Opening a subsidiary in the UAE offers businesses access to a strategic location, a thriving economy, and a tax-friendly environment. Companies expand in the UAE to tap into regional markets, leverage modern infrastructure, and benefit from a growing consumer base. 

Types of Subsidiaries in the UAE

In the UAE, businesses can establish subsidiaries in various forms, each with distinct characteristics and advantages. Here are the primary types of subsidiaries and their key differences:

Subsidiary Type Structure Ownership Key Use Cases
LLC (Mainland) Flexible, Limited Liability Typically 51% local ownership, but 100% foreign ownership allowed in certain sectors General business operations
LLC (Free Zone) Flexible, Limited Liability 100% foreign ownership Export-oriented businesses, tax benefits
Public Joint Stock Company (PJSC) Publicly traded, multiple shareholders Open to public investment Large-scale operations, public funding
Private Joint Stock Company (PRJSC) Privately held, limited shareholders Limited to 200 shareholders Family businesses, private equity
Civil Corporation Professional services Typically UAE nationals, foreign ownership possible Professional services like law, medicine
Offshore Subsidiary Asset holding, international transactions 100% foreign ownership Asset protection, international business

Step-by-Step Process to Setting Up a Subsidiary in the UAE

Following is a step-by-step procedure for opening a subsidiary in the UAE:

  1. Choose the Legal Structure: Decide whether your subsidiary will be set up on the mainland or in a free zone.
  2. Select a Business Activity: Determine your subsidiary’s specific business activity. This decision is crucial, as it will influence the type of license you need to obtain and whether you can operate in certain sectors.
  3. Find a Local Sponsor (for Mainland Subsidiaries): For certain industries, such as tourism or healthcare, foreign ownership restrictions may apply.
  4. Register the Company Name: Choose a unique company name that complies with UAE naming conventions, ensuring that it doesn’t violate cultural sensitivities. Submit the proposed name for approval with the DED or the relevant Free Zone authority.
  5. Apply for a Business License: Depending on your business activity, apply for the appropriate license. In mainland UAE, you’ll get a commercial, industrial, or professional license from the DED. Free zone subsidiaries apply to the specific free zone authority for their respective license types.
  6. Lease Office Space: Secure office space in compliance with regulations. For mainland subsidiaries, this must be a physical office located within the emirate. Free zone subsidiaries are required to have office space within the free zone to meet legal requirements for operating.
  7. Submit Required Documents: Submit necessary documents such as:
    • Passport copies of the directors and shareholders
    • Proof of residence
    • Business plan outlining the company’s operations
    • A No Objection Certificate (NOC) from the sponsor, if required
    • Any additional documents requested by the authority
  8. Obtain Approvals: After the document submission, relevant authorities DED for mainland or free zone authorities) will review and approve the application. This may include approval for specific activities, trade names, or legal documents.
  9. Register with Tax Authorities: If your business will be liable for VAT, register with the Federal Tax Authority (FTA). Businesses with taxable supplies exceeding AED 375,000 must register for VAT.
  10. Open a Bank Account: Once your subsidiary is legally established, open a corporate bank account with a local bank. The bank will require documents such as the business license, shareholder information, and proof of the company’s physical address.

Key Benefits of Establishing a Subsidiary in UAE

Establishing a subsidiary in the UAE offers several significant advantages that make it an attractive option for businesses looking to expand in the region:

  • Market Access: The UAE serves as a gateway to the Middle East, Africa, and South Asia, providing access to a diverse and growing market with strong demand in sectors like real estate, tourism, finance, and trade.
  • Tax Benefits: The UAE offers a tax-friendly environment, including no corporate tax for many businesses operating in free zones and competitive rates for mainland companies. Additionally, there are various tax incentives for businesses involved in research and development or operating within free zones.
  • Legal Protections: A subsidiary in the UAE provides legal protections, including limited liability for the parent company, meaning the parent’s financial risks are separated from the subsidiary’s operations.
  • Local Presence: A subsidiary allows a company to have a local presence, which can help improve relationships with customers, suppliers, and regulators, making it easier to build trust and credibility.
  • Operational Flexibility: A subsidiary in the UAE allows your business to operate more independently within the region while maintaining control over strategic decisions. This flexibility allows faster decision-making and adaptation to local market conditions.

Essential Documents Required for Registering a Subsidiary in UAE

When registering a subsidiary in the UAE, several essential documents are required to ensure compliance with local laws and regulations:

Company Related

  • Company Name Approval: Approval of the proposed subsidiary name by the DED or relevant free zone authority.
  • Business License Application: Application for commercial, industrial, or professional licenses, depending on business activity.
  • Memorandum of Association (MOA): Outlines the subsidiary’s core objectives, business activities, and share capital.
  • Parent Company’s Certificate of Incorporation: Confirms the legal status of the parent company.
  • Audited Financial Statements (if applicable): Financial statements of the parent company may be required for large subsidiaries.
  • Local Sponsor Agreement (for Mainland Subsidiaries): Agreement with a local sponsor holding 51% shares unless 100% foreign ownership is allowed.
  • Lease Agreement for Office Space: Proof of office space rental or lease agreement in UAE.

