Is It Possible to Temporarily Suspend a UAE Company Without Liquidation?

Some companies registered in the UAE are only used in international business occasionally, for instance, for specific projects or during certain seasons. This naturally raises the question of what to do with the company during periods when it is not actively trading. One alternative in this situation is to put the UAE company on hold without liquidating it.

Regulatory Approach to Suspending a Company in the UAE

UAE legislation does not provide a single federal mechanism for temporarily suspending UAE companies without liquidation. In practice, a company can be put on hold by suspending its trade license in the UAE. This mechanism allows the company to be placed in an inactive status at the owner’s discretion, while keeping its name and registration number on the register.

In the UAE, the specific conditions for suspending a company depend on where it is registered. Companies in the UAE can be registered:

• on the country’s mainland (UAE mainland companies),
• in one of the UAE’s free economic zones (free zones), or
• as UAE offshore companies.

The rules vary from one jurisdiction to another, so the first step is to determine whether the specific regulator of the emirate or free zone allows for such a procedure.

Jurisdictions Having a Formal Procedure for Company Suspension

By way of comparison, below is an overview of the key features of license suspension in some of the UAE’s free zones and in the mainland territories of certain emirates.

JAFZA Free Zone

License freezing in JAFZA is permitted for a period of one year upon application, which must be accompanied by the following documents:

• owner’s declaration stating the reason for the freeze;
• undertaking letter;
• lease termination form;
• confirmation that all outstanding debts and other obligations to the various JAFZA authorities have been settled; and
• confirmation that all visas issued to the company’s employees have been cancelled.

The regulator may request additional documents.

The application must be submitted before the license expires, or no later than 30 days after its expiry.

DHCC Free Zone

The mechanism for voluntary suspension of operations in DHCC allows operations to be suspended for reasons deemed valid by the regulator. The maximum suspension period is six months.

At the time of application, both the commercial license and the Clinical Operating Permit must be valid. All professional licenses held by the company’s employees must also be kept valid throughout the suspension period.

The application can be submitted online and is not subject to any government fee.

DMCC Free Zone

In DMCC, the minimum company suspension period is 12 months. If necessary, it can be extended; however, the overall duration of suspension periods may not exceed 36 months. Government fees are charged based on the chosen period.

The key conditions for suspension are as follows:

• the company must have held a valid license for at least 12 months prior to the proposed suspension date;
• if the company holds several licenses, the suspension applies to all of them simultaneously;
• the company’s active visas and lease agreements must be cancelled;
• the company’s bank accounts must be closed or frozen.

Failure to extend the suspension period on time or to take steps to reactivate the license may result in penalties and even forced liquidation of the company at the initiative of the regulator.

Ajman Mainland

License freezing on the Ajman mainland is permitted by the Department of Economic Development (DED).

The freeze is granted for a minimum period of three years, although it can be revoked at any time before the end of that period. Any fees paid are non-refundable. The license must be valid at the time the freeze application is submitted.

Before submitting the application, the company is required to:

• terminate the employment relations,
• cancel all employee visas and the establishment card,
• obtain no-objection letters from any government authorities whose additional approvals were required for the company’s activities.

Dubai Mainland

A distinctive feature of the license freezing procedure on the Dubai mainland is that a currently valid license cannot be frozen. In other words, by the time the suspension application is submitted, the license must have already expired.

The freeze period ranges from one to three years. Before freezing the license, the company must:

• pass a corresponding resolution of members or directors;
• cancel all employee visas, as well as the establishment card.

When Company Suspension in the UAE Is Justified

The decision to temporarily suspend the activities of a UAE company is justified when there are reasonable grounds for the business to expect a return to operations. Moreover, the company itself must be of value to its owner, for example, due to its established reputation, track record, client base, existing bank account, and so on.

From an economic and strategic standpoint, such a pause may be appropriate in the following situations:

• undergoing a restructuring or change of a business model, for example, a shift in business focus or amendments to the ownership chain;
• the presence of unfavourable external circumstances, for example, the loss of a key counterparty, changes in the supply chain, or regulatory changes in the industry;
• a business that is oriented toward a specific season or project;
• the need to reduce operating costs associated with maintaining an active company in the UAE;
• expanding into foreign markets while preserving the company’s positions in the UAE;
• any personal circumstances of the beneficial owner.

