Learning from the engineering profession, it’s a standard practice to build at least two doors, for entrance and exit (preferably on opposite ends) for buildings where people live, work or spend time. Ensuring exit options before constructing the building is a matter of safety as well as common sense. A similar approach applies to entrepreneurship as well, and that’s why investors are advised to plan a strategy for exit (liquidation/closing the company) before entering the business (forming the company in Dubai).
Related: How to close the LLC company in Dubai
Liquidation is your safety door for exiting the business in case of unfortunate events like serious cash flow issues, debt, insolvency etc. Liquidation also serves as a robust legal recourse when you achieve the business objective and no longer want to run the company. Though UAE is a tax-free economy and ranks 16 when it comes to ease of doing business, it does not mean entrepreneurs should overlook the closure of the company. Many investors struggle when they start the process of winding up the business in the UAE.
Also read: Why Company Liquidation in Dubai is the Best Exit Strategy?
Company liquidators in Dubai present here a detailed guide to some essential requirements every entrepreneur must know before entering the business. Read ahead.
a) Cancellation of All the Visas
Once the board passes a resolution to appoint the official liquidator, the process of winding up a company in Dubai formally commences. The requirement applies to all forms of legal structures, including mainland LLCs and companies incorporated in the free zones. The process of closing down the company in the UAE requires you to cancel the visas and work permits of all the employees.
It needs to be done meticulously by coordinating with the Department of Naturalisation and Residency as well as the Ministry of Human Resources and Emiratisation. The end of service benefits must be settled, and the bank guarantees of the staff must be recovered. However, the visa of a General Manager can be cancelled at the final step of the liquidation process.
Related: Why Does the Company Undergo Compulsory Liquidation in Dubai?
b) Surrender of the Facilities
While liquidating a company in Dubai, the owners should return the facilities such as office spaces, warehouses etc., to the authorities in the original conditions. For instance, while winding up a company in Jebel Ali Free Zone (JAFZA), the business owners should notify the leasing department at the free zone. JAFZA mandates that the leased premises should be returned in the original state in which the company first occupied them. After terminating the lease agreement, the keys to the property or facilities must be returned to the owner.
Also read: 5 Reasons Why Businesses Go Under Liquidation in Dubai
c) Exit Interview with the Licensing Authority
Certain free zones such as JAFZA have made the exit interview a mandatory requirement for successfully liquidating a company in the free zone. Once the board members decide to close down the company, they should notify the free zone authority regarding the liquidation. JAFZA mandates that the shareholders must hold an exit interview with the JAFZA Customer Relations Department. Talk to the best company liquidators in Dubai to deal with the exit interview and easily shut down the company.
d) Deregistration of Value Added Tax
VAT deregistration is one major area that business owners overlook during company liquidation in the UAE. A tax registered company must apply for VAT deregistration if it is heading for liquidation. As per Article (14) of VAT Executive Regulations, a VAT registered company must apply for VAT deregistration within 20 business days of becoming eligible. If a company under liquidation fails to apply for VAT deregistration within the stipulated time, a penalty of AED 10,000 will be incurred. VAT deregistration is a time-consuming process, and therefore, the business owners need to prioritize this mandatory requirement while developing their exit strategy.
e)Maintaining Real Beneficiary Register
A company under liquidation is obliged to meet the requirements set out in the Ultimate Beneficial Ownership (UBO) law. As per Cabinet Resolution No. (58) of 2020 on Ultimate Beneficial Ownership, a company undergoing liquidation should hand over the Real Beneficiary Register and Partners and Shareholders Register, if any, or a true copy to the Registrar within (30) thirty days from the date of the liquidator’s appointment.
Further, the company administrators or the liquidator must maintain the Registers for a period of at least five years from the date of liquidation. In the wake of the new regulations, the liquidator assumes a greater role here and therefore availing reliable company liquidation services in Dubai becomes imperative.
f) ESR Notification, Report Filing Before Liquidation
With the introduction of Economic Substance Regulation (ESR), the compliance burden of companies under liquidation has increased. If a company is carrying out any Relevant Activity during the course of the winding-up process, the liquidator should ensure that the firm meets all relevant ESR obligations. The company must file ESR annual ESR notification, submit ESR Reports and should meet the Economic Substance Test for any period during which it carries on a Relevant Activity and derives Relevant Income. As non-compliance will result in penalties, it is better to consult with approved company liquidators in the UAE well in advance.
Know more about ESR here
g) Clearances from Immigration, Labour and Others
The company should obtain clearance in the form of a NOC from the Customs to ensure that the goods and products imported and/or exported have been cleared. The NOC is also proof that the company has settled all the customs duties. Visa and immigration clearance could turn out to be a complex process as all the employees should be transferred or their visas should be cancelled. Clearance must also be obtained from DEWA, Etisalat and RTA to ensure that the company doesn’t have any outstanding dues or any registered vehicles under the company’s name.
h) Lock-In Period after Clearances
Once all the mandatory NOCs are secured, the liquidation of the company would be advertised in the newspapers. The notice of the liquidation will be published for a lock-in period as specified by the licensing authority. The lock-in period is set to ensure that there are no objections from any third parties against the proposed company liquidation in the UAE.
i) Submission of the Liquidation Report
The liquidator, appointed by the company, prepares and submit an audit report or liquidation report to the relevant licensing authority at the end of the process. The report shows the assets and liabilities of the company at the end of liquidation as zero. The assets should be sold to settle the debts and pending dues to employees or other parties. The authority will review the report and issue a liquidation certificate announcing the closure of the company.
How can Company Liquidators in Dubai Help you Exit the Business?
Company liquidation in Dubai is a robust strategy to exit the business, but it involves a series of steps and procedures. Compliance requirements related to ESR and the UBO has made the process of winding up a company in Dubai more complex and time-consuming. Planning the exit while starting the business is the best strategy to make the liquidation process more effective. Consulting with company liquidators in Dubai, such as Jitendra Business Consultants (JBC), will enable the investors to develop an efficient exit strategy. JBC’s business setup consultants and auditors strive towards making the process of closing down a company in Dubai less strenuous for the investors. JBC takes care of all the requirements such as visa cancellations, ESR filing, VAT Deregistration, maintenance of the Real Beneficiary Register etc.