Specifi c issues which may infl uence the type of business establishment and its location include, but are not limited to, the nature of the business, the nationality of the person/entity establishing the business, and whether business is to be undertaken in the United Arab Emirates outside of Dubai. These particular issues are not dealt with in detail in this guide.

Businesses considering establishing a presence in Dubai should discuss their specifi c requirements in detail with their legal and tax advisers fi rst to ensure that the appropriate structure is adopted and licences obtained.

This guide refl ects the position as of August 2009. In particular a revised UAE company law is expected to be issued in the near future which may signifi cantly change the UAE’s business landscape.

The Business EnvironmentTo facilitate foreign investment into Dubai, the government has established a number of free trade zones. The advantages of operating in a free zone rather than in the rest of Dubai are:

there is generally no tax on profi ts •(subject to certain time restrictions);

in most cases, 100 percent foreign •ownership is permitted;

for the most part, the regulations •governing free zones are published in English;

there are no restrictions on foreign •exchange or repatriation of capital (in certain free zones); and

operational support and business •continuity facilities are available.

The main disadvantage of operating from within a free zone is that businesses are restricted as to the type of dealings they may conduct outside of such zones.

In contrast, a business wishing to operate locally in Dubai would need to comply with local laws and licensing requirements (which are discussed further below). The largest potential disadvantage to establishing locally is that foreign ownership restrictions may apply (although these may be revised as part of the new companies law).

The Free ZonesMany free zones currently exist within Dubai, each with its own individual industry focus and regulatory environment. In summary though, businesses operating in the free zones are not subject to many of the restrictions imposed by federal and local law and regulations.

Some (but not all) of the free zones that are available include:

This guide, written by K&L Gates lawyers, includes a high-level overview of the regulatory

environment to establish a business presence in Dubai. The overview describes the

differences between incorporating in a free trade zone and outside of such zones, and

some of the vehicles available to establish a Dubai-based business. It is a summary

document relating only to the Emirate of Dubai.

K&L GatesA Guide to Establishing a Business Presence in Dubai

• Jebel Ali Free Zone – located next to the largest port in the Middle East, it is primarily designed for import and export businesses;

Dubai International Financial Centre •

(DIFC) – primarily for fi nancial service providers, having its own legal system, court, fi nancial services regulator (Dubai Financial Services Authority) and stock exchange (Nasdaq Dubai);

Dubai Technology and Media Free •

Zone – business activities include design, development, use, and maintenance of everything related to information technology, e-commerce and media;

• Dubai Media City – for every kind of media business, which broadly includes media and marketing services, printing and publishing, music, fi lm, new media, leisure and entertainment, broadcasting, and information agencies;

• Dubai Knowledge Village – an educational campus that provides facilities for training and learning institutions to operate which include universities, training centres, professional centers, and HR companies;

• Dubai Health Care City - provides quality healthcare and an integrated centre of excellence for clinical and wellness services, medical education, and research;

• Dubai Multi Commodities Centre – a commodity market place, providing industry-specifi c market infrastructure and a full range of facilities for the gold and precious metals, diamonds and coloured stones, energy, and other commodities industries;

Dubai Airport Free Zone• – a general industrial and offi ce-free zone next to Dubai International Airport;

Dubai Silicon Oasis• – a high-technology park for the microelectronics and the semiconductor industry;

Dubai Logistics City (part of Dubai World Central)• – a logistics platform with all transport modes, logistics, and value-added services, including light manufacturing and assembly located near Dubai’s new airport which is currently under construction;

Dubai International Academic City• – a free zone dedicated to higher education;

Dubai Outsourcing Zone• – a base for both captive and third-party outsourcing operations to provide mid and high-end services in areas such as fi nance, accounting, information technology, payroll processing, engineering, research and development, and design; and

Dubai Maritime City• – a mixed-use site which, although not a free zone, can offer 100 percent ownership.

The type of business activity that is to be operated will dictate which free zone is appropriate, either for business reasons and/or due to the individual free zone’s regulations regarding who is permitted to establish within the zone. Further information on these and other free zones can be provided on request.

Establishing in the Free ZonesThe free zones operate independently of each other, and each has its own Free Zone Authority (FZA) which is responsible for issuing to businesses the necessary licences for operating in its respective free zone. As each free zone is different, it will be necessary to liaise closely with the relevant FZA so as to meet its particular requirements.

An individual or entity establishing in a free zone will need to incorporate an operating entity to carry out its business in the free zone. What type of corporate entity that is required will depend on the free zone but is likely to be through:

a Free Zone Establishment (FZE);•

a Free Zone Company (FZC); •

a Limited Liability Company (LLC); •

a company limited by shares (in the DIFC only) (DIFC Company); or •

a branch offi ce of a foreign or local company.•

The branch offi ce route is likely to be the simplest to establish, although consideration should be given to the desirability of ring fencing liability within a new limited liability entity. Again, depending on the particular free zone, there are minimum capital requirements for incorporating an FZE, an FZC, an LLC, or a DIFC Company.

