The UAE’s authorities aim to make it as easy as possible for foreign companies to start a business in the country. This is the guiding idea behind the wide range of options available in the UAE’s free zones, offshore companies and mainland businesses.
If you are interested in the UAE market but aren’t necessarily ready to take the plunge and launch a fully-fledged company there, opening a branch office might just be the way to go. There are several different branch office structures, but they all allow a foreign company to establish a presence in the UAE while retaining complete ownership of the business from abroad. This makes them an appealing option for companies that want to ‘test the waters’.
And there’s plenty of foreign firms who’ve gone down this route. According to the latest data available, there were 2,891 branches of foreign companies registered in the country in 2016, with the highest number coming from the UK followed by the USA, India and France.
So, what exactly is a UAE branch office, and what are the benefits of setting one up?
What is a branch office in the UAE?
Abu Dhabi’s government defines a branch office as, “the local representation of a company or establishment that is registered elsewhere in the world… Under UAE law, a branch office is an extension of its parent company, and the parent company therefore remains responsible for any liabilities of the branch office.”
A branch office is therefore a useful tool for businesses of any size to establish themselves in the country while maintaining overall control of the business. You are not required to hand over any ownership, and the structure allows for a fast and simple way of establishing a presence in the country. For businesses who are not yet sure they want to commit to a fully-fledged company in the UAE, or who want to ‘try before they buy’, branch offices are an excellent option.
Here are the five main reasons you should consider launching a UAE branch office:
1. Take advantage of the UAE’s favourable tax system: The UAE charges a 0% corporate tax rate on money earned by branches of foreign companies (except branches of foreign banks who pay 20% on annual income). This means that all money earned by the branch is retained by the parent company. In most cases, money earned abroad is not, in effect, taxed in the home country, so all income earned in the UAE would be retained (although the US often does tax income earned abroad).
The UAE charges a 0% corporate tax rate on money earned by branches of foreign companies (except branches of foreign banks who pay 20% on annual income).
2. Enter the MENA region from a stable base: Economies in the MENA region, with their young demographics, are expected to grow rapidly in the coming decades according to the analysts at PwC. The UAE offers the perfect base for entering this region – it is a stable, developed country which is located right at the heart of this dynamic region.
3. A strategic global location: It is often said that a third of the world’s population lives within four hours of the UAE – meaning many of your clients in Asia, Africa and Europe can be easily reached. In this way, a base in the UAE provides a central location from which to expand internationally.
4. Easy administrative processes and auditing: Setting up a branch in the UAE is usually fast and efficient, and you can expect to open your premises within days. You won’t need to set up a separate finance function within your branch office as you won’t be required to submit audited accounts in the UAE. But, if your parent company does require its books to be audited, all money that passes between the parent and branch is legally tracked, offering you a watertight audit trail.
5. Low-cost entry into a new market: Finally, opening a branch company in the UAE is a cost-effective means of entering the country. Unlike other business structures, share capital is not normally required to set up a branch company – you simply need to pay the standard fees, applications and deposits that any business would need to pay. This all makes it significantly more cost-effective to establish a presence in the UAE.
Different kinds of UAE branch offices
If opening a UAE branch office sounds like the right strategy for your business, it’s important to understand the different kinds of business structures which are available. You can set up a branch office on the mainland UAE or in one of the country’s many free zones, and there is a range of types you might consider. These include:
If opening a UAE branch office sounds like the right strategy for your business, it’s important to understand the different kinds of business structures which are available.
- Branch company: This is the most common approach where the parent company remains the sole owner and no share capital is required
- Corporate Shareholder: This is a branch where both the foreign company and an individual shareholder hold a stake in the business
- Representative office: The most cost-effective option, representative offices allow you to promote and source work for the parent company, although you cannot make a profit and work must be outsourced to the parent company
- Subsidiary: Subsidiary branch offices are unique in that they are a separate legal entity to the parent company and must be managed from within the UAE
For more information on the practicalities of setting up a branch office in the UAE, read this step by step guide.
The right structure for your business
The UAE aims to make it as easy as possible for foreign businesses to establish themselves in the country. And, branch offices represent an especially straightforward and simple way to do it. So, are you ready to branch out?
Setting up your own business has never been easier. Virtuzone takes care of it all so you can focus on what matters – building your business. For more information about company formation in the UAE mainland or free zones, please call us on +971 4 457 8200, send an email to firstname.lastname@example.org, or click here.