Directors and Shareholders-Related Documents

  • Passport Copies of Shareholders and Directors: Copies of passports of directors and shareholders for identification and verification.
  • Proof of Address: Utility bills or lease agreements showing address details of directors/shareholders.
  • No Objection Certificate (NOC): Required in cases where an individual with UAE residency visa is involved in setting up the subsidiary.
  • Power of Attorney: Authorization for the General Manager to operate the subsidiary and open bank accounts on behalf of the parent company.

Legal Structures Available for Subsidiaries in UAE

Subsidiaries in the UAE can be established under different legal structures, depending on whether they are set up in the mainland or a free zone:

  • Mainland Subsidiary: A subsidiary established on the mainland of the UAE typically requires a local sponsor who holds 51% of the shares (except in certain sectors that allow 100% foreign ownership). Mainland subsidiaries can operate across the entire UAE market.
  • Free Zone Subsidiary: Allows 100% foreign ownership, offering tax exemptions and profit repatriation benefits. However, operations are typically restricted to within the free zone or international markets.
  • Limited Liability Company (LLC): The most common structure, providing limited liability protection. Mainland LLCs may require a local sponsor unless exempted.
  • Branch of a Foreign Company: Operates under the parent company’s regulatory framework, conducting similar activities without requiring a local sponsor.
  • Representative Office: Used for market research and promotional activities; cannot engage in commercial transactions.

Whether you’re setting up a subsidiary company in UAE or figuring out how to create a subsidiary in UAE, Commenda ensures you navigate legal complexities, comply with local regulations, and make informed decisions to maximize your business potential. To know more, click here.

Also read: UAE Mainland vs Free Zone: A Comprehensive Guide

Taxation Rules and Incentives for Subsidiaries in the UAE

When setting up a subsidiary company in the UAE, understanding the taxation rules and incentives is essential for effective business planning. Here are the key points to consider:

  • Corporate Tax Rates: A 9% tax rate applies to profits exceeding AED 375,000, starting June 2023. Most businesses are exempt except for oil and gas companies and foreign bank branches.
  • VAT: A 5% VAT applies to most goods and services. Registration is required if annual taxable supplies exceed AED 375,000.
  • Transfer Pricing: Transactions must follow the OECD’s arm’s length principle to ensure compliance.
  • Double Taxation: The UAE has treaties with many countries to reduce or eliminate double taxation.
  • Incentives and Tax Credits: Free zones offer tax exemptions, customs duty waivers, and 100% foreign ownership.
  • Depreciation and Deductions: Businesses can claim depreciation on capital assets to reduce taxable income.
  • International Tax Rules: The UAE adheres to OECD standards like CRS for cross-border operations.

Regulatory and Compliance Requirements

In the UAE, subsidiaries must comply with the following key regulatory and compliance requirements:

  • Registration: Register with the Department of Economic Development (DED) or Free Zone authority, depending on the location.
  • Business License: Obtain the relevant commercial, industrial, or professional license.
  • Local Sponsor: For mainland subsidiaries, a local sponsor holds 51% of shares (unless exempted).
  • Office Space: Secure physical office space within the UAE.
  • Tax Registration: Register for VAT if the annual taxable supply exceeds AED 375,000.
  • Auditing: Annual financial statement audits by a registered auditor.
  • Labor Laws: Comply with UAE labor laws, including employee contracts and benefits.
  • Data Protection: Ensure compliance with data protection regulations.

Do You Need a Physical Address for a Subsidiary in UAE?

Yes, a physical address is required for setting up a subsidiary company in UAE. The subsidiary must have a registered office within the country, which will be used for legal notices and official correspondence. For mainland subsidiaries, the address must be within the emirate where the business is registered. Free zone subsidiaries must have an office within the free zone to meet legal requirements.

Operational Setup for a Subsidiary in UAE

To set up a subsidiary in the UAE, choose the legal structure (mainland or free zone), obtain the relevant business license, secure office space, and open a bank account. Register for VAT if necessary, comply with labor laws by registering employees, and appoint directors and shareholders. Submit the required documents to the relevant authorities to complete registration.

Once the operational setup is in place, the next step is to establish a business bank account to manage your subsidiary’s financial transactions in the UAE.

How do you Open a Business Bank Account for a Subsidiary in UAE?

