The United Arab Emirates (UAE) offers numerous benefits for establishing a Limited Liability Company (LLC) in its various free zones. Each free zone has its own set of regulations and requirements, but they generally follow similar principles. Here’s a detailed overview of setting up an LLC in a UAE free zone, including legal framework, business activities, compliance, and tax implications.
Legal Framework
Country Code: AE
Legal Basis: Common law principles for corporate matters.
Regulations: Each free zone has its own corporate regulations governing business activities.
Company Form and Liability
Company Form: Limited Liability Company (LLC)
Liability: The liability of shareholders is limited to the unpaid amount of their shareholdings.
Permitted Business Activities
Business Activities: Must be approved by the relevant Free Zone Authority. Activities may include international trade, consulting, professional services, holding intangible assets, investment, and more. Some activities, such as financial services and virtual asset services, require additional regulatory licenses from authorities like FSRA (ADGM), DFSA (DIFC), SCA, and VARA.
Trade License: Issued upon incorporation, allowing the company to conduct business within the free zone. Valid for one year and renewable upon meeting specific requirements.
Business Residence Visas
Visas: A free zone company can sponsor 2-year business residence visas for foreign directors and employees. The number of visas depends on the license package and office size.
Share Capital Requirements
Dubai International Finance Center (DIFC): No minimum share capital.
Dubai Internet City (DIC): AED 50,000 (USD 13,698).
Dubai Multicommodities Centre (DMCC): AED 50,000 (USD 13,615).
Dubai World Trade Centre (DWTC): No minimum share capital, but mandatory if capital exceeds AED 300,000 (USD 82,000).
Dubai Silicon Oasis / Dubai International Freezone Authority (DSO / IFZA): AED 10,000 (USD 2,725).
Ras Al Khaimah Economic Zone (RAKEZ): AED 100,000 (USD 27,250).
Abu Dhabi Global Market (ADGM): No minimum share capital.
Shareholders, Directors, and Secretary
Shareholders: Minimum of one shareholder (individual or corporate), resident or non-resident.
Directors: At least one director, who must be a natural person, resident or non-resident. Most free zones also require at least one manager.
Secretary: Not mandatory in most free zones.
Economic Substance Requirements
Economic Substance: Required for activities such as banking, insurance, finance, leasing, fund management, distribution, headquarter services, intellectual property, shipping, and holding companies. These companies must be directed and managed from the UAE, have local offices, employees, and conduct core income-generating activities within the UAE.
Registered Office / Physical Office
Physical Office: Required in most free zones. Options range from shared offices ("flexi-desks") to full private office suites. Some activities may require specific types or sizes of offices.
Compliance and Reporting
Tax Returns: Companies must submit tax returns to the UAE Federal Tax Authority within 9 months of the financial year-end.
Financial Statements: Vary by free zone. For example:
DIFC: Annual audited financial statements required for companies with over 20 shareholders or turnover above USD 5,000,000.
DIC: Audited financial statements must be filed within 6 months of the financial year-end.
DMCC: Audited financial statements must be filed within 6 months of the financial year-end.
DWTC: Annual financial statements and auditor reports required.
RAKEZ: Audited financial statements must be produced annually but not filed unless requested.
ADGM: Filing requirements depend on turnover.
Taxes
Tax Residency: Companies incorporated or effectively managed in the UAE are considered tax residents.
Tax Rate: Free zone companies may qualify for 0% tax on qualifying income, subject to compliance with economic substance requirements and other conditions. Otherwise, a 9% corporate tax applies to taxable income over AED 375,000. Multinational enterprises with revenues over AED 3.15 billion are subject to a 15% tax rate.
Other Taxes: No personal income tax, capital gains tax, real property tax, inheritance tax, estate duty, capital transfer tax, gifts tax, or wealth tax. VAT at 5% applies to most goods and services.
Conclusion
Setting up an LLC in a UAE free zone offers numerous advantages, including favorable tax rates, business flexibility, and access to international markets. Each free zone has specific requirements and regulations, so it’s essential to choose the one that best suits your business needs.
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