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Registration of a Offshore Companies in the UAE – set up or buy a ready-to-operate Offshore Companies in the UAE

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Amr Mustafa

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Today, the UAE is the leading trade and business hub of the Near East. Local authorities encourage investments in the country in different ways and have created all conditions for foreigners to do business with ease by offering a variety of forms of incorporation and solutions for business. You can establish a local company, free zone company or offshore company in any region of the UAE. The choice of company type may depend on different factors, including the field of activity, however formation of an offshore company offers exclusive advantages for expatriates.

What is an offshore company?

An offshore company is a legal entity established to conduct business activity outside the country of its incorporation or place of its ultimate ownership. Such companies are governed by the legislation of the jurisdiction where they are incorporated. The main goal of formation of an offshore company is to manage one’s own capital and legally decrease or abolish any tax payments.

There are a few reasons to incorporate an offshore company in the UAE, the main of which is high level of confidentiality and accordingly safety of the company’s assets.

Pros and cons of incorporation of an offshore company in the UAE

The main advantages of using offshore corporate structure are:

  • Going international
  • Tax exemption
  • 100% foreign ownership
  • No restrictions on the number of shareholders
  • No requirements as to minimum authorized capital
  • No restrictions on repatriation of capital
  • Low cost of company incorporation and maintenance
  • Office is not required
  • Confidentiality
  • Simple share transfer procedure
  • Possibility to buy immovable property in certain regions of the UAE

An offshore company in the UAE can be used for international trade, asset protection, tax planning, purchase of real estate in certain regions of the UAE, purchase of shares in other companies, trust funds, etc.

Establishment of an offshore company is only more profitable for some kinds of business, and in spite of all advantages offshore companies have their disadvantages, such as:

  • Any commercial transactions in the territory of the UAE are prohibited
  • Such a company does not imply issue of visas or hire of employees
  • Limitations on activity of banks, insurance and financial entities
  • Difficulties with opening a bank account

It is also worth noting that an offshore company in the UAE does not receive a license but receives a certificate of incorporation. A business license can only be obtained for mainland and free zone companies. Permitted kinds of activity of an offshore company are included in the memorandum and articles of association.

All actions and administrative duties that require interaction with authorities in respect of an offshore company shall be taken and fulfilled through the registered agent on behalf of the company’s shareholder(s). The registered agent will also stay in touch with the register of companies to pay the annual renewal fee for the offshore company. As offshore companies are not allowed to have their own registered address, the registered address of an offshore company is the address of its registered agent.

Types of offshore companies in the UAE

Today, several kinds of offshore companies are available that can be incorporated in the UAE. If we generalize about them, we can name the following types:

Company limited by shares (CLS)

A significant feature of such a company is that the liability of shareholders is limited to the amount of capital they have invested. A CLS must at all times have at least one shareholder and one director. A CLS can issue bonus shares, partially paid shares or unpaid shares. For succession purposes, shares may be held by more than one person as joint owners.

Possible uses of a CLS

Companies limited by shares are flexible and administratively have simple corporate vehicles that can be used for a number of purposes, namely:

  • International Business Company
  • Holding Company
  • Special Purpose Vehicle (SPV)
  • Joint Venture
  • Project Company
  • Family Office
  • Segregated Portfolio Company

Company limited by guarantee (CLG)

The essential feature of a CLG is that its guarantee members give an undertaking to contribute to the CLG a specified amount in the event of its liquidation. The liability of a guarantee member is limited to that specified amount. The membership rights of guarantee members are not transferable. A guarantee member remains liable to the company for one year after it ceases to be a member.

Possible uses of a CLG

A classic example of use of this company is acting as an incorporated association or conferring on apartment owners certain membership rights in the company that manages the real estate development.

Unlimited company (UC)

An unlimited company is a company incorporated with or without a share capital where the liability of the members is not limited: that is, its members have a joint, several and unlimited obligation to meet any insufficiency in the assets of the company to enable the settlement of any outstanding liability in the event of the company’s formal liquidation. Similarly to a general partnership, the members of a UC have unlimited liability; unlike a general partnership, a UC is a separate legal entity capable of owning assets in its own name.

