Civil company formation in the UAE

Foreign entrepreneurs looking to set up in the UAE are faced with several choices. You could opt to set up in one of the country’s many free zones to benefit from zero corporate and personal tax rates, 100% repatriation of profits, and 100% foreign ownership. Alternatively, you can set up an LLC on the UAE mainland. While this latter option does require handing over a 51% stake in your business to a local sponsor, it also offers full access to the local UAE market place – something free zone businesses do not.

There is also a third option for foreign entrepreneurs and that is civil company formation. It includes 100% ownership, and access to the local market, but does involve unlimited liability. Civil company formation in the UAE is available to qualified professionals in specialist sectors – such as doctors, accountants, lawyers, consultants, and engineers. Civil companies must be established as partnerships with the business owners holding professional qualifications in their field of expertise.

Civil company formation in the UAE is available to qualified professionals in specialist sectors – such as doctors, accountants, lawyers, consultants and engineers.

While civil companies do allow for 100% foreign ownership, there is still a requirement to work with a Local Service Agent (LSA) in the UAE in order to trade from the mainland. Unlike local sponsors, LSAs do not hold a stake in your business. The role of the LSA is simply to liaise with government departments on your behalf – assisting with licence approvals, work permit and visa applications and the like – for which they are paid either an agreed fee or a percentage of company profits.

Civil company formation in the UAE

So, if you’re a qualified professional looking to make a name in the local market, it’s important to understand whether civil company formation in the UAE is the best company setup option for you. Below is everything you need to know in order to make that choice.

1. 100% liability vs LLC: Civil companies have 100% liability – so it’s important to understand what that means when making the choice. With a limited liability company (LLC) you are not liable personally for any debts of the company. So there is very much a layer of protection. For a civil company, there is 100% liability (or ‘unlimited liability’) which, as it sounds, means creditors could potentially go after your assets and possessions should the worst happen. While the two types of company may share some similarities in terms of structure, in the event of liquidation, the difference becomes clear.

2. Quick and easy setup: The good news for those who are ready to take the plunge is that civil company formation in the UAE is both quick and easy. It is simply a case of applying to the Department of Economic Development (DED) for your licence. New initiatives have made the entire process so simple that, providing you meet the eligibility criteria, you could be registered with the DED within just 90 minutes.

3. Affordable setup: Entrepreneurs new to the UAE are often put off by the perceived costs of doing business in this part of the world. In reality, however, it’s perfectly possible to establish a business in the Emirates for a minimal outlay. Applying for your professional licence to form your civil company costs around AED 17,000. What’s more, as there is no requirement to provide paid upfront share capital when establishing a new civil company, total startup costs are exceptionally low.

4. Working with a local service agent (LSA): As I’ve already touched upon, civil companies are not required to work with a local or corporate sponsor. However, you will have to engage the services of an LSA to liaise with government departments on your behalf. The LSA has no say over your business decisions, nor do they hold a stake in your company. A company formation specialist can help you find a reputable LSA to ensure the whole process goes off without a hitch.

5. Apply for multiple visas: Civil company formation in the UAE is particularly popular with larger organisations as it allows business owners to apply for multiple visas – in fact there is no upper limit for mainland businesses. However, there is a catch – the more visas you apply for, the more office space you need to acquire. The general rule of thumb is 100 sq. ft. of office space per visa. However, this may be negotiable with the DED. For example, if you have a large remote workforce of 500+ employees, you are unlikely to be required to take 50,000 sq. ft. of office space.

6. It’s easy to sponsor dependants: As well as being able to sponsor your employees for their visas, as a shareholder in a civil company, you can also sponsor dependants for their residence visas. Providing you meet the application criteria, you can sponsor the visa applications for staff such as drivers or your spouse and other dependants. The process is relatively easy – entry permit, status adjustment, medical fitness test, then Emirates ID registration, and visa stamping. It’s a good idea to get advice from an expert in setting up UAE free zone businesses when completing this process as they will make sure that before you start an application, both you (and those you’re hoping to sponsor) meet the entry requirements.

7. Set up with multiple shareholders: Another reason civil companies are the popular choice for large professional organisations is that they allow entrepreneurs to set up a business with multiple shareholders. Civil company formation in the UAE requires a minimum of two shareholders and while there is no official upper limit, the generally accepted cap is 50 – these can be either individuals or corporate entities.

Civil company formation in the UAE requires a minimum of two shareholders and while there is no official upper limit, the generally accepted cap is 50 – these can be either individuals or corporate entities.

8. Easy to arrange your corporate bank account: Once you’ve got your professional licence and formed your civil company, it’s then quick and easy to open your corporate bank account. A company formation expert can advise on the best bank to suit your needs – and even arrange meetings in-branch for you, should you wish. Though you are of course also welcome to approach any local or international bank on your own.

Setting up a civil company – the path for professionals

Civil company formation in the UAE is the only company setup option tailored exclusively for professionals. Simply owning a civil company in the UAE is an advert to the market that you are highly skilled and qualified in your chosen field. And this is before even considering the numerous other benefits such as 100% foreign ownership coupled with full access to the local market.

However, it is an approach that comes with risk. Having unlimited liability may, on the one hand, lead to greater business responsibility. But at the same time, it should not be entered into lightly. If liquidation were to occur, you as the owner of the civil company could stand to lose much more than just the company itself. This is a serious issue which needs careful consideration, and this is where consulting with a company formation specialist is key.

If you fit the bill – a qualified professional in a recognised industry such as healthcare or engineering with the required drive to see success in this competitive corner of the globe – then this is a route you might consider, but as mentioned above, it’s an area where it’s worth treading carefully and seeking expert advice.

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.