Shuraa Tax Blog

Category: Company Liquidation

  • Voluntary Liquidation in UAE | Types and Process

    Voluntary Liquidation in UAE | Types and Process

    Voluntary liquidation in UAE is when a company decides to close its business and settle everything, usually because it’s no longer profitable, its goals have been achieved, or the owners simply want to exit. This decision is made by the company’s shareholders or directors and follows a clear process set by the UAE’s laws. The goal of voluntary liquidation is to end the business in a smooth and organized way, pay off any debts, sell off the company’s assets, and distribute any remaining money to the shareholders.

    In this guide, we’ll look at why businesses choose voluntary liquidation, how the process works, and important things business owners should keep in mind when closing their company in the UAE.

    What is Voluntary Liquidation?

    Voluntary liquidation is a formal decision made by a company’s shareholders or owners to cease operations and dissolve the entity. This contrasts with compulsory liquidation, which is court-mandated due to insolvency or legal disputes. In the UAE, voluntary liquidation involves complying with regulatory authorities such as the Ministry of Economy, the Dubai Economic Department (DED), and free zone regulators.

    The primary objectives of voluntary liquidation include:

    • Settling all debts and liabilities.
    • Distributing remaining assets to shareholders.
    • Ensuring compliance with legal and tax requirements

    Benefits of Voluntary Liquidation in the UAE

    Voluntary liquidation in UAE offers numerous advantages for businesses and their stakeholders. Some key benefits include:

    1. Controlled Process

    Voluntary liquidation allows business owners to control the timeline and procedures of closing the business. This ensures minimal disruption and a smoother transition.

    2. Debt Management

    Companies undergoing voluntary liquidation can prioritise debt repayment, ensuring creditors are compensated fairly and in an organised manner.

    3. Legal Protection

    Following the proper procedures shields business owners and shareholders from future legal complications related to unpaid liabilities or unresolved disputes.

    4. Preserving Reputation

    Closing a company voluntarily demonstrates accountability and professionalism, which can help maintain goodwill with stakeholders and creditors.

    5. Tax Benefits

    Settling tax liabilities during liquidation can help a company’s owners avoid penalties and ensure compliance with UAE tax regulations.

    Types of Voluntary Liquidation in UAE

    There are two primary types of voluntary liquidation in Dubai and the UAE; both are as follows:

    1. Members’ Voluntary Liquidation (MVL)

    This occurs when a company is solvent and can pay its debts in full within a specified timeframe, usually 12 months. MVL is often initiated when the company’s shareholders decide to close the business for reasons such as retirement, restructuring, or completion of its objectives.

    Key Steps in MVL

    • Prepare a Declaration of Solvency signed by directors, confirming the company’s ability to settle debts.
    • Shareholders pass a resolution to initiate liquidation.
    • A licensed liquidator is appointed to oversee the process and distribute the remaining assets to shareholders.

    2. Creditors’ Voluntary Liquidation (CVL)

    This is initiated when a company is insolvent and unable to pay its debts. In this case, the directors and shareholders decide to liquidate the business and involve creditors in settling outstanding debts.

    Key Steps in CVL

    • A meeting with creditors is convened to review and discuss the company’s financial status, ensuring transparency and addressing any outstanding liabilities during the liquidation process.
    • Creditors approve the appointment of a liquidator.
    • The liquidator manages the sale of company assets to pay off debts.

    Both types of voluntary liquidation in UAE require careful planning and adherence to regulatory guidelines to ensure a seamless closure.

    Process of Voluntary Liquidation in UAE

    The process of voluntary liquidation in Dubai and the UAE is straightforward but requires strict compliance with local laws. Below is a step-by-step guide:

    Step 1: Board Resolution

    The company’s board of directors passes a resolution for voluntary liquidation, followed by shareholder approval.

    Step 2: Appointing a Liquidator

    A licensed liquidator must be appointed to manage and supervise the entire liquidation process, ensuring compliance with all legal and regulatory requirements. The liquidator will handle asset valuation, debt settlement, and final distribution of remaining funds.

    Step 3: Notice of Liquidation

    A public notice announcing the liquidation must be published in at least two local newspapers. This allows creditors to submit claims against the company within a specified period (typically 45 days).

