In brief:
- Resolution No. (138) of 2024 (“Resolution”) issued by the Ministry of Economy aims to regulate the registration of branches and representative offices of foreign companies.
- The Resolution provides new rules in relation to branches of foreign companies. The key changes are: foreign companies are no longer required to appoint a local service agent and are no longer required to provide a bank letter of guarantee in the amount of AED 50,000.
- The Resolution covers all types of representative offices, including regional liaison offices, management offices and representative offices of foreign banks.
The Resolution is a regulatory framework designed to simplify and standardize the process for branches or representative offices of foreign companies in the UAE. The Resolution reflects the growing trend towards a more transparent, efficient, and business-friendly environment in which international companies can operate. It addresses key areas such as registration procedures, applicable documentation and compliance.
The Resolution repeals Ministerial Resolution No. 377/2010 regarding the Guide to Licensing Procedures for Branches and Representative Offices of Companies Registered Abroad and Free Zones in the United Arab Emirates.
Every branch or representative office of a foreign company must be registered with Ministry of Economy (“Ministry”) through the electronic services platform on the website of the Ministry. Foreign companies must submit various documents, including the parent company's certificate of incorporation, audited financial statements, and a resolution of the parent company's board of directors approving the establishment of the Branch or Representative Office in the UAE and a letter of appointment from an auditing firm registered with the Ministry accepting their engagement to audit the annual financial statements of the branch, The auditor acceptance letter is not required for representative offices.
It is noteworthy that the Resolution removed the requirement to submit a bank guarantee in the amount of AED 50,000 as well as the submission of a local service agent agreement. These two items were key requirements under the previous regime for branches of foreign companies and representative offices. The removal of these requirements evidences that the Ministry aims to make it easier for foreign companies to conduct business in the UAE.
The branch or representative office must have a physical address within the UAE. Virtual offices are not permitted for registration purposes.
A branch of a foreign company is required to file annually with the Ministry the audited financial statements of the branch. However, the representative offices are not required to file audited financial statements as representative offices are not permitted to undertake any revenue generating business in the UAE. The representative office is allowed to study the market and potential business opportunities but is prohibited from undertaking any business activity pursuant to Article 339 of the Federal Decree Law No. 32 of 2021 on Commercial Companies. This is why representative offices are not required either to engage an audit firm in the UAE or file annual audited financial statements with the Ministry.
After the branch or representative office is registered with the Ministry, a license must be obtained from the local licensing authority in charge of the corporate affairs in the concerned Emirate.
The Ministry issues a registration certificate for the branch or representative office which is valid for one year only and must be renewed annually.
In the event that the foreign company wishes to cease the operations of the branch for a period and resume operations later without forfeiting the registration or being required to re-register the branch, the Resolution provides a suspension mechanism. The foreign company may file an application to suspend the registration of all or some of its branches or representative offices in the UAE. The period of suspension may not be less than one year and not more than three consecutive years.
The Resolution represents a significant enhancement in the regulatory framework governing foreign business entities in the UAE. By streamlining the registration process and increasing regulatory clarity, the Resolution aims to foster a more attractive and efficient environment for international businesses seeking to establish and operate in the UAE. Foreign companies are encouraged to familiarize themselves with the new procedures and ensure compliance in order to benefit from the opportunities available in the UAE market.
Should you require any information on the above, please contact Yasser Omar, Executive Partner, and Head of Corporate and Commercial, Abu Dhabi.