Possible uses of a UC

Unlimited companies are flexible and administratively simple corporate vehicles that can be used for different purposes:

  • A UC may be of use to avoid the need for shareholder guarantees to support the credit of the UC, for example where a UC is dealing with a sole customer, it requires recourse to the shareholders of the UC
  • International tax planning

Main offshore jurisdictions in the UAE and their characteristics

The UAE has three offshore jurisdictions:

All the three jurisdictions have their special advantages. For instance, RAK ICC and JAFZA are two offshore companies permitted by law to own immovable property in Dubai.

In accordance with the local legislation on companies, all offshore companies in the UAE must appoint an authorized registered agent.

Let us take a closer look at each of the jurisdictions.

Offshore companies in Jebel Ali Free Zone Authority (JAFZA)

JAFZA was established in 1985 and historically is the first offshore jurisdiction in the UAE. JAFZA is an industrial area surrounding the port of Jebel Ali, one of the world’s largest seaports. This jurisdiction is within Dubai and around one hour away from Abu Dhabi, the capital of the UAE, by car.

In accordance with the Free Zone Offshore Companies Regulations 2003, JAFZA allows formation of an offshore company by non-resident individuals or legal entities.

Business activities are not grouped or limited to a certain category at the formation of offshore companies in JAFZA. It means that a company can conduct a wide range of activities. But it is still recommended to group activities and state their precise name, which will help open a bank account.

Main characteristics Comments
100% foreign ownership JAFZA offshore companies regulations do not require local shareholding
Share capital No minimum authorized capital requirement
Shareholders/Directors At least one shareholder (a corporate shareholder is allowed) and one director (a corporate director is allowed) are required
Annual accounts Each company must keep accounting records and retain all of them for 10 years after the date of their preparation. A company must appoint an auditor (from the approved list) to check and make reports
Ownership of local immovable property A JAFZA offshore company is allowed to directly own local immovable property in Dubai, in certain areas
Shares in local companies In spite of the general prohibition for offshore companies to conduct business with UAE residents, the authorities allow offshore companies to hold shares in free zone and mainland companies
Information on shareholders/directors The names of shareholders and directors are not on a public register
Inspection The registrar has the right to appoint inspectors to investigate affairs of an offshore company. The company’s owner will be liable for all inspection fees
Obtaining a residence permit An offshore company that owns immovable property in Dubai can apply to JAFZA for a residence permit for its members
Account with a local bank An offshore company can have multicurrency bank accounts in the UAE to make ordinary international transactions

 

The process of incorporation of an offshore company in JAFZA is quite expensive compared to other available options and requires the shareholder to personally visit the UAE or make a (legalized) power of attorney, which increases the expenses and paper related formalities.

Offshore companies in RAK International Corporate Centre (RAK ICC)

Located about one hour away from Dubai by car, the Emirate of Ras Al Khaimah is one of the fastest growing emirates of the seven emirates of the UAE. Ras Al Khaimah has the highest industrialization level in the UAE and produces 26% of its gross domestic product. The cost of conducting business in this emirate is 25 to 50 % lower than average in the UAE, which allows companies to generate maximum profit from investments.

In September 2006, the government of Ras Al Khaimah created an entity for offshore company incorporation also known as RAK Offshore. In 2015, two registers of companies merged in Ras Al Khaimah, namely: RAK International Companies (previously part of RAK Free Trade Zone) and RAK Offshore (previously part of RAK Investment Authority). As a result, RAK International Corporate Centre was founded.

