UAE national will own 51% of an LLC
A free zone company allows 100 per cent foreign ownership
Q: We are a group of expats who have been operating in the UAE for a number of years now. As the rent of the premises is a major cost to the business, we have decided to buy a commercial property in Dubai and move our administrative office there. Is this a good decision? Should we buy the property in the name of the partners or that of the company? Please advise. S.K., Dubai
A: Rent of commercial premises is a major chunk of every company's overhead in many cases in the UAE. Having one's own property would ease this problem. Having a property in the partners' name or company's name does not automatically mean saving on rent as the opportunity costs of the investment have to be considered. Depreciation, maintenance costs and service charges will have to be borne by the owners which do not apply in case of a rented property. In view of the current low property prices, it might be a good time to invest. However, there are various aspects to weigh and consider before you take a decision.
A free zone registered company can have its office in the perimeter of the precinct. A free zone company allows 100 per cent foreign ownership, hence buying the property in the company's name would increase its asset base. In case of a local LLC, a minimum of 51 per cent shares are held by a UAE national. Registering a property in the name of such LLC where the investment is done only by the expat partner would have its own risks. A property registered in the shareholders' personal name would not normally qualify to be included in the company's balance sheet. However, the owners of the property can charge a reasonable rent and get a fixed return on their investment.
As per norms at the Dubai Land Department, corporate ownership of a property is accepted only for a Dubai-registered entity. Property ownership gives stability, fixed rental returns and value appreciation. On the down side, you have to bear the additional costs of depreciation, maintenance charges, service charges and fall in property value.
Q: I want to open a company in the UAE. What are the possibilities? Please guide. P.M., Turkey
A: Your query does not specify whether you want to open the company in a free zone or in the UAE mainland and the activity/s you wish to carry out. There are various options to start a company in the UAE. Starting one in the UAE mainland normally requires that a minimum of 51 per cent is owned by a UAE national. Free zones and offshore company structure allow 100 per cent foreign ownership. Licences of UAE mainland and free zone entities are issued based on the activity selected by the promoter and approved by the authority. A more meaningful response can be given if you provide more specific requirements.
Q: I am a shareholder in a manufacturing company based in a northern emirate. The company has been in existence for over 10 years and business is reasonably good. The plant bought at the start of the company is in good shape and production is regular. The cost of a similar plant now would be at least three times. Our company balance sheet is showing the written down value of the plant which is nearly zero. How can we show a realistic value of the plant in our books? M.A., Ras Al Khaimah
A: When a company purchases an asset (property plant and equipment), it is booked at the purchase cost plus any incidental costs of transportation and installation. Subsequent to initial recognition, PPE can be either measured at cost or revalued amount. As per the International Financial Reporting Standards, in the revaluation model, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
However, the entire class of property, plant and equipment to which that asset belongs must be revalued. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount.
At the date of the revaluation, the asset is treated in one of the following ways: (a) the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset or (b) the accumulated depreciation is eliminated against the gross carrying amount of the asset. This way, the plant value can be taken at the current value (which in your case can be substantially higher than the book value). The auditor would assess the basis of valuation and its justification before they provide their opinion on the financial statements.
The writer is partner at Crowe Horwath, UAE. You can send your business queries to him at atik.munshi@crowehorwath.
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