The United Arab Emirates (UAE) has emerged as a global business hub. Its strategic location, top infrastructure, and investor-friendly policies by the government of the UAE have made it a global hub for business. The UAE government has carried out multiple regulatory reforms and introduced very transparent legal frameworks to promote ease of doing business in order to attract global investors.
However, foreign investors must understand and comply with several legal requirements under UAE corporate law to operate successfully and avoid legal and financial risks.
Business Ownership Regulations
UAE law now allows 100% foreign ownership in most business activities after the amendment to the UAE Commercial Companies Law (Federal Decree-Law No. 26 of 2020). This reform removed the earlier requirement for a UAE national to hold at least 51% share in mainland companies.
However, full ownership is still restricted in sectors considered strategic, such as oil exploration, banking, insurance and defence.
Foreigners also have the option to set up in one of the over 40 free zones across the UAE where 100% foreign ownership is standard and companies enjoy tax benefits, simplified customs and full profit repatriation.
Licensing and Registration
Every business operating in the UAE must be licensed. Investors need to choose between setting up in the mainland or a free zone. Each option has its own licensing authority:
- Mainland companies must register with the Department of Economic Development (DED) in the relevant emirate.
- Free zone companies must apply through the respective free zone authority.
The type of license, commercial, industrial, professional, or tourism, depends on your business activity. A correct classification is essential because operating outside the scope of your license can lead to penalties or suspension.
Local Sponsorship and Service Agents
Despite ownership reforms, some business types still require a local service agent or national sponsor, particularly for:
- Branches of foreign companies
- Professional licenses (e.g. legal services)
A local service agent does not hold shares or interfere with management but acts as a liaison with government departments. It’s important to sign a detailed agreement outlining the agent’s fees and responsibilities to safeguard your interests.
Compliance with Economic Substance Regulations (ESR)
The UAE introduced Economic Substance Regulations in 2019 to comply with global tax standards set by the OECD and EU.
Businesses involved in “Relevant Activities”, such as Banking, Insurance, Shipping, Intellectual property holding, Distribution and service centres, must maintain adequate economic presence in the UAE.
This includes having a physical office, full-time employees, local management etc. Entities must file annual ESR notifications and substance reports. Non-compliance can lead to penalties of AED 50,000 to AED 400,000, license revocation, and exchange of information with foreign tax authorities.
Anti-Money Laundering (AML) and Ultimate Beneficial Ownership (UBO) Reporting
To combat money laundering and promote transparency, UAE companies must comply with AML regulations and file UBO declarations.
- The UBO is the individual who owns or controls 25% or more of the company.
- Companies must submit UBO data to the Ministry of Economy and update it as changes occur.
- Designated Non-Financial Businesses and Professions (DNFBPs), such as real estate firms, auditors, and dealers in precious metals, must also register for AML compliance.
Failure to comply may lead to administrative fines, suspension of business activity, and reputational damage.
Corporate Governance and Shareholder Agreements
Strong governance helps avoid internal disputes and protects investor rights. UAE law requires companies to draft Articles of Association (AOA) at the time of incorporation.
It is also strongly advised to prepare a Shareholder Agreement that outlines:
- Voting rights
- Profit distribution
- Exit strategies
- Dispute resolution mechanisms
These agreements help clarify expectations and safeguard minority shareholders. Good corporate governance, such as holding regular board meetings and maintaining proper financial records, is also essential under UAE corporate practices.
Employment Law Obligations
Foreign investors must comply with UAE labour laws when hiring staff. Key employment law requirements include:
- Written contracts that clearly specify terms of employment
- End-of-service gratuity payments
- Working hours, leave entitlements, and notice periods
Mainland companies must follow the Federal Labour Law under the Ministry of Human Resources and Emiratisation (MOHRE). Companies in free zones may follow zone-specific rules, while firms in the DIFC or ADGM apply their respective employment laws.
Ensure employment agreements are legally compliant and include termination clauses, non-compete terms, and confidentiality obligations.
Conclusion
The UAE offers a pro-business environment for foreign investors. However, successful market entry depends on strict compliance with local corporate laws and regulations. From ownership and licensing to tax reporting and employment laws, investors must be thorough and proactive.
To avoid delays, penalties, or disputes, it is wise to seek professional legal guidance when planning your UAE investment journey.
Get Expert Legal Advice on Foreign Investor Legal Requirements with SK Legal
Setting up or expanding your business as a foreign investor in the UAE comes with essential legal obligations, from ownership structures to economic substance compliance. At SK Legal, we offer expert legal guidance to foreign investors in the UAE. Our services include:
- Comprehensive Legal Consultancy: Our expert team provides clear, personalised legal advice, supporting foreign investors with UAE corporate compliance.
- Efficient Policy Review and Implementation: We help foreign investors draft and update agreements, policies, and company documents in line with UAE laws, minimising risk and ensuring compliance.
- Specialised Legal Support: Our experienced lawyers are equipped to handle all aspects of foreign investment compliance and corporate governance.
For personalised assistance and expert legal advice on UAE Corporate Law, contact us at [email protected].
