UAE Commercial Company Law – A Guide for Investors & Business Owners

The United Arab Emirates (UAE) has long been a magnet for entrepreneurs and investors, thanks to its strategic location between East and West, pro-business stance, and cutting-edge infrastructure. In recent years, the government has overhauled many of its laws, making it easier for international investors to own and operate companies in the UAE. These reforms are part of the nation’s push to diversify its economy, attract foreign talent, and elevate its status as a global commercial hub. The UAE Commercial Companies Law is now, more than ever, imperative for any investor or business owner to be aware of.

So, you’re an investor or business owner eyeing the UAE, there’s plenty to learn about the local commercial laws, company structures, compliance requirements, taxation, and best practices. Our post provides a concise but comprehensive overview, arming you with the insights you need to navigate the UAE’s business environment confidently.

Key Takeaways

1. Legal Overhaul: The New Companies Law modernises the UAE’s legal environment, making it far more foreign-investor-friendly.
2. 100% Foreign Ownership: Available on the mainland for most activities, removing the need for a majority local partner.
3. Mainland vs Free Zone: Decide based on where your customers are (local vs international) and your office/visa requirements.
4. Corporate Tax: A 9% regime on mainland profits (above AED 375,000), with the potential for 0% in free zones if you meet specific criteria.
5. Governance & Compliance: Proper accounting, annual meetings, and an updated MoA are vital to avoid fines and maintain smooth operations.
6. Professional Support: Lawyers, corporate service providers, and tax advisers can help navigate regulations, ensuring you remain compliant and profitable.

1. The Legal Framework of UAE Commercial Company Law

1.1 The Companies Law

At the heart of the UAE’s corporate regulatory system is Federal Decree-Law No. 32 of 2021 on Commercial Companies (often referred to as the “New Companies Law”). It replaced the older 2015 version and came into force on 2 January 2022. This modernised law aims to:

• Encourage foreign investment by allowing 100% foreign ownership in a wide range of sectors.
• Enhance corporate governance standards for local and public companies.
• Streamline regulatory processes, making it simpler and faster to set up businesses.

1.2 Regulatory Authorities

• Ministry of Economy: Implements commercial company legislation at the federal level.
• Departments of Economic Development (DED): Each emirate (e.g., Dubai, Abu Dhabi) has its own DED that issues mainland licences and regulates local companies.
• Securities and Commodities Authority (SCA): Oversees publicly listed companies, approving aspects like IPOs and share offerings.
• Free Zone Authorities: Over 45+ free zones each with its own regulations, but still subject to federal law for any onshore (mainland) dealings.

1.3 Recent Reforms

In line with broader legal changes rolled out around the UAE’s 50th anniversary, the new Companies Law brought in landmark reforms. Chief among these is the abolition of the 51% local ownership requirement for many onshore businesses. Now, the vast majority of commercial activities permit up to 100% foreign ownership – although certain “strategic” sectors (such as oil, gas, defence, and some specialised industries) may still require local participation or additional approvals.

2. Company Structures in the UAE

When establishing a business in the UAE, you typically choose between mainland and free zone entities. Within these two spheres, there’s a range of structures to suit different needs:

2.1 Mainland Entities

1. Limited Liability Company (LLC)
   • Most popular form for commercial or industrial activities.
   • Minimum 1 shareholder (single-member LLCs allowed) and maximum 50.
   • Shareholders’ liability limited to their capital contributions.
   • Historically required 51% UAE local shareholding, but most LLCs can now be 100% foreign-owned (subject to activity requirements).
   • Ideal for businesses selling directly to the UAE market and operating widely across the country.
2. Public Joint Stock Company (PJSC)
   • Sells shares to the public; regulated by the SCA.
   • Needs at least 5 shareholders, typically used for large-scale ventures or companies planning to list on the stock exchange.
   • Directors no longer need to be majority UAE nationals – a major shift that fosters wider foreign participation.
   • Some industries (e.g. banking, insurance) must be PJSCs as a rule.
3. Private Joint Stock Company (PrJSC)
   • Similar to a PJSC but shares are not publicly traded.
   • Capital divided into shares; minimum of 2 and maximum of 200 shareholders.
   • Often used by larger family businesses or firms wanting a share structure without going public.
4. Sole Establishment (Sole Proprietorship)
   • Owned entirely by one individual.
   • Does not offer limited liability – the owner is personally liable for debts.
   • Attractive for very small or professional service-focused businesses, though many now opt for single-shareholder LLCs to limit personal liability.
5. Civil Company (Professional Partnership)
   • A partnership of two or more professionals (e.g., doctors, engineers) jointly practising.
   • Partners bear unlimited liability.
   • Popular for specific regulated professional services.
6. Branch of a Foreign Company
   • An extension of a parent company abroad, without separate legal personality.
   • Can be 100% foreign-owned, but usually needs a local service agent for administrative matters.
   • A branch may have limitations on the type of commercial activity it can conduct.

