Offshore company formation in Dubai

Setting up an offshore company in Dubai: A guideline

Offshore companies are often associated with terms such as illegal tax evasion and money laundering, which is why many people are skeptical about offshore companies at first glance - and wrongly so. In most cases, offshore companies are actually used for legitimate business purposes and are also a good way to protect your own assets. Especially in Dubai and the rest of the UAE.

This is why you will find out below how you can set up an offshore company, what advantages it offers and what other things you should bear in mind when setting up a company.

Table of contents

The most important facts in brief
What is an offshore company?
Advantages of an offshore company
Security from creditor access
Tax advantages
Bank account
Flexibility
Discretion and anonymity
Facilitation of international business
Disadvantages of an offshore company
Ineligible business licenses
Trade restrictions outside the UAE
Restricted property acquisition
Is an offshore company right for me?
Setting up an offshore company: How it works
What does an offshore company cost?
Formation costs
Annual renewal fees
Additional services
Comparison of offshore, freezone and mainland
Offshore company
Freezone company
Dubai mainland company
Conclusion
FAQ
Is an offshore company legal?
Which company structures can be set up as an offshore company?
Is there a minimum investment capital for offshore companies?
Is an offshore company the same as a company in a free zone?

The most important facts in brief

• An offshore company is a company that is established outside the home country of the actual owner.
• It is used for the purposes of asset protection, tax optimization and privacy.
• Contrary to all preconceptions, however, the offshore company is a legal form.
• However, a decisive disadvantage of the offshore company is that no trading licenses can be issued to it.

What are offshore companies?

An offshore company is a company that is founded far from the coast (off the shore). In a figurative sense, this therefore means that a company is located outside the home country of the actual owner.

However, a key feature of offshore companies is that they are usually located in countries that are known as tax havens. This is because these countries offer many tax benefits and jurisdictions that promote the protection of assets and privacy.

But what is an offshore company actually needed for? Basically, offshore companies are used for asset management, international business and sometimes to minimize tax burdens.

Advantages of an offshore company

There are many reasons why you should decide to set up an offshore company - regardless of whether you are an individual or the owner of a legal entity. These include, among others:

Security against creditor access

With an offshore company, you can protect your assets from various legal claims and creditors due to their legal liability veil.

Tax benefits

Many offshore jurisdictions have low or no corporate taxes, which is why such a legal form is particularly interesting in those countries where high tax rates prevail.

Flexibility

As an investor, you do not need to have a physical registered office in the country of incorporation when setting up the offshore company. This gives shareholders greater flexibility.

Discretion and anonymity

Thanks to the special jurisdiction, an offshore company offers a higher degree of anonymity and data protection. This may be of interest to you if you are looking for discretion, whether for personal reasons or to maintain a competitive advantage.

Facilitating international business

Offshore companies can facilitate the conduct of international business by acting as central entities for various activities such as trade, investment or intellectual property management.

Disadvantages of an offshore company

Offshore companies can be advantageous in many ways, but they also come with some disadvantages that you should consider when setting them up:

Non-eligible business licenses

Offshore companies are to a certain extent equivalent to a "paper" company, especially in the UAE. This means that the company is wholly foreign-owned. Therefore, you are not entitled to business licenses or a trade license with an offshore company.

Good to know: Offshore companies are authorized to open bank accounts in multiple currencies. This not only enables you to carry out international business transactions, but also protects your money.

Trade restrictions outside the UAE

The business activities of an offshore company are limited to a few trading activities. These include:

• Online advertising business
• Shipping business
• International trade
• General trade and distribution
• Operation of service centers

In addition, you may not work in the insurance, media or aviation sectors or conduct business with other companies in the Middle East.

Restricted real estate acquisition

In principle, you may acquire real estate with an offshore company. However, this only applies if your company is based in the RAK International Corporate Center or in the Jebel Ali Free Zone.

Is an offshore company right for me?

Founding an offshore company comes with a number of advantages. These include, for example, a lower tax burden and administrative effort, which is of particular benefit to consulting companies. But how can you decide for yourself whether an offshore company is the right legal choice for your project? If you work in e-commerce or as a freelancer, for example, you will not have to pay tax. As a share trader, on the other hand, you do not have to pay corporation tax and only have to reckon with minor deductions. However, if you are thinking about your descendants, an offshore company is a good option for inheritances. This is because this legal form eliminates or significantly reduces inheritance tax.

As is so often the case, however, it depends on the individual case, which is why it is advisable to consult an expert on such issues.

