Closing a business in the UAE
Company registration is a complex and labor-intensive process, but equally important is understanding the legal formalities involved in closing a business in the UAE. The Emirates attract companies and investors from around the world. However, sometimes business circumstances change, and the owner of a firm realizes that continuing operations become impracticable or unfeasible, leading to the challenging decision to shut down.
This decision may arise from various factors such as economic difficulties, market changes, resource shortages, or strategic errors. Additionally, the liquidation of a company in the UAE may occur as a result of compelled measures taken by judicial or regulatory authorities.
The closure of a company in the UAE demands meticulous and detailed preparation to avoid potential future complications. Improper organization of this process may result in fines and administrative penalties for failure to comply with the statutory closure procedures. Understanding all the nuances of the procedure independently can prove quite challenging. Seeking qualified assistance is advisable.
Our team offers support in business closure in the UAE and other countries. It is important to note that when deciding to liquidate a company in the UAE, one should not forget about a number of associated factors that go beyond simple termination of business operations. These include calculation of assets, liabilities, and company property, if any. Without qualified assistance, it will be difficult to navigate all aspects of the procedure.
The material explains in general terms the procedures for closing a company in the UAE.
Closing your own company in the UAE: what is important to know?
The procedure of terminating business operations in the UAE entails the complete cessation of a company's activities, involving its exclusion from the Federal Register of Legal Entities, tax registries, and other relevant authorities. Designated liquidators oversee all aspects of the process, ensuring compliance with all legal norms and obligations towards third parties.
The procedure for closing a company in the UAE begins with notifying all relevant parties, including employees, partners, suppliers, of the impending closure. This is followed by ensuring full settlement of financial obligations such as taxes, rent, salaries, and liabilities to creditors.
Regardless of the type of business a company owns, it is important to properly cancel business licenses in the UAE when owners decide to close the company. Authorized governmental bodies must be notified that the company will no longer conduct business, thereby avoiding penalties and fines imposed for non-renewal of the license prior to its expiration.
Failure to comply with these procedures may lead to legal consequences and financial penalties. Enhanced attention should be given to asset liquidation of the company in the UAE and revenue allocation among shareholders. It is crucial to ensure compliance with all legislatively mandated requirements for record-keeping and company documents to prevent potential audits and disputes in the future.
Inadequate competence in this field may cause delays and lead to additional expenses. Proper liquidation of a company in the UAE promotes the fair protection of the rights of all participants.
For shareholders, this signifies the ability to distinctly define and safeguard their rights, ensuring a fair share in asset distribution following liquidation. Creditors possess the right to impartial settlement of their claims according to established procedures. For employees, this denotes the preservation of their labor rights and social guarantees during the liquidation process. Special attention is given to issues of wage payment, compensations, and opportunities for transitioning to other employment positions upon enterprise closure.
Reasons for closing companies in the UAE
In the UAE, consistent attention has been devoted to establishing a robust business infrastructure to support enterprise and foster economic growth. Dubai and other emirates continue to attract non-residents from around the globe seeking enhanced living standards or superior business prospects. The region offers a broad spectrum of opportunities for foreign investors.
However, in the dynamic conditions of the market economy, companies may face the need to terminate their operations in the UAE. This may be due to various factors, including changes in market conditions, financial difficulties, legislative amendments, or strategic decisions by management. Understanding these reasons is crucial for successfully managing the process of closing a business in the UAE.
Financial difficulties can arise due to lack of liquidity, high debt obligations, or unprofitable operations, leading to inability to sustain business further. Market changes, such as emergence of new technologies, shifts in consumer preferences, or intensified competition, can render a company's business model obsolete or inefficient.
Strategic decisions by management aimed at restructuring business in the UAE may involve closing unprofitable divisions or lines of activity to concentrate resources on more promising projects. Legal and regulatory changes, such as tightening legislative requirements or license revocations, could pose obstacles to continued operations.
Moreover, government officials may order the forced closure of a firm in the United Arab Emirates for breaking UAE laws, failing to pay taxes, participating in illegal activity, or when creditors file for bankruptcy. Understanding these fundamentals is necessary for process management to be effective, which enables managers and owners to make informed decisions, reduce risks, and effectively coordinate the company's liquidation process in the United Arab Emirates.