2.2 Free Zone Entities

Free zones in the UAE have always attracted entrepreneurs seeking 100% foreign ownership, special tax incentives, and streamlined processes for licensing and visa issuance. However, not all free zones are created equal. At DUQE, our dedicated free zone approach offers everything you need to establish and grow your business without the usual constraints or complexity.

Typical free zone structures:

• Free Zone Establishment (FZE): Single shareholder.
• Free Zone Company (FZCO or FZ-LLC): Multiple shareholders.
• Branch of a Foreign Company in a free zone.

Key benefit: 100% foreign ownership without needing a local sponsor.
Drawback: Free zone entities cannot generally trade in the UAE mainland without a local distributor or obtaining a separate mainland licence.

2.3 Offshore Companies

Offshore jurisdictions like Jebel Ali Offshore or RAK International Corporate Centre (RAK ICC) let you form companies for holding or international business. These entities:

• Do not permit local trading or office space in the UAE.
• Cannot sponsor visas.
• Offer privacy and minimal reporting, often used as holding structures.

3. The 100% Foreign Ownership Revolution

One of the biggest game-changers in the UAE’s commercial environment is the shift towards full foreign ownership on the mainland. Here’s what changed:

• Before: Typically, a foreigner was restricted to a 49% stake in an onshore LLC, with a UAE national owning 51%.
• After: Since June 2021, thanks to Decree-Law No. 26 of 2020 and its extension into the 2021 law, investors can now enjoy 100% ownership in the majority of commercial and industrial activities.

Exceptions: Some strategic sectors require local shareholding or additional government approvals. Each emirate’s DED has published activity lists that confirm whether full foreign ownership is allowed. For most general trading, consultancy, or service activities, 100% foreign ownership is now the norm.

Practical Tip: If you’re in a highly regulated sector (banking, telecoms, defence), verify whether any special ownership restrictions remain. Similarly, you may still need a local service agent for certain licences, although that agent has no equity stake in your business.

4. Compliance and Licensing Essentials

The UAE offers a well-defined but strict regulatory structure. Here are the core licensing and compliance points to keep in mind:

4.1 Mainland Licensing

• Trade Licence: Issued by the DED in each emirate. Must be renewed annually, and late renewals attract fines.
• Memorandum of Association (MoA): An LLC’s MoA outlines ownership and governance terms. Make sure it’s updated according to the New Companies Law.
• Physical Office: Mainland businesses usually need a dedicated office. The size often determines the number of visas you can sponsor.

4.2 Free Zone Licensing

• Licence obtained from the free zone authority, with streamlined processes.
• Many free zones offer flexi-desk or shared office options, helping to reduce costs.
• Operations are primarily within the free zone or for exports; direct trade with mainland requires an approved distributor or onshore licence.

4.3 Ongoing Obligations and Potential Fines

• Annual Renewals: Both mainland and free zone licences generally require yearly renewal with associated fees.
• Accounting Records: Companies must keep proper books for at least five years. Non-compliance can lead to fines (e.g. AED 15,000 for not maintaining financial records).
• Annual General Meeting (AGM): LLCs and joint stock companies should hold at least one shareholders’ meeting per year to approve financials and discuss major decisions. Skipping an AGM can result in penalties.
• Ultimate Beneficial Owner (UBO) Filing: You must disclose the real individuals who ultimately own or control your company, ensuring transparency and compliance with anti-money laundering regulations.
• Economic Substance Regulations (ESR): If your business falls into certain categories (e.g. holding company, IP, shipping), you must demonstrate adequate economic presence in the UAE and file related reports.