Incorporate an offshore company: This is how it works

If you have decided to incorporate an offshore company in Dubai, you will go through the following incorporation process:

1. choosing an offshore jurisdiction: In order to set up an offshore company, you must first choose the place of jurisdiction. You can choose between the Ajman Freezone, the Ras Al Khaimah International Corporate Center (RAK ICC) or the Jebel Ali Free Zone (JAFZA). We also recommend that you contact one of our EXTENT experts for further information on how to proceed.

2. company name and application: Once you have decided on a jurisdiction, we will file your company name with the local authorities on your behalf as our client. If you decide on a company name, please bear in mind that your company must contain the suffix "Limited" or "Ltd." so that you can be legally identified and labeled as an offshore company. We will also take care of your application for company formation and submit it with the necessary documents. For this we need from you:

• A copy of the articles of association of the offshore company
• Passport copies and curricula vitae of the registered shareholders
• Relevant identity cards of the Emirates
• A comprehensive business plan
• A certified copy of the last bank statements (6 months must be documented)
• Proof of address on a utility bill
• 3 possible brand or business names for the company
• Details of the company's business activities

Everything else is then taken care of by the authorities.

What does an offshore company cost?

How much you need to spend to set up your offshore company depends largely on the type of business and services you offer and the jurisdiction in which you plan to set up.

Basically, however, it can be said that the costs of setting up a company are made up of the following factors:

Formation costs

When setting up your offshore company, you should factor in at least AED 8000 for the incorporation alone. These costs usually include all registration fees and costs for legal structuring. There may also be costs for the service provider you have consulted for the formation.

Annual renewal fees

It is not uncommon for offshore jurisdictions to charge an annual fee to maintain your company registration. However, the amount of this fee depends on the jurisdiction in which you are established.

Additional services

When setting up a company, there are not only costs for the application and registration. You will also incur various additional costs. These include, for example, costs that may be incurred due to the use of a lawyer or tax advisor. The same applies if you open a bank account in the course of setting up your company, for which you generally not only have to pay opening fees, but also a minimum balance that you have to deposit when you open the account.

Basically, it can therefore be said that you will incur costs of several thousand AED when setting up an offshore company. At this point, it should be mentioned again that you should also consider the legal requirements and differences as well as all possible tax consequences in the UAE or in the respective offshore jurisdictions.

Comparison of offshore, free zone and mainland

In Dubai and the UAE in general, you have the option of choosing between different legal forms. One of these is the offshore. However, there are two other important legal forms that are often confused with offshore, which is why we will briefly explain the differences:

Offshore company

An offshore company is a company that is not founded and based in the home country of the actual owner. This legal form comes with a number of privileges, such as increased anonymity and data protection. Above all, however, the offshore legal form is used to protect one's own assets from access by creditors.

Freezone company

A free zone is a designated area that is not subject to any trade barriers, which makes it much easier for entrepreneurs to set up their company here. In concrete terms, this means that entrepreneurs who set up a company in a free zone can conduct business more easily and may also own foreign property without the need for an additional local sponsor.

Dubai Mainland company

A mainland company is a company that is established on the mainland of an emirate. This legal form is therefore particularly suitable if you intend to sell both products and services within the UAE. The mainland company is therefore also comparable to a German GmbH.

Conclusion

Offshore companies are companies that are founded outside the owner's home country, but usually in tax havens. They offer various advantages such as protection from creditors, international bank accounts, flexibility and data protection. However, there are also disadvantages such as restricted business licenses and trade restrictions.

Nevertheless, incorporation is an advantage if you intend to protect your assets and attach great importance to discretion and anonymity. However, how much you pay for the actual establishment of your offshore company depends largely on your desired location.

If you have any questions about setting up a company and choosing the right legal form, our team of experts at Extent will be happy to help.

FAQ

Is an offshore company legal?

Yes, an offshore company is legal. Even if offshore companies are sometimes associated with illegal activities such as money laundering or tax evasion, the legal form itself is fully compliant with the law. Offshore companies are often used for asset protection, risk management, inheritance planning or legal tax optimization. The only important thing is that the business activities of the offshore company comply with the laws and regulations of the UAE and the country in which the owner is based.

Which company structures can be set up as an offshore company?

• Limited liability companies (LLCs)
• Limited liability companies
• Limited partnerships

Is there a minimum investment capital for offshore companies?

In principle, you will incur costs of at least AED 8000 when setting up a company. However, there is no minimum capital requirement above this. This is thanks to the updated company law of 2009. According to this amendment, offshore companies can determine the share capital of their limited liability company themselves. This means that there is no strict requirement to prove your start-up capital before starting your business.

Is an offshore company the same as a company in a free zone?

No. As previously mentioned, an offshore company differs from a freezone company in a number of ways. The most important difference, however, is that a free zone company obtains a trading license to do business in the UAE. This is not the case with an offshore company.