Dubai is the pinnacle of business and trading center in the Middle East. Dubai’s legislation allows for free trade which is why it’s presumably one of the UAE’s most seductive destinations for foreign investors. When choosing to expand your business in Dubai, you must also choose the applicable business form. Two of the most popular legal formats of expansion for foreign companies are the branch and the subsidiary.
Starting a branch in Dubai
Many foreign companies open branches in free zones to obtain the advantages like ‘long term tax waiver’ or ‘100% ownership’. To start a branch office in Dubai, it must be registered with the Ministry of Economy. Also, by nature, a branch in Dubai is allowed to perform activities that are similar to the activities performed by its parent company abroad.
A branch is dependent to its parent company and not a separate legal entity. The parent company is liable to all debts and obligations incurred by the branch. Also, the company must appoint a representative who will take care of the branch affairs.
Beside the tax benefits in Dubai’s free zone, which is probably the main incentive for somebody to start a branch office in Dubai, few other benefits are fast incorporation procedure, comparatively lower cost and ability to directly transfer share to investors or shareholders. It gives you full control over your activities. Not only for financial, but you can use these branches for other activities under complete supervision and direct approval of the parent company.
Even though these branches are allowed to be 100% foreign-owned and are an extension of the foreign company, they cannot be a separate legal entity. You must pay taxes on the revenue generated by the branch in Dubai. Also, some bureaucratic process may take longer compared to subsidiaries.
Starting a Subsidiary in Dubai
A subsidiary in Dubai is a separate legal entity from its parent company. As a foreign-owned business, you will not be liable for the subsidiary. There must be a headquarter of the subsidiary located in Dubai and the management activities must take place according to the Emirates law. You can have a subsidiary in one of the free zones or outside it. For later, you need to find a local partner who will own at least 51% stake of the subsidiary. You must abide by all taxation and hiring laws of UAE.
Subsidiaries provide better credibility among customers and future collaborators as they work as a flexible and independent entity from its parent company. Subsidiaries also allow parent companies to bear limited liability.
Not being obligated to the holding company can also be a bane for a subsidiary. It is comparatively expensive and it requires to follow the local business procedures. Finding reliable local partner can also be a challenge.
As evident, both the branch and subsidiary have their own set of pros and cons. No matter which one you choose, it is always better to get professional help from some business setup companies in Dubai.