5. Corporate Governance and Shareholder Rights

5.1 Governance Structures

• LLCs: Managed by one or more designated Managers. Formal boards aren’t mandatory, but you can adopt a board-like model if you wish.
• PJSCs: Must have a Board of Directors, with stricter SCA-mandated rules, including forming an audit committee and limiting directors’ remuneration.

5.2 Fiduciary Duties

Managers and directors in the UAE owe fiduciary duties to the company, including obligations to:

• Act in the best interest of the company and its shareholders.
• Avoid conflicts of interest.
• Refrain from any activities that could harm the company’s reputation or financial standing.

Breach of these duties can result in personal liability for the individuals involved.

5.3 Shareholder Protections

The New Companies Law bolsters shareholder rights through:

• Pre-emption Rights: Existing shareholders often have priority to buy new shares before they’re offered to external parties.
• Access to Records: Shareholders can inspect certain documents and meeting minutes.
• Dispute Resolution: The law encourages specifying arbitration or court jurisdiction in the MoA or shareholders’ agreements, helping resolve conflicts quickly.
• Minority Safeguards: Courts may intervene in cases of oppression or gross mismanagement by majority shareholders.

5.4 Best Governance Practices

• Draft a clear MoA and, if necessary, a shareholders’ agreement to handle matters like share transfers, dispute resolution, and non-compete clauses.
• Keep minutes of meetings, even if it’s not heavily enforced – this provides a record of decisions.
• If you have multiple shareholders, schedule regular board or management meetings to ensure transparency and maintain trust.

6. Taxation in the UAE: The New Reality

For years, the UAE was synonymous with zero corporate taxes. This changed with the introduction of a federal Corporate Tax (CT) regime, effective for financial years starting on or after 1 June 2023, alongside the existing Value Added Tax (VAT):

6.1 Corporate Tax (CT)

• Standard Rate: 9% on net profits above AED 375,000. Profits below that threshold are taxed at 0%.
• Free Zone Advantage: Certain free zone businesses (termed “Qualifying Free Zone Persons”) can continue to enjoy a 0% rate for qualifying income, provided they strictly operate within their zone or export abroad. Mainland-sourced income is taxed at 9%.
• No Personal Income Tax: This remains a major draw. Individuals pay no personal tax on wages or dividends.

6.2 Value Added Tax (VAT)

• Introduced in 2018 at a 5% rate on most goods and services.
• If your business’s taxable turnover exceeds AED 375,000 per annum, you must register for VAT.
• Businesses reclaim VAT on expenses (input VAT) but charge VAT on their invoices (output VAT).
• Certain sectors (healthcare, education) enjoy exemptions or zero rating.

6.3 Other Taxes and Duties

• No Withholding Tax: No taxes on dividends, interest, or royalties leaving the UAE.
• Customs Duty: Generally 5% on goods imported into the mainland. Goods in free zones can be imported duty-free, then re-exported.
• Financial Reporting: Most UAE businesses prepare accounts under IFRS, and large or regulated companies must submit audited financial statements annually.

7. Mainland vs Free Zone: Making the Right Choice

Choosing between a mainland licence and setting up in a free zone often hinges on your target market and business activity:

7.1 Mainland

• Advantages:
  • Unrestricted access to the UAE’s local market and the ability to trade across all emirates.
  • Potentially unlimited visas if you have sufficient office space.
  • No barrier to dealing with government entities or local clients directly.
• Considerations:
  • Requires a physical office each year.
  • Licences generally come with local compliance obligations and, if required by certain sectors, Emiratisation quotas.

7.2 Free Zones

• Advantages:
  • 100% foreign ownership automatically (now mirrored on the mainland for most sectors, but a free zone is guaranteed).
  • Zero or reduced corporate tax for “qualifying” free zone entities.
  • Cost-effective office solutions like flexi-desks.
  • One-stop-shop administrative processes.
• Considerations:
  • Cannot trade directly with mainland without a distributor or separate onshore licence.
  • Usually restricted to certain business categories aligned with the free zone’s industry focus.
  • If you need a large workforce or do heavy onshore work, the free zone constraints may not be ideal.

