Navigating Corporate and Immigration Considerations When Closing a Company in the UAE

Many people preparing to start their entrepreneurial journey spend most of their time learning how to set up a company to make the new venture successful.

Most entrepreneurs, CEOS and directors are also acutely aware that most new businesses do not survive beyond the fifth year. However, these entrepreneurs and leaders are often determined, and it is beyond the apparent risks that those who push through enjoy the various rewards.   

However, when businesses need to cease operations, they soon realize the importance of having a strategy in place for closing, regardless of its size. Closing a company is a complex and multifaceted process that requires careful planning and meticulous attention to detail.

For companies operating in the UAE, navigating the immigration landscape adds a layer of complexity to the closure process. Fragomen professionals have witnessed first-hand the challenges that companies face when closing entities in the region.

With more than 85% of the UAE population being immigrants (and thus a large portion employees), immigration is a key consideration as part of the company closure process. 

This blog outlines the key immigration and corporate considerations that companies should keep in mind when closing in the UAE, as well as the common pitfalls and penalties they can face if they do not adhere to the requirements.

Key Immigration Considerations

1. Closure of Labour Cards: For Mainland companies, the work authorisation or Labour cards issued to employees must be cancelled, and the relevant authorities must be notified of the closure of employment contracts.
2. Cancellation of Residency Visas: One of the first steps in the company closure process is to cancel the residency visas of all employees (except the General Manager of the trade license). This involves notifying the relevant authorities and following the prescribed procedures for visa cancellation. Careful and advanced planning is recommended for this step as complexities may arise due to the need to cancel family members and the geographic location of the applicant/family member at the time of the cancellation.
3. Clearance Certificates: Companies must obtain clearance certificates from various government departments, including the Ministry of Human Resources and Emiratisation (MOHRE), to confirm that all labour-related obligations have been fulfilled before closing the company.
4. Immigration Departure Procedures: Companies must ensure that all immigration departure procedures are completed for their foreign employees, including cancelling residence permits and obtaining exit stamps in passports.

Key Corporate Considerations:

1. Understand the Different Types of Liquidation: Liquidation can be voluntary or compulsory. Voluntary liquidation occurs when a company’s shareholders decide to close the business because it is no longer profitable or there is no intention to continue its operations. On the other hand, compulsory liquidation is enforced by the UAE courts when a company fails to meet its financial obligations, such as paying off debts.
2. Legal Compliance: Companies must comply with all legal requirements related to the closure, including notifying relevant government authorities, settling outstanding debts and liabilities and liquidating assets. The liquidation process can vary based on the legal entity type and area of registration (free zone or mainland). As a general overview, the company needs to submit a cancellation request, along with the resolution for liquidation to the relevant authority if the resolution is voluntary or an order of the court if the liquidation is compulsory. Depending on the legal entity types, LLCs, branches and public companies are required to appoint a liquidator and publish a notice of liquidation in two local newspapers, giving debtors 45 days to submit their claims. When the company is discharged of all its liability and no claims have been submitted by the debtors, the relevant government authority will issue a clearance certificate for the company.
3. Employee Termination: Companies must adhere to labour laws and regulations when terminating employees, including providing notice periods, end-of-service benefits and settling any outstanding dues.
4. Contractual Obligations: Companies must review and terminate any existing contracts, agreements or leases associated with the company's operations, ensuring compliance with contractual obligations and terms.
5. Financial Obligations: Companies must settle all outstanding financial obligations, including taxes, debts and vendor payments, before closing.

Common Pitfalls and Penalties

1. Non-Compliance with Immigration Regulations: Failure to comply with immigration regulations can result in fines, penalties and legal consequences for both the company and its employees.
2. Failure to Comply with Legal Requirements: One of the most common pitfalls is failing to comply with the legal requirements for liquidation outlined by the different UAE authorities. This includes not following the proper procedures, submitting incorrect or incomplete documentation or not obtaining the necessary approvals.
3. Failure to Obtain Clearance Certificates: Companies that do not obtain clearance certificates from government departments may face difficulties in closing and may be subject to penalties for non-compliance.
4. Employee Disputes: Mishandling employee terminations can lead to labour disputes, legal claims, and reputational damage for the company.
5. Financial Liabilities: Companies that do not settle their financial obligations before closing may face legal action from creditors, as well as penalties from regulatory authorities.

Need to Know More? 

Closing a company in the UAE requires careful planning, adherence to legal and immigration requirements and attention to detail. By understanding the key immigration and corporate considerations outlined in this blog, companies can navigate the closure process effectively and minimize the risk of pitfalls and penalties.

For personalized guidance and support on closing your company in the UAE, please contact Senior Manager Shoaib Khaleeli at [email protected] and Manager Francesca Borghi at [email protected]. Together, we can ensure a smooth and compliant closure process for your organisation.

This blog was published on 19 March 2024, and due to the circumstances, there are frequent changes. To keep up to date with all the latest updates on global immigration, please subscribe to our alerts and follow us on LinkedIn, X, Facebook and Instagram.