Main characteristics Comments
100% foreign ownership RAK International Company regulations do not require local shareholding
Share capital No minimum authorized capital requirement
Shareholders/Directors At least one shareholder (corporate shareholders are allowed) and one director (corporate directors are allowed) are required
Annual accounts No annual accounts requirements and no financial statement filing requirements
Ownership of local immovable property An RAK ICC offshore company is allowed to directly own local immovable property in Dubai, in certain areas
Shares in local companies In spite of the general prohibition for offshore companies to conduct business with UAE residents, the authorities allow offshore companies to hold shares in free zone and mainland companies
Information on shareholders/directors The names of shareholders and directors are not on a public register
Quick incorporation Incorporation of an RAK ICC company normally takes 3 to 5 days after all documents have been obtained
Account with a local bank An offshore company can have accounts in several currencies in the UAE to make regular international transactions

 

The process of incorporation of an RAK ICC offshore company is quite simple and cost efficient, and it does not require shareholder’s personal presence.

Offshore companies in Ajman Free Zone (AFZ)

Ajman Free Zone is one of the oldest free zones in the UAE, which was established in 1988. It is located in the Emirate of Ajman around 40 minutes away from Dubai by car. Offshore company incorporation in Ajman Free Zone started in 2014.

Like the other offshore jurisdictions that we have considered before, formation of an offshore company in Ajman offers zero tax rate and ensures confidentiality.

Main characteristics Comments
100% foreign ownership Ajman Free Zone regulations do not require local shareholding
Share capital No minimum authorized capital requirement
Shareholders/Directors At least one shareholder (corporate shareholders are allowed) and two directors (corporate directors are not allowed) are required
Annual accounts No annual accounts requirements and no financial statement filing requirements
Shares in local companies In spite of the general prohibition for offshore companies to conduct business with UAE residents, the authorities allow offshore companies to hold shares in free zone and mainland companies
Information on shareholders/directors The names of shareholders and directors are not on a public register
Account with a local bank An offshore company can have accounts in several currencies in the UAE to make regular international transactions

 

In spite of all the advantages, after reading the articles of association and Ajman Free Zone regulations for offshore companies, there is some indignation. Obviously, they are written by a lawyer to protect AFZ from any possible liability ignoring the needs of modern offshore business.

The regulations contain a number of ways the AFZ Registrar can strike off a company from the register. For example, when it considers the company “inactive”. It is not exactly what the client wants when buying a limited liability company.

Stages of offshore company formation in the UAE

If you are planning to establish an offshore company in the UAE, you will have to take into account a few main aspects. Here are the main steps of offshore company incorporation in the UAE:

1) Choosing an agent to incorporate an offshore company

As we mentioned earlier, all offshore companies in the UAE must appoint an authorized registered agent, which will conduct the whole incorporation process and provide an office address. Your agent has to understand international law and the company incorporation process.

2) Choosing an offshore jurisdiction

Your agent will help select the optimal offshore jurisdiction in the UAE taking into account the features and structure of your business.

3) Choosing a name and kind of activity

First, you have to get the company’s name and kinds of activity approved. Your agent will reserve an offshore company name for you, for which you will have to provide at least three company name options. The regulations require a company name to end with “Limited”.

4) Preparing and signing documents

Your agent will prepare all necessary documents for incorporation; you will have to sign them and provide the originals. The list of documents depends on the jurisdiction you choose, but the main documents are the articles of association, letter of appointment of agent, certified passport copy and proof of address of the shareholder.

5) Filing the application and receiving the certificate of incorporation

The incorporation application shall be filed along with all necessary documents. The prescribed timeframe for incorporation of an offshore company is 3 to 20 workdays depending on the jurisdiction. After that, you will be given the certificate of incorporation of the offshore company.

Offshore business structure ideally suits companies engaged in international trade, export/import, logistics, delivery, etc. Advantages for investors, such as no need to take on lease an office or any production premises, no need for a residence permit, saving on taxes, no customs duties, etc., make an offshore company very attractive. However, it causes certain difficulties when opening a bank account.

There are a few jurisdictions in the UAE for incorporation of offshore companies. Each offshore company must have an authorized agent approved by the authorities of the jurisdiction, and this is where our company plays an important role. We have necessary knowledge of the local market and many years of experience to help you choose a jurisdiction and control the process of incorporation of your offshore company. Contact us now, and we will take care of incorporation of your company.

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