Pro Tip: Some businesses adopt a dual structure – they open a free zone company for international transactions and a mainland branch to serve the local market. This arrangement helps them enjoy the best of both worlds, though it requires careful planning to remain compliant with tax and licensing rules.

8. Best Practices for Succeeding in the UAE

8.1 Plan Your Structure Carefully

• Map out your operational needs and target clients. If you’re catering to customers around the UAE, a mainland setup could be smoother. If you’re mostly exporting or working online, a free zone might save costs.
• Consider whether you’ll expand in future – moving from a free zone to mainland (or vice versa) can be more complex and costly than starting with the right structure.

8.2 Understand and Meet Local Requirements

• Licensing: Know which authority you’re dealing with (DED vs. free zone) and precisely which activities you’re licensed for.
• Renew on Time: Every licence in the UAE must be renewed annually. Delays result in late fees and potentially licence suspension.
• Labour Rules: Keep abreast of Emiratisation targets if you have more than 50 employees, ensure timely wage payments through the Wages Protection System, and maintain valid employee visas.

8.3 Keep an Eye on Tax and Compliance

• Corporate Tax: Register with the Federal Tax Authority if you’re liable, maintain clear financial records, and file returns accurately.
• VAT: If your business crosses the turnover threshold, register, charge the correct VAT rate, and file quarterly or monthly returns.
• Economic Substance Regulations (ESR): If you fall under a “relevant activity”, ensure that you have sufficient staff, assets, and premises in the UAE to demonstrate genuine operations.

8.4 Maintain Good Corporate Governance

• Shareholders’ Agreement: Beyond the Memorandum of Association, a private agreement can clarify share transfers, decision-making, and dispute resolution – essential if multiple partners are involved.
• Regular Meetings: Even if not legally mandated for small LLCs, hold a meeting at least once a year to keep everyone aligned.
• Documentation: Keep minutes of key decisions, maintain updated share registers, and track director/manager appointments or term expirations.

8.5 Engage Professional Help

The UAE legal landscape evolves quickly. Staying up to date can be challenging, so consider:

• Corporate Service Providers: They can handle everything from licence applications to visa processing and ongoing compliance.
• Legal Counsel: Useful for drafting or reviewing your MoA, shareholders’ agreements, and commercial contracts.
• Tax Advisers: Corporate tax and VAT might be new for many businesses – professional advice helps you optimise your structure within legal limits and avoid penalties.

8.6 Budget for All Costs

While the UAE is business-friendly, set realistic expectations:

• Licence & Registration Fees: Vary by emirate or free zone and by activity type.
• Office Rent: Mainland rules typically require an office, even if modest.
• Visa & Immigration: Costs can include medical checks, Emirates ID, visa stamping, and monthly housing fees (in some free zones).
• Annual Renewals: Factor in annual costs for renewing your licence, entity registrations, and employee visas.

Seizing Opportunities in the UAE With DUQE

The UAE’s commercial landscape is more open and advantageous than ever for foreign investors and entrepreneurs. Recent reforms—which include greater scope for 100% foreign ownership, the introduction of a manageable corporate tax, and streamlined regulations—have truly cemented the country’s status as a premier global destination for doing business.

You have an array of choices, from LLCs and PJSCs to free zone entities and mainland enterprises. The key to success is identifying the right corporate structure, staying compliant with dynamic local laws, and maintaining sound governance. A solid understanding of the market is crucial—alongside a reliable partner who can guide you every step of the way.

At DUQE, we specialise in helping businesses navigate the UAE’s regulatory environment with confidence. Our end-to-end solutions cover everything from choosing the optimal company setup to ensuring continuous compliance, handling visas, and providing best-in-class corporate support. Whether you’re a start-up striving to make your mark or a multinational expanding into a thriving region, DUQE’s seasoned professionals will equip you with the insights and tools you need to flourish.

Ready to unlock the UAE’s boundless potential? Contact DUQE to discuss your objectives, and let our experts help you transform ambitious plans into tangible, profitable outcomes in this vibrant and rapidly evolving market.