The types of license that will be granted by the relevant free zones authorities will depend on the type of industry serviced by the free zone. The licences include trade licenses, industrial licences, retail licences, service licences, warehousing licences, and professional service licences.

Annual fees will be due to the relevant FZA for these licences together with a one-off set-up fee. There will be other incidental fees relating to immigration and, of course, an annual rental payment for offi ce or industrial space. These licensing fees are subject to change by the relevant authority and will be dependant on the free zone and the type of licence applied for. A discussion with the relevant FZA regarding the type of licence required and any applicable fees should be held at the outset.

Establishing Outside a Free ZoneTo establish a business in Dubai outside of a free zone there are two main requirements to be fulfilled:

the incorporation of a UAE entity. This •may take a number of forms, the most common being a locally incorporated company or a branch/representative office of a foreign company; and

a trade licence from the Dubai •Department of Economic Development (and depending on the industry sector, further approval from various ministries and/or other authorities). In addition, depending on the type of activity to be undertaken, further special consents may be required from municipality and other regulatory bodies.

There are seven types of corporate entity available under UAE companies law:

joint participation company (general •

partnership) – where foreign participants operate under the licence of an entity already established in Dubai;

private joint stock company• – a form of private limited company that requires at least three founding members and a minimum initial capital commitment of AED 2 million;

public joint stock company• – a form of public limited company that requires at least 10 founding members and a minimum initial capital commitment of AED 10 million;

limited liability company• – a foreign participant holds a proportion of the registered shares in the company and the LLC must have an initial capital sufficient for it to achieve its objectives;

simple commandite company• (simple liability partnership)

private unlimited company• ; and

share commandite company.•

It should be noted that the majority of UAE business entities require the participation by a UAE national either as a local service agent (in the case of a branch/representative office) or as a shareholder (although this may change upon a revised companies law being issued). The most commonly used corporate entity is an LLC. UAE federal law currently requires that not less than 51 percent of the shares in the LLC are held by UAE nationals. However, the law currently permits profits (and losses) to be distributed disproportionably to shareholders’ respective shareholdings provided not less than 20 percent of profits are distributed to the local partner.

A branch office may carry out activities similar to those of its parent company but there are certain activities which are restricted to UAE nationals, such as importing goods for sale in the UAE.

A representative office may only promote its foreign parent company’s activities, by gathering information and soliciting orders. It can not carry on the parent company’s trading activities. There are also further restraints on the number of employees the office can sponsor.

As such, the type of business entity to be used should be considered carefully to ensure the most appropriate one is chosen.

As will have been noted above, it will invariably be necessary to appoint a local service agent or equity partner when establishing in Dubai outside of a free zone. The type of entity established will depend on whether the agent/partner is paid a fixed fee or has a right to participate in profits and the extent of his influence over the management of the business. Again, these issues should be discussed in detail with your lawyers and tax

advisers when considering where and how to establish in Dubai.

The structure to be used by a business seeking to establish a presence in Dubai is dependent on a number of legal, licensing, and tax considerations and the level and location of the business that is likely to be transacted in the region. The above is only a brief summary of the key considerations. We are happy to provide more specific advice on request.

About K&L GatesK&L Gates delivers legal services on an integrated and global basis, with lawyers located in 33 cities in the Middle East, Asia, Europe, and the United States.

K&L Gates’ Dubai office opened in June 2009 and is located in the Dubai International Financial Centre. The office advises local and international corporations active in the United Arab Emirates and throughout the Middle East, with particular emphasis on projects and construction, dispute resolution including arbitration, corporate matters, and mergers and acquisitions, investment funds, financial services regulatory advice, and banking and finance.

The lawyers in our Dubai office have considerable experience and industry connections and can also leverage the proven capabilities of their colleagues throughout the firm’s U.S., Asia, and Europe offices. With strong presence in key capital cities and world commercial and financial centers, our global network of legal resources allows us to offer strategic counsel on a variety of issues around the world. Please contact us directly for more information on how we may be able to assist you or your business.

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K&L Gates LLPThe Gate Building, Level 12Dubai International Financial CentrePO Box 506826Dubai United Arab Emirates

Telephone: +971 (0)4 401 9828Fax: +971 (0)4 401 9817

www.klgates.com

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K&L Gates is a global law firm with lawyers in 33 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit www.klgates.com. K&L Gates comprises multiple affiliated partnerships: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and maintaining offices throughout the United States, in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), in Dubai, U.A.E., in Shanghai (K&L Gates LLP Shanghai Representative Office), and in Singapore; a limited liability partnership (also named K&L Gates LLP) incorporated in England and maintaining offices in London and Paris; a Taiwan general partnership (K&L Gates) maintaining an office in Taipei; and a Hong Kong general partnership (K&L Gates, Solicitors) maintaining an office in Hong Kong. K&L Gates maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners in each entity is available for inspection at any K&L Gates office.

This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.

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