and business legal matters; they assist with transactions, documentation and paperwork, but they may also help in other company issues requiring motions, actions and court issues.
For example, when you hire a commercial lawyer to run your business in Dubai, the person usually owns a business or is a manager. These legal professionals are versed in transactions, financial matters, economic and legal disputes, litigation, and other issues.
They tend to have extensive experience in contract drafting, company mergers and acquisitions, employee agreements, negotiations and similar items. As with other lawyers, some work through a law firm, and others are hired exclusively through a business and tend to the needs of that corporation specifically. These legal professionals have a law degree and have passed the bar exam with all accompanying rights and duties of other legal representatives.
Corporate lawyers in Dubai
Here are some of our best Contracts in LegaMart that can provide your Contract drafting needs;
Gaurav Bangia
Gaurav is an independent lawyer enrolled with the Bar Council of India and the Bar Council of Delhi. He is a broad-based corporate, international commercial and business lawyer.
Ayham A. Othman
Ayham A. Othman is currently in the Corporate Dep. Director and the Co-Managing Partner of Clout Legal Consultancy Firm in the United Arab Emirates. Ayham has brought to the firm’s practice over 14 years of experience in corporate and commercial legal matters and civil and commercial litigation, in addition to his negotiation and mediation recognized skills. His pragmatic and results-driven approach has made him a trusted advisor to national and regional corporations and many prominent members of the UAE and Jordan business landscapes.
Federico Vasoli
Federico is a cross-jurisdiction and cross-cultural lawyer. He is also admitted to the Bar of Milan and Malta’s Chamber of Advocates as a European Union lawyer and by the Vietnamese Ministry of Justice as a foreign lawyer.
Frequently asked questions (FAQ)
What are the main laws governing business in Dubai?
The main laws governing business in Dubai include Federal Law No. 4 (1979), which combats Commercial Fraud; Federal Law No. 20 (2016); Commercial Companies Law (Federal Law No. 2 of 2015), Commercial Transaction Laws (amended by Federal Decree-Law No. 14 of 2020 amending certain provisions of the Federal Law No. 18 of 1993) and Intellectual Property Law.
What are some of the available business structures in Dubai?
The following are the main business structures that are suitable in Dubai;
- Limited Liability Company (LLC)
- Sole Partnership
- Branch or Representative office
- Free Zone Company
- Offshore Company
What are the benefits of establishing a free zone business in Dubai?
Some of these benefits include; 100% foreign ownership; 100% repatriation of capital and profits; 100% import and export tax exemption; and 100% exemption from income and corporate taxes. There is also the aspect of no currency restrictions, and its customs procedures are simplified.
Is it possible for foreigners to own businesses in Dubai?
While it is possible for foreigners to own businesses in Dubai, specific restrictions might apply depending on the nature of the business and the location at which the business is conducted. For instance, while complete ownership of businesses by foreigners is allowed in free zone companies, a mainland company might require a local partner/sponsor.
What role does the Dubai department of economic development (DED) play?
DED is the principal governing body for regulating and providing licenses to mainland businesses in Dubai. Business aspects, such as economic licenses, commercial licensing, trade regulations, etc., are all handled by this body.
Conclusion
Dubai’s business law is governed by several laws and regulations designed to promote businesses and protect the interests of investors. These laws create a favourable environment for investors ranging from low taxes, diverse legal structures and a well-established legal system.
In addition, Dubai business law accommodates foreign ownership of companies in most sectors, making it an attractive feature to appeal to foreigners in addition to setting a branch office for foreign companies to establish a presence in Dubai.
Also, if you are interested in setting your business up in Dubai, the article below will be handy for you:
