Setting Up Subsidiaries or JV in the UAE

Expanding into the United Arab Emirates (UAE) through a subsidiary or joint venture (JV) offers businesses strategic advantages, including access to a dynamic market, tax benefits, and global connectivity. However, structuring a subsidiary or JV requires careful planning to ensure regulatory compliance, operational efficiency, and long-term success.

Key Considerations for Setting Up Subsidiaries & JVs in the UAE

✅ Choosing the Right Business Structure

• Subsidiary: A legally independent entity owned by the parent company, operating under UAE corporate laws.

• Joint Venture (JV): A partnership between two or more entities, sharing ownership, risks, and profits, often structured as a Limited Liability Company (LLC) or contractual agreement.

✅ Mainland vs. Free Zone vs. Offshore

• Mainland: Allows 100% foreign ownership in most sectors, providing unrestricted market access.

• Free Zones: Offer 100% foreign ownership, tax exemptions, and simplified regulations, but with limited onshore trading capabilities.

• Offshore: Suitable for holding companies, asset protection, and international trade, with no local business activities.

✅ Legal & Regulatory Compliance

• Federal Law No. 32 of 2021 (UAE Companies Law) governs subsidiaries and joint ventures.

• Economic Substance Regulations (ESR) apply to certain activities, requiring adequate presence in the UAE.

• Ultimate Beneficial Ownership (UBO) compliance for transparency in corporate structures.

✅ Corporate Tax & VAT Considerations

• UAE Corporate Tax (9%) applies to subsidiaries exceeding the taxable income threshold.

• VAT registration is required for entities meeting the AED 375,000 revenue threshold.

✅ Licensing & Approvals

• Mainland companies require registration with DED (Department of Economic Development).

• Free zone entities register with the respective free zone authority.

• Certain sectors require additional approvals (e.g., finance, healthcare, education).

✅ Governance & Shareholding Structure

• Clearly define ownership percentages, voting rights, and exit strategies in JV agreements.

• Establish robust corporate governance frameworks for accountability and risk management.

✅ Banking & Financial Compliance

• Opening a corporate bank account in the UAE requires UBO disclosures, KYC compliance, and financial due diligence.

• Adhering to AML (Anti-Money Laundering) regulations is critical for financial transactions.

Best Practices for Structuring Subsidiaries & JVs

✔ Conduct Market Research & Feasibility Studies – Assess demand, competition, and legal requirements.
✔ Choose the Right Partner for JVs – Align on strategic goals, governance, and financial commitments.
✔ Ensure Regulatory & Tax Compliance – Adhere to UAE laws, ESR, UBO, AML, and VAT/Corporate Tax obligations.
✔ Draft Clear Legal Agreements – Define shareholding, decision-making, profit-sharing, and exit terms.
✔ Optimize for Tax Efficiency – Leverage free zones and holding structures for tax optimization.
✔ Implement Strong Governance & Risk Management – Establish transparent policies and compliance mechanisms.