When It Is Better to Liquidate a Company

In a number of situations, temporarily suspending a company turns out to be impractical, as instead of easing the burden it leads to increasing liabilities and costs. This applies, in particular, to the following cases:

• the purpose for which the company was originally registered has been achieved, and there are no plans to resume its activities;
• external regulatory or tax requirements have become too burdensome and no longer justify maintaining an active structure;
• the company has accumulated liabilities and debts that continue to accrue;
• the beneficial owner is subject to obligations in their country of tax residency, for example, in connection with the rules on controlled foreign companies (CFCs) (see below for further details).

In such circumstances, it is advisable to formally liquidate the UAE company. This procedure helps reduce the risk of potential claims from counterparties and government authorities, as well as prevents the further accumulation of penalties.

Is It Possible to Simply Abandon a UAE Company?

It is important to understand that temporarily suspending operations is not the same as abandoning a UAE company without formal liquidation. In the UAE, an abandoned company is still considered an active legal entity and continues to generate liabilities until it is either suspended (in the jurisdictions where this is permitted) or formally liquidated.

To illustrate the point, the table below sets out the differences between suspending and abandoning a company:

Suspending a Company	Abandoning a Company
The license is officially suspended.	The license is not renewed, resulting in the accrual and accumulation of monetary penalties.
The company’s financial obligations to the regulator, banks, and counterparties must be settled in advance.	The company’s financial obligations remain unfulfilled and continue to accumulate.
Provided the conditions are met, no fines or penalties arise.	Fines and penalties continue to accrue.
Provided the conditions are met, no additional liability arises for directors and members.	Directors and members may be held liable for unfulfilled contractual and financial obligations, even after the company has been abandoned.
The company’s employee visas are cancelled or “frozen” in accordance with the procedure established by law.	Visas that have not been cancelled are still considered valid. This can result in fines and difficulties when applying for new visas.

Tax Implications of Suspending a Company in the UAE

Suspending the activities of a UAE company does not result in a complete release from obligations toward the tax authorities. In particular, the company continues to be subject to obligations in respect of two main company taxes in the UAE:

• corporate tax, and
• VAT.

Corporate Tax Obligations

All companies registered in the UAE, including those in the UAE’s free zones, are subject to corporate tax. In addition to paying the tax, companies are required to:

• be registered with the Federal Tax Authority (FTA), and
• file tax returns with the FTA.

Suspension of business activities does not automatically result in deregistration for tax purposes. Ceasing to be a taxpayer requires a separate deregistration procedure, which is only available where business activities have actually ceased, for example, through the liquidation of the company. A pause in commercial activity in itself does not initiate this process.

As a result, while it remains a taxpayer, the company is required to file tax returns for each tax period within nine months of the end of that period, even if there has been no business activity or profit.

The following monthly penalties apply for late filing of tax returns:

• AED 500 for each month or part thereof during the first twelve months of delay;
• AED 1,000 for each month or part thereof from the thirteenth month onward.

VAT Obligations

A company is required to register for VAT once the established threshold of taxable turnover is reached over the preceding 12 months.

If a company is registered for VAT and its taxable turnover subsequently falls below the voluntary registration threshold (AED 187,500), it must apply for deregistration. The application must be submitted within 20 business days of the date on which the deregistration obligation arises, that is, the date on which the turnover falls below the threshold.

Late submission of the application is subject to a penalty of up to AED 10,000.

Implications of Company Suspension for Controlling Persons

In countries that have implemented CFC rules, resident controlling persons are subject to a number of obligations. As a general rule, the main obligations include:

• filing the relevant CFC notifications with the tax authority,
• declaring the CFC’s profits, and
• paying tax where the CFC’s profits reach the established thresholds.

However, even where no tax is payable, the obligation to file notifications still applies.

Accordingly, if a UAE company is suspended but not formally liquidated, its controlling persons will not be released from some of the obligations that arise from their control over the company.

Conclusion

Suspending the activities of a UAE company without liquidating it makes it possible to retain the company as an active legal entity during the period when its operations are temporarily on hold, with the option of resuming business without the need to register a new company. However, this mechanism is not available across all UAE jurisdictions, so the rules of the specific regulator should be checked before any decision is made.

It is also important to bear in mind that a company that has suspended its activities still has a number of tax reporting obligations. Likewise, the rules on filing notifications and returns continue to apply to beneficial owners who are tax residents in jurisdictions with CFC rules.

Accordingly, before any final decision is taken, it is advisable to carefully consider the potential implications of both suspending and liquidating a UAE company.

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