What is Limited Liability Partnership (LLP) in UAE: Benefits, Features and Steps

A Limited Liability Partnership in UAE combines the best elements of partnerships and limited liability companies (LLCs). This hybrid form gives limited liability protection to partners like a company and provides an easy, simple structure for a partnership. 

Overview of Limited Liability Partnership

A partnership firm is a business owned and managed by two or more people who agree to share profits, losses, responsibilities, and liabilities. Just like in sole proprietorship, a normal partnership is represented by its partners, and the entire liability falls on them. The liability could be more than what they have invested in the firm. 

An LLP is different. An LLP is a partnership where all the partners in the agreement have a liability limited to the amount they have invested in the business. It has the following key attributes:

• Unlike in a general partnership, partners in an LLP are not personally liable for any of the business's debts. Hence, Limited Liability. 
• This liability protection is one of the main advantages of an LLP, allowing partners to participate without risking personal assets beyond their investment in the LLP.
• They don’t need to follow the strict structure of an LLC, which can make the management structure more suited to smaller or specialised businesses.
• LLPs are especially popular among professional firms in accounting, law, financial consulting, and other consultancy businesses.

Benefits of Registering an LLP in the UAE

The LLP structure in itself has a lot of benefits for any business. However, from an objective point of view, LLPs have several more benefits. They are:

• Every partner’s liability is limited to their investment in the LLP, meaning personal assets are protected from the LLP’s debts or legal issues.
• LLPs offer flexibility in how partners can structure management roles and responsibilities.
• LLPs do not have as many compliance requirements as some other business structures, simplifying the initial setup and ongoing administration.
• The UAE offers a highly favourable tax environment, especially within free zones, where LLPs can often operate tax-free.

Tax Benefits of LLP in UAE

In UAE, there are only two types of partnerships: incorporated and unincorporated. LLPs are classified as juridical persons and, hence, are incorporated partnerships. So, they have to pay corporate tax. However, they also get all the corporate tax benefits like:

• The partnership itself, not the individual partners, is taxed on business income, providing simplified tax handling for partners.
• Distributions to partners are exempt from corporate tax, given the partnership's resident status in the UAE.
• Incorporated partnerships may also claim deductions for essential expenses and benefit from any regional tax incentives in free zones.

Legal Framework Governing LLPs in the UAE

As a legal entity, all the LLPs in UAE have to comply with the national, state or provincial, and local laws. But in a generalised view, it has to follow:

• Federal Law No. 2 of 2015
• Different free zones have different specific rules and benefits for LLPs
• Corporate Tax Law
• Limited Liability Partnership Law DIFC Law No. 5

Step-by-Step Guide to LLP Registration in UAE

To register your business as an LLP, you need to remember that it needs to be incorporated. It is just like any other business structure where you will need a certificate of incorporation for your business. The steps to register and get a certificate of incorporation for your LLP include:

1. Reserve your trade name: It should comply with UAE naming conventions. Submit a request to reserve it with the Department of Economic Development (DED) or the relevant free zone authority.
2. Prepare a partnership agreement: Detail the roles, responsibilities, profit-sharing ratios, and liability of each partner.
3. Collect required documents: It should include:

• Identification for each partner (passport copies and UAE IDs if applicable)
• Proof of registered office address
• Detailed business activity description

4. File the application: File your application with the DED (for mainland businesses) or a relevant free zone authority if registering in a free zone.
5. Review of application: The relevant regulatory authority will review your application and documents. If they meet compliance requirements, initial approval will be granted.
6. Final Approval: After final approval, the authority will issue a Certificate of Incorporation, confirming the LLP's legal existence and allowing it to operate.
7. Business incense application: Apply for the business license specific to the LLP’s activities
8. Register for corporate tax: It is very important for every company to follow through the CIT compliance with the Federal Tax Authority (FTA), if the business qualifies for taxation under UAE laws.
9. Any other regulatory requirements: Based on your business activities, complete any additional regulatory requirements, like employee visa sponsorship, VAT registration, or specific permits for regulated industries.

General Partnership vs LLP vs LLC

If you are confused between LLP, LLC or a general partnership then the table below ill clear out any doubts.

Conclusion

Registering an LLP in the UAE brings significant benefits, as we have already read in this guide. It’s an excellent choice for businesses seeking protection with minimal risk. 

However, staying on top of licensing and legal requirements is crucial for avoiding any legal issues. The UAE, in general, has a very business-friendly environment, but it’s important to comply with local laws to ensure smooth operations and avoid penalties.