Closing businesses in the Emirates - legal and administrative aspects
Termination and closure of a company in the UAE adhere to precise legal and administrative standards, requiring adherence to various formalities. Adherence to legal provisions upholds business integrity in the UAE.
Key legislation relating to the regulation of the process of liquidation of companies in the Emirates:
- Federal Law (32) 2021 on commercial companies.
- Federal Law (51) 2023 Promulgating the Financial and Bankruptcy Law.
The initial law outlines the protocols for founding, administration, and closure of businesses in the UAE, encompassing regulations for selecting liquidators and resolving obligations with creditors. Section 302 of the Federal Decree-Law lists diverse grounds for company termination, such as expiration of the term, cessation due to particular reasons, asset depletion, amalgamation, unanimous partner accord, or dissolution decision. Distinct regulations pertain to partnerships, limited liability enterprises, and sole proprietors.
The second one regulates bankruptcy procedures and the cessation of activities of companies facing financial difficulties. It provides a clear legal framework for determining the rights and obligations of all participants. It includes both voluntary bankruptcy procedures, when a company independently acknowledges its inability to meet financial obligations, and involuntary bankruptcy, when this decision is made by the court.
The process of liquidating a legal entity in the Emirates is overseen by several authorities. One of the principal bodies involved is the Department of Economic Development in each emirate. It wields significant powers, including the scrutiny of submitted documents for compliance with legislative requirements and the issuance of approvals for the liquidation process. This entity plays a crucial role in ensuring adherence to legal requirements and regulatory procedures, thereby promoting transparency and legality throughout the stages of the procedure.
The Federal Tax Authority (FTA) is directly involved as a participant and controller in settling the company's tax liabilities, which must be completed before the liquidation process concludes. In this role, the Tax Authority conducts an examination of financial statements, issues confirmations that all taxes and fees have been properly paid in accordance with the law. This is crucial not only to ensure the legality of the liquidation process but also to safeguard the state's interests from potential loss of tax revenues.
Commercial courts provide legal support and adjudicate disputes related to liquidation. They oversee the distribution of assets among creditors and shareholders, ensuring equitable resolution of conflicts arising in this complex process.
Commercial courts, in the course of their activities, render decisions on matters concerning the recognition of creditors' rights to assets, methods of debt settlement, and the legality of managers' actions during the liquidation process. The coordinated efforts of these entities ensure transparency and legality in the business liquidation process in the UAE.
How to close a company in the UAE?
Understanding the proper closure and liquidation of a company in the UAE is crucial. The process necessitates adherence not only to legal but also administrative formalities. Closing a business in the UAE can be accomplished through two methods: voluntarily and compulsorily.
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Compulsory liquidation |
Voluntary liquidation |
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In case of default, creditors in the UAE may initiate judicial proceedings for the compulsory liquidation of a business if the company fails to settle debts through normal means. The court decides on the realization of the company's assets to cover liabilities. |
The initiator of this process can be the founder. Reasons may vary: from insufficient profitability to the decision of participants to no longer engage in a specific type of business after achieving set goals. |
Before starting the process of closing a company in the UAE, you must collect the documents listed below:
- Shareholders' decision on liquidation.
- Copies of the constituent agreement and license.
- All types of powers of attorney (if any).
- Documents that will be submitted to the bank to close the company's accounts.
After collecting all the aforementioned documents, it is necessary to specify the location (registration) of the company and its type, as the procedure for closing a business in the UAE may vary for different legal forms.
Closing a company in the United Arab Emirates involves several key stages. Each of these steps is crucial to ensure the orderly termination of company operations while maintaining all legal and financial obligations. The detailed description of the main stages of the procedure (on the continent) is outlined below in the table.
