Any entrepreneur looking to get a foothold in the lucrative UAE marketplace faces a number of options. While many choose free zone or standard mainland setups, a branch office is a great alternative if you’re looking for a presence in the local market while retaining 100% ownership of your business.
In most cases, the parent company, whether based in the UAE or abroad, remains entirely responsible for the business activities of the branch. So a branch office is just an extension of an existing business. Other than the case of a subsidiary, which is considered to be wholly separate, a branch office doesn’t have a separate legal identity from its parent company. In the same vein, while most branch offices are permitted to trade in the local UAE market, they can only conduct similar business activities to the parent company.
There are many good reasons to think about establishing a company branch office – from favourable tax treatment to gaining a foot in the door of a new market. But first let’s look at the different types of branch office you can set up in the Emirates, and exactly what each is permitted to do.
There are many good reasons to think about establishing a company branch office – from favourable tax treatment to gaining a foot in the door of a new market.
Types of branch office – the big four
There are four common types of branch office to consider. The one that best suits your needs will depend on your business activities, your company setup and a few other essential factors.
Corporate shareholder: Here the parent company can be based either in the UAE or abroad. Corporate shareholder offices allow for an individual shareholder to hold a stake in the business along with the licence. For example, a business could be owned 50% by a UK company, 25% by an individual (based either in the parent company’s country of origin or in the UAE) and 25% by another individual. It is also possible to have multiple corporate owners.
Branch company: This is the most common setup in the UAE. As with the corporate shareholder option, the branch company’s parent can be based either in the UAE or overseas. However, branch companies differ from corporate shareholder offices in that the parent company remains the sole owner. As such, there is no share capital required to open a branch office. The branch company also uses the parent’s articles of incorporation.
Representative office: Representative offices are usually the most cost-effective of all the branch types. Again, the parent company can be based either in the UAE or abroad. The major difference with representative offices is that their business activities are limited to promoting and sourcing work for the parent company. Representative offices are not allowed to make a profit in the UAE and must outsource all work back to the parent company.
Subsidiary: Subsidiaries are perhaps the most unique of the branch types in that they are considered a separate legal identity to the parent company and must be managed from within the UAE. This means that the subsidiary assumes total liability for its actions and business activities. Parents of subsidiaries can be based either in the UAE or abroad but management of the subsidiary itself must be based in the UAE.
Benefits of opening a branch office in the UAE
Aside from the ability to trade in the local market and maintain 100% ownership of your business, which is the case for most branch office types, there are many other reasons to set up a branch in the UAE. Here are the top five:
Tax benefits: It’s impossible to discuss the benefits of setting up any type of company in the UAE without touching on the country’s incredible tax regime. Depending on jurisdiction and country of origin, parent companies of branches can take advantage of the UAE’s 0% corporate tax rate.
Audit trail: Auditing multi-national companies can be a challenge. Setting up a branch office helps overcome much of this pain. All money that passes between the parent and branch company is legally tracked. This provides a watertight audit trail for parent companies that require audited books.
Low administrative burden: Along with bookkeeping and auditing, running offices across multiple countries can be complex. Again, much of this challenge is avoided when running a branch office. There is not usually a need for a separate finance function within UAE branch offices as they are not required to submit audited accounts.
Cost-effective route into new markets: Entering new markets – particularly those overseas – can be costly. Not so when setting up a branch company in the UAE. As there is no share capital requirement, branch offices offer entrepreneurs a fantastic opportunity to grow their business without high upfront costs. What’s more, as branch offices are often smaller than standalone organisations, running costs are usually lower too.
‘Try before you buy’: All the feasibility studies and field research in the world can never match up to real experience of trading in a new market. Branch offices offer a taste of the real experience, allowing foreign businesses an opportunity to get a foothold in the local market and establish the viability of opening a larger enterprise within the UAE.
How to set up a branch office in the UAE
If you’re looking to build a presence in the UAE and are convinced of the benefits of a branch office, the good news is that it’s incredibly straightforward to get set up. The whole process comprises four steps.
First, contact your agent law firm, licensing jurisdiction, or a company formation specialist. With expert advice, your journey towards a UAE branch office can really get under way.
Next, decide on what company structure best suits your needs. Different branch office types offer different advantages. For those who wish only to drive business to a company established elsewhere, a representative office is the ideal solution. If you wish to trade within the UAE but continue managing your business from overseas, a corporate shareholder office or branch company office are the best options. However, if you wish to set up an independently managed company in the UAE, a subsidiary is the way to go.
If you wish to set up an independently managed company in the UAE, a subsidiary is the way to go.
Then, assemble the required paperwork. If your choice of branch contains a corporate shareholder, it is now time to begin compiling and attesting the relevant corporate documents regarding the parent company. These include: certificate of incorporation; memorandum and articles of association or certificate of incumbency/certificate of good standing; board resolution resolving the incorporation of the new company; power of attorney giving general/limited power of attorney to the person in charge of the new company.
Finally, it’s time for the licence application. Once you have confirmed that all of the paperwork meets the licence criteria, you can proceed with applying for your branch office licence.
And that’s all there is to it. If you want to build a presence in the UAE marketplace, take advantage of the country’s attractive tax regime, or ‘try before you buy’ in a new market, then start the process of establishing a branch office today and you could be trading in a matter of weeks.
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 info@virtuzone.com, click here.
