Written by: Jin Jianzhi, Attorney at Mankiw LLP
In the past two years, the Middle East, represented by Dubai, has been a popular destination for Web3 projects to go global. Lawyer Mankiw is often asked by Web3 entrepreneurs about Dubai's encryption policies and ways to set up companies. Previously, Lawyer Mankiw wrote an article specifically sorting out Dubai's encryption licenses (Crypto Oasis in the Desert: Overview and Application Guide for Dubai VASP Licenses?), and this article will provide Web3 entrepreneurs with a guide to the first step of going global to Dubai - setting up a company.
However, before that, Attorney Mankiw will first explain to you why Web3 is so optimistic about Dubai.
Dubai's traditional advantages
At present, many well-known multinational companies such as Procter & Gamble, Microsoft, Adidas, and Nestle have set up their MENA (Middle East and Africa) regional headquarters in Dubai. Chinese companies, especially state-owned enterprises, also like to go to Dubai to conduct business. This is all based on some of Dubai's "traditional advantages".
Excellent fiscal and taxation policies
Dubai is located at the intersection of Europe, Asia and Africa, and can radiate to the Middle East, Africa, South Asia and European markets.
Dubai is located in the Gulf Standard Time (GMT+4), which enables it to cover the business hours of the European, Asian and African markets at the same time: the time difference with Europe is about 3 to 4 hours, and the time difference with Asia is 1 to 4 hours. Companies in Dubai can easily coordinate business communications and transactions with Europe, Asia and Africa.
Excellent fiscal and taxation policies
There is no personal income tax, salary tax, capital gains tax or inheritance tax in Dubai.
For most companies, companies with profits exceeding 375,000 dirhams (about 700,000 yuan) need to pay a corporate income tax of 9%. Compared with many global jurisdictions, this tax rate is still relatively low (for example, Hong Kong has a corporate income tax rate of 16.5% and Singapore has a corporate income tax rate of 17%). Companies that do not meet the tax threshold will be exempted from corporate income tax at zero. Companies registered in free zones, if their income comes from the free zones or international markets, usually enjoy a corporate income tax exemption for 50 years or even longer; the value-added tax is 5%.
No foreign exchange control
In Dubai, the buying, selling, holding and transfer of foreign exchange are free. Enterprises can easily conduct cross-border transactions in Dubai and use its open financial market to conduct foreign exchange transactions. There is no complicated approval process, and foreign investment and capital flow are very convenient.
For Web3 companies involved in the payment field, Dubai's lack of foreign exchange controls provides an extremely free environment for conducting their business.
Freedom in distributing corporate profits
Dubai's corporate profit distribution policy is very flexible. Companies can freely decide to distribute profits to shareholders or reinvest in the company, and there is no requirement for profits to remain in the company. At the same time, companies do not need to pay additional taxes when distributing profits to shareholders.
Passport and visa policy friendly
Chinese citizens can enter Dubai without a visa if they hold a passport valid for more than 6 months. At the same time, Dubai's visa policy is flexible and convenient, providing Chinese citizens with a variety of options, and it is also very convenient to apply for residence visas for children, parents, and spouses.
Web3 Vibe in Dubai
For Web3 entrepreneurs, Dubai's Web3 atmosphere, including its broad user base and pro-crypto regulatory policies, is a key reason why they are willing to set up businesses locally.
The UAE’s mass base
According to a Middle East report, in February 2024, the DAU of users in several Middle Eastern countries who trade cryptocurrencies on centralized exchanges were roughly in the range of 100,000 to 150,000. It is worth noting that the population of the UAE and Morocco is about one-third of that of Saudi Arabia and Egypt, but their DAU of cryptocurrency trading is not much different from that of Saudi Arabia and Egypt. This reflects that the popularity and usage rate of centralized cryptocurrency exchanges in the UAE and Morocco are significantly higher than those in Saudi Arabia and Egypt. In the past year, the number of users in the UAE has increased by about 70%.
According to a research survey by financial services company Holborn Assets, users in the UAE are increasingly interested in using cryptocurrencies:
29% of users believe that cryptocurrency is a more convenient way to hold assets, 34% of users are cryptocurrency traders, and 22% of users use it for daily payments. As for investment attributes, UAE users are most willing to invest in $BTC and $ETH . BTC is called "digital gold" by UAE users, and 72% of users invest in BTC. In terms of interaction habits, UAE users are good at using DEX's trading and lending functions and are familiar with on-chain operations.
In addition, UAE users pay attention to the latest things in the crypto market and pay more attention to projects such as RWA, Metaverse, AI, and cross-chain bridges.
Virtual asset regulation in Dubai
The Dubai government has long provided strong support for the blockchain and Web3 industries in all aspects, laying a solid foundation for digital opportunities through initiatives such as the Dubai Blockchain Strategy launched in 2016, the UAE Center for the Fourth Industrial Revolution established in 2019 by the Dubai Future Foundation in cooperation with the World Economic Forum, and the Dubai Metaverse Strategy 2022.
