Shutting down a business in the UAE is a complex process that requires going through several procedures while strictly complying with legal requirements. It also involves interaction with the government, registration, and regulatory authorities. To liquidate a company in Dubai, it’s best to seek help from professionals. Our experts will handle all stages of the process and help you wind down your business as efficiently as possible.
Main reasons for liquidating a business
Business owners decide to liquidate their company in the Emirates for several reasons:
- The business is no longer profitable; moreover, it has started making losses.
- Family affairs or health conditions prevent the company owner from carrying on the business.
- The company owner wants to relocate and move the business to another jurisdiction where the tax conditions are more favorable, for example.
However, sometimes a business owner leaves the jurisdiction without properly liquidating the company in the UAE (or doesn’t complete the process) and hopes there won’t be any legal consequences. But that’s not the case. Let’s consider a few examples.
Not all documents have been canceled
When registering a company, the owner receives a business license valid for one year, with the option to renew it, and the license makes him/ her qualified for a residence visa. The visa is valid for 2-3 years (depending on the jurisdiction where the business has been established). It may happen that the business owner cancels the license but doesn’t close the visa – intentionally or unintentionally.
A valid business visa without a corresponding license will inevitably lead to criminal charges against the company owner. The charges are going to be filed by either the free zone administration or the Department of Economic Development’s representative in the police. A notification will be sent to the immigration office, and the business owner will be detained and handed over to law enforcement at the first attempt to enter or exit the country.
If the company has been liquidated, the owner must cancel their residence visa to avoid legal issues with the UAE authorities.
Accounts and bank cards have not been closed
Companies in the UAE often obtain corporate credit cards from the banks. When liquidating the business, the owner may settle any outstanding debts but forget to cancel the credit card. As a result, the bank continues to charge fees for the card, and the business owner accumulates debt. The same thing can happen with a bank account.
Banks in the UAE are hard on debtors. They can involve the police and file lawsuits. Information about open cases is sent to the immigration service. When the business owner first interacts with immigration representatives, he or she will be taken to the police and detained until all financial obligations are settled. The debtor could even be removed from a transit flight passing through the country. Therefore, it’s crucial to remember to cancel the credit card with the bank after liquidating the company in the UAE.
These are just two examples of the difficulties that may arise if an entrepreneur isn’t fully aware of the legal intricacies of closing a company in the Emirates. There are many more reasons why such situations can occur. To avoid these negative consequences, please consult our experts.
The process of closing a company in the UAE
Company liquidation in the UAE can be carried out either voluntarily or involuntarily.
Involuntary company liquidation
If a business owner accumulates debts he or she cannot repay, creditors can go to court and initiate forced closure of the business, followed by debt recovery. The court will decide on the forced liquidation of the company and the sale of its assets to repay the debts.
Voluntary company liquidation
Entrepreneurs can initiate the company liquidation process themselves. This requires complying with a large number of legal formalities, such as:
- Notifying everyone involved with the company: employees, partners, suppliers, and creditors.
- Settling financial matters: paying salaries, settling debts with creditors, paying taxes, rent, etc.
- Informing the state registration authorities about the company’s liquidation (and canceling the license there).
The Department of Economic Development (DED) in each emirate oversees how company liquidation proceeds in the UAE. They grant permission for this process. Their representatives are authorized to verify the financial information provided in the documents and request additional clarifying reports if necessary.
Before starting the liquidation process in the UAE, the following documents have to be prepared:
- A copy of the license and the Articles of Incorporation.
- A shareholder meeting resolution on company liquidation.
- Copies of all Powers of Attorney (if issued).
- Bank documents confirming account closures.
Main steps in liquidating a company in the UAE
You have to take the following steps to close a business in the UAE:
- Make the decision to liquidate the company. It can be made at a shareholders’ meeting. The decision has to be officially documented—minutes of the meeting should be prepared.
- Appoint a liquidator. This person will manage the entire business closure process, overseeing all financial and legal matters. The liquidator can be a natural person or a company that provides such services. The appointment also has to be officially documented.
- Notify government authorities. The owner must officially declare his/ her intention to liquidate the company by submitting an application to the registration authorities and obtaining permission.
- Notify creditors. The liquidator must inform creditors about the company’s closure and the deadlines for filing claims. At this stage, a notice should also be published in an official newspaper.
- Settle all debts. After creditors have filed their claims, the company owner must settle all outstanding financial obligations. Salaries, taxes, and other fees also have to be paid at this stage.
- Prepare a financial report. The liquidator compiles a report detailing the state of all assets and liabilities. An auditing company reviews and validates this report.
- Distribute assets. After the company has settled all its financial obligations to creditors and the government, the remaining assets should be distributed among the shareholders (in accordance with each person’s share in the capital stock).
Company liquidation in Free Economic Zones in the Emirates has its own specifics. The rules for closing a business are set by the government authorities of the emirate where the company is located. This mostly concerns the appointment of a liquidator, who can be a certified accountant or a legal firm licensed in the Free Zone. In other respects, the process of liquidating a company in a Free Zone is similar to closing a business in the mainland UAE.
Costs and timeframes of closing a company in the UAE
The main factor affecting the cost of company liquidation in the UAE is the amount of government fees. The sum depends on the company’s legal structure, the emirate, and the zone where it is registered. On average, this process costs between US$ 500 and US$ 3,000 and takes 2 to 4 months.
Several factors can influence the company liquidation timeframe, such as the presence or absence of:
- Hired employees.
- A rented office with telecommunications, air conditioning, water supply, etc. All these services have to be disconnected.
- Active corporate bank accounts. These have to be closed before the company can be liquidated.
- Company employees’ visas.
- An accurately prepared financial report.
The timeframe is also affected by the speed of document processing at the registration authority where the application for liquidation is submitted. After reviewing the documents, the authority publishes a notice in a local newspaper about the company’s liquidation. Then there is a 2-week waiting period. If no claims are filed within this time, the liquidation process can go on.
The company owner must ensure that the company has no outstanding claims from individuals, legal entities, or government bodies. If claims are made during the procedure, this will significantly slow down the process and make it more complicated. Usually, entrepreneurs are aware of their financial obligations and try to settle them before initiating the company liquidation process, but there are exceptions to this rule.
Conclusion
Liquidating a company in the UAE is a complicated process that involves fulfilling financial obligations, carefully planning your actions, preparing documents and reports, and notifying everyone involved in the business. If a company violates national legislation or the regulations of a specific emirate during the liquidation process, it will face fines and other legal consequences. To avoid such an unpleasant situation, please book a free consultation with our experts. We provide high-quality legal support for closing businesses in the UAE.
