A Complete Guide to Understanding Onshore and Offshore Companies in Dubai
As the commercial capital of the United Arab Emirates, Dubai provides immense opportunities for corporates, SMEs and startups to gain entry into the city’s booming business ecosystem. International exposure, world-class amenities and business-friendly tax laws contribute to Dubai’s growth as MENA’s most sought after business hub for company formation.
While the commercial activities and industries differ, foreign investors are essentially presented with 5 different options to set up and run their business in Dubai. Business owners can operate as overseas traders, operate through a local distributor, work in a joint venture, look for mergers/acquisitions or set up a local entity. In this blog, we will get into the details and intricacies of setting up a local business establishment in Dubai.
Onshore/ Mainland Company Formation
The Onshore or mainland business entities are companies that are established anywhere within the limitation of commercialized geographical areas within Dubai, which come under the jurisdiction of the Emirati Government.
The new Commercial Company Law (CCL) which came into effect in 2015, requires a UAE national to mandatorily hold at least 51% of the total equity of any commercial business registered as a Limited Liability Company (LLC). The maximum shareholding allowed for a foreign national in an LLC is 49%. And also, while the new CCL does not impose minimum capital requirements for an LLC, most companies still maintain the old minimum share capital of AED 300,000 in Dubai based companies to avoid unnecessary confusion and to get all the operation consents on time.
The New CCL also allows a foreign company to establish a mainland branch in Dubai. The mainland or onshore branch of the company doesn't have a separate legal identity to its parent company. However, the parent company is not entitled to limited liability legal protection in this case and the onshore branches are restricted to carry out the same activities as their parent company.
Ideally, it takes around 4 to 6 weeks for an individual or enterprise to complete onshore company formation, including the legal formalities. Even so, with the help and guidance of dedicated company formation experts, the process will be much smoother. Business owners choose to operate as an onshore business due to a number of reasons like the need for strategic locations within the city, avoiding double taxation, utilizing the favourable business environment and the easy availability of investor visa.
Offshore Company Formation
Offshore establishments are often registered as International business companies that do not engage in business with the UAE. These companies are set up under an offshore regulatory system and act as holding companies that do not carry on any commercial activities.
While an offshore company can be owned by corporate entities or individuals, it is basically a non-resident company that cannot own office space in the UAE. These companies are framed under the no-tax jurisdiction law primarily to manage one’s wealth and reduce legal tax payments. Another reason for offshore company formation in Dubai is to ensure complete confidentiality over the company’s financial matters through tax exemptions and increase its wealth without interruption.
The Jebel Ali Free Zone in Dubai (JAFZA) is the most popular location for offshore company formation in the entire MENA region due to the existing offshore company policies and its geographical location.
With the right business plan, strategy guidance, documentation and smart handling of the legalities, setting up a company in Dubai will pave the way for unhindered business growth.