    Step 4: Settling Debts and Liabilities

    The liquidator ensures all debts and liabilities are settled, and assets are distributed to creditors. This includes payments to creditors, employees, and government authorities.

    Step 5: Asset Distribution

    After settling debts, the liquidator distributes any remaining assets among the shareholders according to their shareholding.

    Step 6: Final Audit and Deregistration

    The liquidator prepares and submits a final audit report to the authorities. Once approved, the company’s trade license is cancelled, and the company is officially deregistered.

    Key Considerations for Voluntary Liquidation in UAE

    To ensure a smooth voluntary liquidation process in the UAE, it’s essential to focus on these key elements:

    • Regulatory Compliance: Adhere to the requirements of the Federal Tax Authority (FTA) and free zone authorities.
    • Accurate Documentation: Maintain up-to-date records of financial statements and shareholder agreements.
    • Professional Assistance: Engage licensed liquidators and legal consultants to navigate the process.
    • Clear Communication: Inform stakeholders, creditors, and employees about the liquidation to ensure transparency.
    • Timely Tax Settlements: Obtain a tax clearance certificate to avoid penalties.

    Why Choose Shuraa Tax for Voluntary Liquidation?

    Navigating the complexities of voluntary liquidation in the UAE requires expert guidance. At Shuraa Tax, we ensure a seamless process, from initiating liquidation to final deregistration. Our licensed professionals manage everything, including regulatory compliance, debt settlement, and tax clearances, leaving you stress-free.

    Contact us today for personalized assistance:

    Contact us today for personalised assistance: 

    📞 Call: +(971) 44081900  

    💬 WhatsApp: +(971) 508912062 

    📧 Email: info@shuraatax.com 

    Close your business responsibly and efficiently with Shuraa Tax. Let us handle the complexities so you can focus on the future!

    FAQs About Voluntary Liquidation in UAE

    1. What is the difference between voluntary and compulsory liquidation?

    The company’s shareholders initiate voluntary liquidation, whereas a court order enforces compulsory liquidation due to insolvency or legal disputes.

    2. How long does voluntary liquidation take in the UAE?

    The process typically takes 2-6 months, depending on factors such as the complexity of the company’s financial affairs and creditor claims.

    3. Can a free zone company undergo voluntary liquidation?

    Yes, free zone companies can be liquidated voluntarily, but the process must comply with the specific regulations of the free zone authority.

    4. What happens to employees during liquidation?

    Employees are entitled to their end-of-service benefits and must be compensated before the company is deregistered.

    5. Is tax clearance mandatory for liquidation in the UAE?

    Yes, obtaining a tax clearance certificate from the Federal Tax Authority is a crucial step in the liquidation process.

  • Company Liquidation in Dubai: Everything you need to know

    Company Liquidation in Dubai: Everything you need to know

    Company liquidation in Dubai refers to the process of shutting down a business and ceasing all operations. A company liquidation may occur when a corporation is in business loss, payment defaults or when the shareholders decide to shut down operations voluntarily.

    During business liquidation, all the assets of the organization are distributed to owners and creditors based on the hierarchy of claims. The process of winding down a business is termed as liquidation, and the individual or entity responsible for overseeing this process is referred to as a liquidator. The company’s management appoints the liquidator.

    Shuraa Tax Consultancy provides Dubai mainland and free zone enterprises with company dissolution services. We offer company liquidation services to both LLCs and individual proprietorships.

    Company Liquidation Types

    In Dubai, there are two types of corporation liquidation:

    Company voluntary liquidation

    If the firm does not have enough money to run its operations or fulfil its expenses, such as supplier’s bills and salaries, it consistently loses money. In that circumstance, enterprises will seek voluntary company liquidation since they lack the finances to remain competitive in the UAE market.

    Mandatory company liquidation

    If a firm violates the authorities’ rules and regulations or commits a crime such as fraud or any other major offence or bankruptcy. The government or relevant authority will promptly shutter the entity, and as per the court’s ruling, compulsory company liquidation becomes necessary.

