Mainland Representative Office - UAE
Under UAE Federal Law No. 2 of 2015 on Commercial Companies, foreign companies, including those wholly owned by non-UAE nationals, are allowed to establish a Representative Office in the United Arab Emirates.
A Representative Office either acts as a regional administrative office or provides support for the products / services of the parent company in the local market. The Representative Office is not permitted to import such products or do trade. It should be noted that in addition to the above restriction, a Representative Office cannot avail of credit facilities. However, it is permitted to have a bank account for meeting its local expenses.
Difference between a Branch Office and a Representative Office
The key difference is that the Branch Office can carry out commercial activity in the United Arab Emirates. A Representative Office cannot – it must outsource all business to its parent company. In short, a Representative Office is not allowed to turn a profit. It can however, hold a bank account for its operating expenses. So the cash balance at the end of the financial year will always be negative. This is what sets apart a Representative Office from a Branch Office. A Branch Office, on the other hand, is allowed to do business and turn a profit, or in other words, it could have a positive cash balance at the end of the financial year.
Establishing a Representative Office in the UAE
The first step involves getting a Local Service Agent. The Local Service Agent must be an Emirati (this is term used to describe an UAE national of someone who is a citizen of the United Arab Emirates) or a company incorporated in the UAE and 100% owned by Emiratis. The Local Service Agent will represent your company before all Government agencies and is to be paid a Fee* in return.
*This is not fixed, and it depends on the agreement you have with your Local Service Agent. It is uncommon for Local Service Agents to be paid more if the paperwork involved is on the higher side, such as with applications for visas. With a Representative Office, you can apply for as many work visas as you want.
Once you have selected a Local Service Agent, the next step is to decide on your trade name. While the Representative Office, by virtue of being an extension of its parent company, should ideally have the same name as the parent company, sometimes there may be problems, such as the name already being registered in the United Arab Emirates or not permitted. There are certain restrictions on nomenclature – for instance, you can’t have any names connected with religion, country or city.
One way to get around the former setback would be to add the term ‘Middle East’ to the name of your parent company. When it comes to the latter, a company formation expert can help you find a name that matches your company or organization in the closest possible way.
Once you have decided on your name, the Local Service Agent submits an application on your behalf to the Ministry of the Economy. This must be detailed, specifying your parent company’s business activities and the address of its global headquarters in case it already has a presence in multiple countries.
Some business activities are not permitted in the United Arab Emirates, so your best bet would be have a business setup specialist in your corner throughout the process. He/She will also help you with finding a Local Service Agent.
The Ministry of Economy reviews your application and clears it by issuing an Approval Letter for the Department of Economic Development in the emirate where you plan to open your Representative Office. You – or the Local Service Agent to be precise – need to additionally submit a lease agreement for the commercial space that you have in mind. You also need to submit audited financial statements of your parent company for the past two years. This must be attested to by an UAE auditor.
The Department of Economic Development issues you a Business License, and you can then proceed to open a bank account. Owing to strict anti-money laundering regulations, opening a bank account in the United Arab Emirates is not so easy as it sounds. The bank may need to see additional paperwork, such as the structure of your company and the details of all those who hold more than 5% stake in your company. In case the documentation is in a foreign language, it will need to be translated and attested for legal use.