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Stage |
Description |
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Making a decision on liquidation |
The process starts with the choice of the founders or shareholders of the corporation to commence its liquidation. This choice needs to be documented and formalized through official records of the general assembly, stating the aim to halt the company's activities in the UAE. |
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Appointment of liquidator |
The next step is the appointment of a liquidator who will oversee the company's liquidation procedure in the United Arab Emirates. The liquidator may be chosen from within the staff members or a third-party expert may be used. Managing all legal and financial facets of the company's closure in the United Arab Emirates is their main responsibility. An official letter from the registered liquidator must be drafted regarding assumption of duties, and the dissolution form must be completed (these procedures are mandatory if the company is less than one year old). |
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Notifying Authorities |
Owners of a firm must formally inform governmental bodies about their plan to dissolve the company in the UAE. This involves submitting an application to registration authorities and acquiring all essential licenses and endorsements. |
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Notification of creditors and publication of an announcement |
The liquidator is required to inform all identified creditors about the start of the liquidation procedure, supplying them with details concerning the process and timelines for submitting claims. Additionally, publication of an announcement in the official gazette allows unknown creditors to assert their claims. |
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Repayment of debts and obligations |
Once all stakeholders are duly notified, the company must fulfill all its financial obligations (repayment of debts to creditors, settlement with employees, payment of taxes, and other mandatory levies). |
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Drawing up a liquidation balance sheet |
The liquidator must prepare a final financial report reflecting all assets and liabilities of the company at the moment of liquidation. This report must be verified and approved by an auditor. |
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Asset allocation |
After settling all debts, the remaining assets of the company are distributed among the founders or shareholders in proportion to their respective stakes in the authorized capital. |
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Closing accounts in the UAE and revocation of licenses |
At this stage, all company bank accounts must be closed, and all licenses and permits related to its operations must be annulled. Initially, the relevant bank should be notified of the intention to close the account. The bank may request a number of documents, such as a notarized closure application, account owner identification, and documents confirming the absence of debts to the bank and third parties. Approval from other government agencies is required to cancel the license and "establishment card" issued by the Ministry of Human Resources & Emiratisation. If the company sponsors a visa for a foreign employee, it must be canceled at the relevant office of the General Directorate of Residency and Foreigners Affairs. Visa cancellation involves formal procedures and documentary evidence confirming the termination of sponsorship relations between the company and the foreign employee. When licenses are revoked, financial statements, proof of payment of all taxes and fees may be requested. |
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Submission of final documents |
Upon finishing all the stated tasks, the liquidator presents conclusive paperwork to the registration authorities to formally terminate the business liquidation procedure in the UAE. |
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Obtaining a Certificate of Liquidation |
The final stage involves obtaining the official Certificate of Liquidation from Department of Economic Development, confirming that the company no longer exists and all legal and financial obligations have been fulfilled. |
The company closure procedure in the UAE typically spans 60–65 days, including a crucial 45-day notification period. During this time, information regarding the company's liquidation is published in national newspapers, providing third parties with an opportunity to lodge objections or claims. This notification period enhances clarity in the process and ensures the consideration of all stakeholders' interests.
Closing of companies in free zones of the UAE
The closure of a business in a free zone in the UAE hinges on the established regulations by the pertinent authority of the specific zone where the enterprise is registered. Regarding the selection of a liquidator, registering authorities typically stipulate who can be designated to this position.
The DMCC management is contemplating the potential of assigning any accredited accountant or legal entity registered and authorized in the Emirates as a liquidator. The regulations of the Sharjah Airport Free Zone specify that a liquidator must be an accountant licensed to operate in the Emirate of Sharjah. Generally, enterprises registered in the Free Zone adhere to a comparable process as those on the mainland of the UAE.
Cost of liquidating a company in the UAE
The cost of liquidating a company in the UAE largely depends on the specific emirate in which the firm is registered. On average, government fees for closing business in the Emirates range from 500 to 2,500 USD. For detailed information, please contact our consultants specializing in company closure in the UAE.
The duration required for liquidation may vary due to various factors, including the number of employees, the occupied enterprise area, the presence and condition of communications, the number of corporate bank accounts, etc.
Conclusion
The UAE is a thriving business region renowned for its numerous business hubs and free economic zones that foster business development. This region attracts companies and investors from around the world seeking to capitalize on the opportunities it offers. However, success is not guaranteed for every company. The discussion focused on the process of closing a business in the UAE.
Closing a company in the UAE demands a deliberate approach and precise planning, including resolving financial obligations, notifying stakeholders, and potentially restructuring operations. Significant penalties loom for firms if the process of company closure in the UAE is not initiated in accordance with the legal procedure stipulated by national legislation.
Since business closure in the United Arab Emirates constitutes a structured operation, the process must be overseen by professionals with relevant knowledge and experience. Our team can provide legal support in business closure in the UAE, offering our clients a range of additional consulting and support services.
