Owning a Company in the UAE: Opportunities Come Along with Responsibilities
It’s no secret that entrepreneurs from all over the world choose the United Arab Emirates as the place to register their businesses. Entrepreneurs from post-Soviet countries are no exception — they have set their sights on this jurisdiction for setting up trading and service companies long ago. What attracts them most is favorable business environment, a reliable banking system, and the opportunity to have a physical presence in the same country where the company and the bank account are registered.
What’s more, the UAE is well known for its ease and convenience of doing business. Many businesspeople believe that once you decide between a free zone and the mainland, obtain your visa, and open a bank account — even if it involves some hurdles — you can relax and run your business without any further concerns. This perception is quite common in the business community.
However, it’s important to understand that registering a company and opening a bank account is just the beginning. Once established, the company must fulfill a number of obligations to remain compliant with local laws and business practices. Failure to comply with these requirements may result in operational restrictions or even legal liability for both the company and its management.
Let’s take a closer look at the responsibilities that a UAE-based company, its employees, and owners may face after registration.
- Tax Obligations
– Corporate Tax Registration
– VAT Registration
– Submission of Corporate Income Tax Return
– Preparation of Annual Financial Statements and Audit
– Updating Information with the Federal Tax Authority (FTA) Portal - Regulatory and Compliance Obligations
– AML Registration (for certain types of activities)
– Compliance with Economic Substance Regulations
– Updating Information about the Ultimate Beneficial Owner (UBO)
– Annual KYC Process in Banks (as well as in certain registration zones) - Employee-Related Obligations
Registration with the Wage Protection System (WPS) and Submission of Monthly Employee Payroll Reports
Enrollment in the ILOE system (Unemployment Insurance Scheme)
Provision of Health Insurance for Employees (and for investors, depending on the free zone)
Obtaining Labour Cards for Employees - Administrative Obligations
– In case of a registered address change for a mainland company — office inspection may be required
1. Tax and Reporting Obligations
1.1. Corporate Tax Registration
Violation: The company failed to register with the Federal Tax Authority (FTA) within 3 months from the license issuance date, despite either exceeding the mandatory income threshold (AED 375,000 of annual revenue) or being otherwise required to register as a legal entity.
Example: A startup operating in a free zone generated income exceeding the required threshold but did not register for corporate tax, assuming that, as an FZCO, it was automatically exempt from the registration requirement.
Consequence: Penalty for non-filing: AED 1,000–2,000 per instance.
1.2. VAT Registration
Violation: The company exceeds the mandatory income threshold (AED 375,000) but fails to submit an application for VAT registration.
Example: A company operating in Dubai Mainland began active sales within the UAE, exceeded the threshold, but did not register for VAT.
Consequences: Fine of AED 10,000 for untimely registration; Additional penalty of 2% per month on the unpaid VAT amount, starting from the first month of delay.
1.3. Financial Statements and Audit
Violation: The company either fails to submit its annual financial statements to the relevant free zone authority or submits incomplete information.
Certain free zones (such as DMCC, IFZA, and others) require mandatory audited financial statements.
Example: A company incorporated in DMCC failed to submit its financial statements within 90 days after the end of its financial year.
Consequences: Fines starting from AED 2,500 and upwards; Inability to renew the license; Suspension of resident visas.
1.4. Updating Information with the Federal Tax Authority (FTA) Portal
Violation: The company changed its legal address, director, or UBO but failed to update this information with the FTA.
Consequences: Fine starting from AED 5,000 for late updates; Risk of TRN (Tax Registration Number) being revoked.
2. Regulatory Compliance Obligations
2.1. Non-Compliance with AML / CFT Requirements
Violation: A company engaged in brokerage, accounting, legal, or trust-related activities fails to register in the goAML system (for transaction monitoring), does not appoint a Compliance Officer, and does not submit required reports.
Example: A consulting firm in ADGM was unaware its activities fell under AML regulations and failed to register.
Consequences: Fines ranging from AED 50,000 to AED 1,000,000; Potential freezing of bank accounts; In some cases, suspension of the license.
