How a directorship service can smooth the launch of your UAE company

November 13, 2017

As one of the best oiled and most liberal economic machines in the Middle East and North Africa (MENA) region, and indeed the world, the United Arab Emirates offers advantages in every direction for anyone wishing to set up a company here.

This is not lost on the world’s entrepreneurs. Almost 27,000 new business licenses were granted in 2016 in Dubai alone and some 107,000 existing licenses were renewed. From logistics to banking, tourism, real estate, manufacturing and services, the UAE offers diverse economic sectors for its diverse population.

Add a stable political landscape, solid infrastructures, social harmony and tax freedom and the UAE starts to sound like a business utopia. But what if you want to take advantage without relocating? What if you’re planning a venture in the UAE but don’t want everyone to know about it? What if the theory makes sense but you just can’t comprehend the practicalities? 

With a stable political landscape, solid infrastructures, social harmony and tax freedom and the UAE starts to sound like a business utopia.

What if you hired a professional director?

Unless you’re dead set on a joint venture, or you’re opening a branch of a large or multinational company (where obligations and liabilities stay with the parent organisation), the most favourable option for setting up a new business in the UAE is as a Limited Liability Company (LLC).

As of July 2015, an update to the UAE’s federal Commercial Companies Law (CCL) states that LLCs in the Emirates must be at least 51% owned by UAE nationals. That gives incoming company owners just a small handful of options: relocate, scout for a domestic partner or joint venture arrangement (and thus dilute your shareholding), or secure the services of a professional director.

Company formation specialists provide a professional directorship service for incoming businesses. The right talent and expertise in the local business arena is placed in a key executive position on your board in order to help you overcome all the complexities of setting up and running a business in the UAE – while leaving ultimate control of the company in the hands of the owner or owners.

For a multitude of reasons, relocation may not be in your interests and sourcing new partners is tricky, especially if you’re inexperienced in the territory or managing the process remotely. So many inbound companies settle on the provision of professional directorship services as the most viable and valuable short-to-medium term option.

What do professional directors do?

A professional director acts on the instruction of the company owner(s), representing their interests and executing business in line with a precise written agreement that covers all eventualities. In short, it’s up to the company to define exactly what their director will do and how they should do it.

Once the company appoints its professional director to the board, most likely as GM or MD (for reasons explained later), that person is obliged to carry out duties as per the service agreement, which your company formation adviser will draw up for you.

Once the company appoints its professional director to the board, most likely as GM or MD, that person is obliged to carry out duties as per the service agreement.

The CCL’s 51% ownership figure seems off-putting at first but the reality of it need not muddy the true nature of the shareholding. You have the option to write a different ratio for the share of profit and loss into the Memorandum of Association. Furthermore, the professional director is typically held in position via a service fee, so their compensation arrangement will stand outside the ownership structure.

The benefits of professional directorships

The UAE may be a haven for business, but not everyone wants to move here. It’s a tough ask for business owners to move themselves and their family away from the obligations, networks and creature comforts at home. Other business owners may desire anonymity in setting up a new venture, perhaps because they’re working on conflicting projects, or maybe because mega success and mega failure can both bring unwanted attention and the owner isn’t ready for a new professional venture to be public knowledge.

The professional directorship service is used to ensure the highest degree of privacy and confidentiality, because the name of the director will appear in the corporate documents, in any business contract and, eventually, in the jurisdiction’s business register.

A professional directorship service also enables you to take advantage of the UAE’s tax benefits without having to live there. Most countries deem a company owner to be a resident for tax purposes in the jurisdiction in which it is centrally or effectively managed and controlled. The professional directorship service agreement places the management and control of your company firmly within the UAE, so you can remain a resident in a high tax jurisdiction but still enjoy the tax-free benefits of running a company in the UAE.

Steering through the bureaucracy

Basing a business in the UAE gives it a strong chance of success, but setting up your business is not all plain sailing. There are regulatory quirks to deal with here, just as there are in any other country. The UAE’s Department for Economic Development (DED) has a lengthy list of obligations a company has to meet if it is to gain approval for a trade license. Among the more complex inclusions on that list is a breakdown of the forms required in Arabic.

After that, each of the seven Emirates has its own nuanced rules, so even once you’ve navigated federal bureaucracy, there are local business bylaws to contend with.

Similarly, the UAE may be known for its financial advantages, but getting the most out of the country’s light-touch tax regime isn’t as simple as just setting up shop and opening for business. It can require a deft hand to ensure all bases are thoroughly covered.

Anyone launching a business in the UAE for the first time would benefit from having a person with local knowledge to help navigate through these complexities. A professional director can provide that expertise. In addition, if you have an experienced professional director covering the setup process, it frees the rest of your team to concentrate on growing the bottom line.

A further benefit to the bottom line is the fact that a professional director is a leased service, so compared to the salary and perks – not to mention the risk – of a full-time hire, it’s an arrangement that makes financial sense for a company in its early stages.

Presence and perception

Having a clued-in professional director in place can not only reduce the time, risk and legal exposure of the setup process, it can also aid perception. A named local expert is a stamp of legitimacy, proof that regulations have been, and will be, diligently followed.

Having a clued-in professional director in place can not only reduce the time, risk and legal exposure of the setup process, it can also aid perception.

What’s more, the right director will bring a strong network of high-level contacts and connections into the fold. It is also not uncommon for UAE-based clients to request or indeed require partners to have a physical presence on the ground. They will, at least, want a physical point of contact, so having a director in situ offers that peace of mind.

There is also the continuity factor. Businesses in the UAE mainland are required to have a manager appointed at all times, so having a visible and consistent figurehead facilitating board meetings (which need to be held at least every two months) as well as signing off on new contracts and acting as a beacon for clients, staff and contacts, is important as a show of stability.

Having touched on the UAE’s rules on board membership, regulations also state that the positions of chairperson and managing director must not be held by the same person. A professional directorship adheres to this rule in a strategic way: the local director is on the ground and visibly overseeing operations, while the chairperson can stay remote with little or no visibility. This structure preserves personal anonymity while adhering to UAE law.

Should a business experience steady or speedy growth, the experience of a professional director can, again, come to the fore. By leveraging his or her connections, a director can source and secure new service providers – and even new staff – to cope with the rise in scale. From understanding the labour laws to decoding many different contract types, onboarding new team members in the UAE is more complex than it is in other places, so having experience on tap will pay dividends.

Is a professional director service for me?

A professional director can help a fledgling company in the UAE to get established and increase its chances of success. The service can be set up with the help of a company formation specialist, who will draw up the Service Agreement, ensuring all financial, legal and operational liabilities still rest with the owner.

Professional director services are frequently taken up as a short-to-medium-term option by foreign owned companies starting up in the UAE but remain in place long-term. The guaranteed jurisdiction over the company, in tandem with anonymity, zero tax and mastery of local company regulations and culture proves just too good to let go.

Virtuzone Mainland is dedicated to helping clients open a company on the UAE mainland, providing advice and assistance with every aspect of the company formation. To set up a consultation, please call us on +971 4 457 8200, send an email to maria.capin@vz.ae or click here.

 

About the author: John Hanafin, CEO at Virtuzone Business
About the author: John Hanafin, CEO at Virtuzone Business

With 25 years of experience in the company formation industry, John Hanafin is well known in the UAE and beyond as a specialist in corporate services, and shares a passion for helping others establish and grow their own businesses across the UAE and wider region. John joined Virtugroup in 2017 after spending 12 years with The Sovereign Group as their Global Sales Director, and two years as CEO of Arton Capital.