Dubai has even taken the lead in regulating virtual assets by setting up an independent regulatory agency, VARA (Virtual Assets Regulatory Authority), to regulate and supervise the provision, use and exchange of virtual assets in Dubai. According to industry insiders, since VARA operates according to market-oriented standards, the regulatory framework is clear, the regulatory level is highly professional, and the regulatory attitude is approachable. If necessary, you can even hold meetings with VARA officials at any time to communicate and discuss.
So, how to set up a Web3 company in Dubai? First, you need to understand the types of companies in Dubai.
Dubai Business Location and Company Types
When setting up a company in Dubai, the first thing to do is to decide where to do business. In the UAE, business activities can be divided into two categories according to the region: free zone and mainland. There are some differences in business conduct, employee composition, office space and visas.
Free Zone
Business location: Free zone companies focus on business activities outside the UAE. Certain free zones in Dubai can issue dual licenses to companies, allowing them to conduct domestic and overseas activities.
Staff composition: Free zone businesses are not required to employ UAE nationals.
Office Space: There is no mandatory physical office space requirement for businesses in a free zone. If a business chooses to rent office space, it must be located within the free zone.
Visas: Free zone businesses are subject to quotas or restrictions. Companies can increase the number of visas they can obtain by relocating to a larger office or applying for an increase in visa quotas, but this is ultimately subject to approval by the Free Zone Authority.
inland
Business operations are conducted in the UAE without any geographical restrictions. Companies here can operate within and outside the UAE and are subject to Dubai's standard laws and regulations.
Workforce composition: It is mandatory for businesses in the interior to have at least 2% of their skilled workforce be UAE nationals.
Office Space: Landlocked businesses must have a minimum physical workspace of 100 square feet, but there are no restrictions on where a company can rent or purchase office space.
Visa: There is no limit on the number of visas that inland businesses can obtain as long as the size of their business premises and business activities meet the requirements of the regulatory framework.
Generally speaking, non-UAE companies are better suited to register in flexible free zones. There are three types of free zone companies:
Free Zone Limited Liability Company (FZ LLC) is the most common corporate structure suitable for medium and large companies with multiple shareholders.
Free Zone Company (FZ Co.), similar to FZ LLC, is usually suitable for businesses that wish to conduct business in a specific free zone.
A Free Zone Establishment (FZE) is a single-owner business structure suitable for entrepreneurs and small companies who want sole control over their business.
Different types of companies are suitable for different objects, and there are also differentiated requirements when registering. Web3 entrepreneurs need to choose the type of company that suits them according to different situations. If you have any questions, you can consult a professional lawyer. After determining the company type and registration location, you need to go through the following process to open a Dubai company.
Dubai Company Opening Process
Identify business activities
When starting a business, you first need to decide on the nature of your business. In Dubai, there are over 2,100 business activities to choose from, which fall into different categories such as industrial, commercial, professional and tourism.
Choose a Free Zone
With over 30 free zones to choose from in Dubai, it is often wiser to set up near businesses in the same industry.
Choose a Company Name
When choosing a business name, it is important to ensure that it complies with the naming conventions in the UAE. Names that contain offensive language may be considered offensive to religion. References to political groups or the mafia are prohibited. If the company is named after a person, it will be necessary to prove that the person is a partner or owner of the company (abbreviations or initials are not allowed).
Apply for preliminary approval
Dubai Economic Development (DED) requires preliminary approval to ensure there are no objections to starting the business. The documents required will depend on the nature of the business but typically include:
Business Registration and Licensing Application Form
Copy of passport or ID card
Copy of residence permit/visa
Articles of Association
Feasibility study of the project
Opening a business bank account
Once approval is obtained and all necessary documents have been received, a business bank account can be opened.
Set up office location
All businesses in Dubai must have a physical address.
Apply for final approval
You will need to prepare all the documents, addresses, and legal information to submit for final approval.
If all the materials are complete and there is no official objection, the company entity registration can usually be completed within 1 week.
Attorney Mankiw's Summary
Whether it is the traditional geographical, fiscal and tax advantages, or the extremely friendly attitude towards Web3, Dubai is gradually becoming a top crypto startup location in the world. According to the World’s Most Crypto Business Friendly Countries in 2024 released by Social Capital Markets, Dubai ranks first in the world, beating out “traditional” hot spots such as Switzerland, Japan, South Korea, Singapore, and the United States.
OKX’s announcement that it has obtained a complete crypto exchange operating license has brought Dubai into an important strategic location for the global crypto business layout. I believe that in the future more well-known Web3 companies and start-up teams will seek to settle in Dubai, and in this process, company establishment will be a prerequisite.