2.2. Non-Compliance with Economic Substance Regulations (ESR)
Violation: A company falling under ESR (e.g., holding, shipping, distribution) fails to file the ESR Notification and does not pass the Substance Test.
Example: A RAK ICC holding company failed to submit its ESR Notification, assuming that it was not conducting any relevant business activity.
Consequences: Fine of AED 20,000 for failure to file the Notification; Fine of AED 50,000 for failing the ESR Test; Risk of automatic exchange of information with foreign tax authorities (under CRS).
2.3. Ultimate Beneficial Owner (UBO) Reporting
Violation: The company fails to submit or update UBO information.
Example: A company in DIFC either falsely declared or failed to submit the UBO Declaration within 60 days after incorporation or following a change in shareholders.
Consequences: Fines up to AED 100,000; Temporary suspension of company operations.
2.4. KYC and Banking Compliance
Violation: Failure by the company or its owners to update personal or corporate banking details (passport, address, source of funds), resulting in account freezes or closures.
Example: The company in ADGM failed to submit the updated documents as required under KYC regulations.
Consequences: Account suspension or closure; Difficulty with reopening accounts in the UAE.
3. Employee and Labour Obligations
3.1. WPS and Employee Payroll Reporting
Violation: A mainland company fails to pay salaries through the Wage Protection System (WPS) or delays salary payments by more than 90 days.
Example: A mainland company pays salaries in cash without official WPS transfers.
Consequences: Labour ban (ban on hiring new staff); Fines from AED 1,000 to AED 50,000; In case of repeated violations — license suspension and criminal liability.
3.2 ILOE Registration (Involuntary Loss of Employment Insurance)
All employees working under a UAE residence visa—in the private, government, and federal sectors, including certain free zones and mainland—must be enrolled in the ILOE system. This is a joint responsibility of both employers and employees.
Violation: Employee fails to register within 4 months of visa issuance.
Example: A foreign worker receives a visa from the employer but fails to enroll in ILOE.
Consequences: Fine of AED 400, charged automatically via ICP/GDRFA;
Visa renewal blocked until insurance is paid.
Violation: Failure to pay the insurance contribution (monthly or annual).
Consequences: Fine of AED 200 fine; Potential restriction of labour rights via MOHRE, including employment applications, new visas issuances etc.
3.3. Medical Insurance Issuance
Violation: The company does not provide mandatory health insurance to employees, contrary to UAE law.
Example: An employee holding a Dubai Mainland visa works without valid health insurance or the insurance does not meet DHA minimum coverage requirements.
Consequences: Fines from AED 500 to AED 20,000 per employee, depending on the duration of non-compliance period with insurance requirements; Rejection of visa renewals or employment contract amendments; Possible restrictions through MOHRE or GDRFA systems.
3.4. Violation of Employee Onboarding and Documentation Requirements
Violation: Employing staff without Labour Cards or failing to fulfill visa obligations.
Example: A mainland company hires freelancers or informal workers without proper employment contracts or visas.
Consequences: Incomplete or incorrect Labour Card issuance: fine of AED 100/month per employee; Lack of proper documentation: fines up to AED 50,000 per employee; Company blacklisting; License renewal denial.
4. Obligations Related to Administrative and Legal Support
4.1. Office Inspection upon Address Change (Mainland)
Violation: The company changes office location and updates its legal address but fails to undergo the mandatory inspection by Dubai Economy & Tourism (DET) or the local municipality.
Example: The company moves to a new premises without notifying the authorities or completing a follow-up inspection.
Consequences: License renewal or extension denied; Administrative fines (typically between AED 5,000–15,000); Temporary suspension of all business operations; Risk of license cancellation in case of repeated violations.
Compliance with all the above obligations often requires the involvement of qualified local professionals with relevant expertise. While the UAE market offers a wide range of business consultants who assist with company registration and visa processing at attractive prices, their services are often limited in scope. Therefore, it is crucial to work with legal and business advisors who can provide continuous, lifecycle-oriented support—ensuring the company remains compliant at all stages of its development.