If you need to learn about how to set up a parent company with subsidiaries in the UAE, then you need to create a bank account, for which you need to follow these steps:

  1. Choose a Bank: Research banks that offer corporate accounts suited to your subsidiary’s needs.
  2. Gather Required Documents:
    • Trade license or business license.
    • Passport copies of company shareholders and directors.
    • Proof of business address (e.g., lease agreement).
    • Parent company’s certificate of incorporation (if applicable).
    • Emirates ID of UAE residents (if applicable).
    • No Objection Certificate (NOC) from the local sponsor (for mainland subsidiaries).
  3. Complete the Bank Application: Fill out the bank’s business account application forms.
  4. Deposit Initial Funds: Most banks require an initial deposit to activate the account.
  5. Sign Account Agreements: Ensure the proper individuals sign the necessary documents to authorize account management.

Is an Operating Agreement Necessary for a Subsidiary in the UAE?

In the UAE, an operating agreement is not mandatory for a subsidiary, but it is highly recommended if the subsidiary is structured as an LLC. While not legally required, an operating agreement can help clarify management roles, decision-making processes, and profit distribution. It can also outline conflict resolution procedures and ensure legal protections, limiting liability for the parent company. While not necessary for all subsidiary structures, having an operating agreement is beneficial for operational clarity and avoiding future disputes.

Opening a Branch vs. a Subsidiary in the UAE

The following table outlines the key differences when deciding between opening a branch or a subsidiary in the UAE.

Aspect Branch Subsidiary
Legal Structure Extension of the parent company. Separate legal entity from the parent company.
Control Fully controlled by the parent company. Operates independently with parent oversight.
Liability Parent company liable for debts and actions. Subsidiary has limited liability.
Taxation Subject to UAE tax laws, including VAT (5%) and corporate tax (9% on profits over AED 375,000). Subject to UAE tax laws, including VAT and corporate tax.
Setup Complexity Simpler to set up. More complex setup, requires incorporation.
Operational Scope Direct extension of the parent company in the UAE. Independent operations in the UAE.
Regulatory Compliance Must comply with UAE regulations but is limited to parent company’s activities. Must comply with local and federal UAE laws.
Market Perception Often seen as a foreign entity. Seen as a local presence, enhancing credibility.

How can Commenda Help You Expand in the UAE?

In conclusion, whether you choose to open a branch or establish a subsidiary in the UAE, understanding the legal, operational, and financial factors is essential for successful market entry. Both options offer unique advantages and challenges, with branches providing a simpler setup and subsidiaries offering greater operational independence and limited liability. The right choice will depend on your business goals, ownership preferences, and long-term strategy in the UAE market.

Commenda can support your business throughout the entire process, from selecting the appropriate structure to navigating regulatory requirements and setting up operations smoothly. Their expert guidance ensures you make informed decisions and comply with UAE laws, streamlining your expansion into the UAE market. 

Ready to simplify your process of setting up a subsidiary company in UAE? Schedule a free demo today.

FAQs

Q. How much does it cost to set up a subsidiary in the UAE?

The cost to set up a subsidiary in the UAE typically ranges from AED 15,000 to AED 50,000, depending on whether it is a mainland or free zone subsidiary. Additional costs may include licensing fees, office rent, legal services, and other regulatory expenses.

Q. How long does it take to register a subsidiary in the UAE?

The registration process for a subsidiary in the UAE generally takes between 1 to 4 weeks, depending on the business type and whether all required documents are in order.

Q. Can a foreigner fully own a subsidiary in the UAE?

Yes, foreigners can fully own a subsidiary in the UAE, especially if the business is set up in a free zone, where 100% foreign ownership is permitted. Mainland subsidiaries may require a local sponsor for certain business types.

Q. What are the common challenges when opening a subsidiary in the UAE?

Common challenges include navigating local regulations, finding a local sponsor (for mainland companies), understanding labor laws, and securing office space. Additionally, cultural differences and managing operational costs can also be challenging.

Q. Do subsidiaries in the UAE need a local director or representative?

For mainland subsidiaries, at least one director must be resident in the UAE. Free zone subsidiaries typically do not require a local director.

Q. What are the annual compliance requirements for subsidiaries in the UAE?

Subsidiaries in the UAE must file annual returns, submit audited financial statements, and comply with VAT regulations (if applicable). They must also renew business licenses and adhere to labor law requirements.

Q. Can a subsidiary hire employees directly in the UAE?

Yes, a subsidiary can hire employees directly in the UAE. It must comply with UAE labor laws, including contracts, wages, benefits, and registration with the Ministry of Human Resources and Emiratisation.

Q. What happens if a subsidiary fails to meet compliance rules in the UAE?

Failure to comply with regulations can lead to fines, penalties, or even the closure of the subsidiary. It may also affect the subsidiary’s reputation and ability to operate within the UAE.