The UAE Companies Law, article (313) allows a foreign company to promote its main activity in UAE by opening a representative office. The following activities are permissible:
- Representing the financial institution licensed to deal inside the country, including contacts on its behalf with concerned agencies as well as promoting its services in the local market.
- Providing the head office of the licensed financial institution with data relating to economic developments in the country.
- Providing customers of the licensed financial institution with information on the local market.
- Providing data to local agency, which intends to develop its business at countries wherein the licensed institution conduct its business.
- Providing customers with banking, financial and investment consultation services.
The license to open such a representative office is governed by certain provisions of the law and executive regulation. Accordingly, a foreign company representative office is not allowed to practice its activity unless it obtains a license issued by (1) the Ministry of Economy and (2) the Department of Economic Development.
In cases where the activities of the parent company are financial in nature, approvals will first have to be sought from the Central Bank of the UAE.
It must be noted that representative offices are allowed to market and promote the activities of the parent entity, and not to engage in client-facing sales activities. This differs from a branch office setup where branches are allowed to carry out the service of the parent company, including invoice clients and service them.
A representative office in essence, would serve as a cost center only.
Central Bank approvals
The Central Bank of the UAE is very selective in approving representative offices of financial companies. The application process involves submission of a set of documents (that have to be duly notarized and legalized) to the authority, following which there is a review of the submission conducted by the Authorization Committee. In practice, this whole process can easily take over 6 months, without any guarantees of approvals.
Ministry of Economy
It is a mandatory requirement to appoint a UAE national to act as the Local Service Agent of a representative office registered in the UAE. The Local Service Agent’s duty is only to assist the company in matters related to the Government, such as visas & immigration. His role and responsibility to the representative office is limited and restricted to the annual lump sum fee agreed as per the Local Service Agent agreement notarized in the Dubai Courts. He is not a participant in the operational, banking or administrative affairs of the representative office.
The notarized and attested corporate documents of the parent company would be attached with the application to the Ministry of Economy, along with the application fee of AED 5,000. Once approved, an annual registration fee of AED 10,000 would be incurred (in addition to the annual license fee charged by the Dubai Department of Economic Department). A bank guarantee for an amount of AED 50,000 will also have to be provided to the Ministry of Economy; this guarantee shall be refundable only upon cancellation of the registration of the representative office.
Representative offices are a good way to enter the market, especially for financial service companies.
Of course, the Dubai International Financial Centre (DIFC) and the recently created Abu Dhabi Global Market (ADGM) offer excellent alternatives with possibilities of upgrade the license to undertake financial service activities as well. More on that in a different post!