Initiating the process of business setup in Dubai mainland is the best way for foreign companies to enter the lucrative Middle East market. Dubai’s status as a gateway to the Middle East prompts foreign companies to establish a branch office. A branch office legal structure doesn’t have a separate legal identity and it is considered as an extension of its parent firm.
However, there are some legal requirements the foreign companies must know before setting up a branch in Dubai mainland. The process of company formation in Dubai has undergone some dramatic changes in the 2020-2021 period and it is important to understand these changes. This article deals with the requirements to form a branch company in Dubai mainland, which also covers the updated regulatory changes. Read on.
Activities of a Branch Office in Dubai Mainland
A branch office of a foreign company is allowed to carry out commercial activities in the UAE and earn profits from the activities. However, a branch office is allowed to perform the activities stated in its trade license. Most importantly, the branch offices must carry out activities similar to those carried out by its parent entity in its original jurisdiction.
Is a Branch Company Same as a Representative Office?
A representative office is also a type of branch office but with some specific differences. A representative office cannot carry out commercial activities and earn profits in the UAE. Representative offices are opened to purposes such as marketing and sourcing business for the parent company. Most banks, real estate companies and various governments open their representative offices in the UAE.
Is Local Service Agent Required to get 100% Ownership?
Before 2021, opening a branch office was one of the ways to have 100% foreign ownership in Dubai mainland (apart from a professional company). In the previous regime, branches were required to appoint a Local Service Agent (LSA) to avail full ownership. However, Dubai DED’s new guideline regarding 100% ownership has removed the requirement of an LSA to have total foreign ownership for branch offices.
What about Economic Substance Obligations?
All companies in the UAE are required to assess their Economic Substance Regulations (ESR) applicability annually. The companies that any Relevant Activities in the UAE in a given financial year fall within the scope of ESR. The Relevant Activities are Banking, Insurance, Investment Fund Management, Lease-Finance Business, Shipping Business, Holding Company Business, Headquarter Business, Intellectual Property Business and Distribution & Service Centre Business.
There are Licensees and Exempted Licensees that come under the ambit of the ESR. A UAE branch of a foreign company becomes an Exempted Licensee if all of its income is subject to tax in the jurisdiction of the parent company. In such a case, the branch should submit ESR notification for the relevant financial year and need not submit the ESR Report. However, to prove its exempted status, the branch should submit details of the country in which the parent company is resident for tax purposes, the tax identification number issued by a relevant foreign tax authority, and a copy of the tax returns.
Branches Facilitate an Efficient Audit Trail
To keep a constant track of the audit especially in MNCs is a tedious task. However, businessmen setting up a branch office in the UAE can enjoy the added advantage of legal tracking of every monetary transaction that happens between the parent company and the branch office.
Benefits of Opening a Branch Office in Dubai Mainland
For investors who 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 water’. Apart from this, the following are some key benefits:
- Opportunity to enter Middle East Market from a stable base
- Opportunity to operating in a strategic location
- Low-Cost Entry into new Market
- Less administrative burden
- Low taxes
How Can Jitendra Business Consultants Help Companies?
If opening a branch office in Dubai Mainland seems to be the sounds like the right strategy, 2021 is the best time for it. An LSA is no longer required for fully owning the company and the brand offices can enjoy Exempted Licensee status under the ESR. However, to make the process of business setup in Dubai easier, it is advisable to seek expert assistance from company formation consultants.
Jitendra Business Consultants (JBC) is one of the best business setup consultants in Dubai with proven experience in incorporating thousands of companies including branches and Representative Offices. JBC possesses the requisite legal know-how related to licensing, documentation, visa processing, accounting, auditing, ESR etc. For a faster company formation in Dubai, consult with JBC’s business setup advisers.