    How to Liquidate a Business in Dubai and the UAE

    The first step in de-registering a corporation is to appoint a liquidation firm. Only authorised liquidators may initiate the liquidation procedure, as government legislation defines. The organisation that provides company liquidation services assists in the closure of the company’s operations in accordance with UAE company laws. It is best to appoint a listed liquidator to avoid penalties from local authorities in the UAE. 

    Liquidation of a Limited Liability Company (LLC) in the UAE

    The following major stages are involved in dissolving/winding up an LLC Company:

    • BOD meeting: Minutes of a board of directors meeting declaring the reason for liquidation, like the company’s insolvency in case of mandatory liquidation and appointment of a regulated liquidator. For certain business structures notarised cancellation agreement is needed.
    • Official liquidator’s appointment letter: A letter from the registered liquidator confirming acceptance of the responsibility to liquidate the company.
    • Liquidation application: To secure a company liquidation certificate, it is essential to submit a liquidation form and the required fees to the Department of Economic Development or the relevant licensing authority.
    • Publication in the newspaper: To announce the liquidation of a corporation, place an advertisement in a local Arabic newspaper.
    • Notice period: The licensing authority will provide a 45-day grace period to creditors or clients with financial claims against the company.
    • Visa Cancellation: Cancel all employees’ and partners’ visas and seek NOC from the Ministries of Labour, Immigration, DEWA, and Etisalat/Du 
    • Report of the Final Liquidator: after all cancelations the liquidator will provide the final company audit report as well as a letter noting that no claims have been received from third parties/clients/creditors during the 45-day advertising period.
    • DED will issue a final company liquidation certificate after all of the documentation have been submitted.

    Our best liquidators in Dubai can provide further information on how to close an LLC or a Free Zone Company in the UAE in accordance with UAE Commercial Law.

    Liquidation of a Free Zone Company (FZE) in the UAE

    Almost every free zone has a unique mechanism for company liquidation. The following are the most typical and general procedures for de-registration of a Free Zone Company in the UAE:

    •  BOD meetings: Minutes of a meeting of the board of directors declaring reason of liquidation like the company’s insolvency; In case of mandatory liquidation and appointment of a regulated liquidator. Official liquidator’s appointment letter: A letter from the registered liquidator confirming acceptance of the responsibility to liquidate the company.
    • Liquidation application: To obtain the company liquidation certificate, the liquidation form and fees must be submitted to the relevant free zone authority.
    • : Notice requirement may differ from free zone to free zone.
    • Clearance certificates: You should obtain it from different authorities such as KHDA, RERA (if applicable), and service providers like FZ, DEWA, SEWA, Etisalat, and banks as applicable.
    • Cancellation of Visas: Cancel all employees’ and partners’ visas and receive NOC from the Ministry of Labour, Ministry of Immigration
    • Report of the Final Liquidator: The liquidator will provide the final company audit report as well as a letter noting that no claims have been received from third parties/clients/creditors during the 45-day advertising period.
    • Final Liquidation Certificate: Once all paperwork and liquidation report has been submitted, the Free Zone Authority will issue a final company liquidation Certificate.

    Although, We provide corporation liquidation services to all UAE free zones.

    Services for Business Liquidation in the UAE

    In the UAE, business liquidation is when a company ends its operations and is forced to close when it can no longer sustain its services. This could happen for several reasons. 

    The company’s liabilities may much exceed its assets, putting it on the verge of bankruptcy. If the company cannot continue to operate, it will be closed. A firm’s liquidation may also be elective if the management has opted to close it down for reasons known to them. After liquidation, the company uses all its assets to pay off its debts. After covering liabilities and expenses, any surplus assets are sold, and the proceeds are distributed among shareholders.

    Documents Required for Dubai Company Liquidation

    So, According to the Dubai government, various types of papers must be given for the liquidation procedure. For the liquidation of a company in Dubai, the following documents are necessary:

    • A duplicate of the licence.
    • Copy of the Memorandum of Association (MOA), as amended.
    • If applicable, a power of attorney.
    • Copies of the passports belonging to all shareholders.
    • A copy of your Emirates identification.
    • Shareholders’ resolution.
    • Form for requesting de-registration.
    • NOC from services providers like DEWA, Etisalat / Du 
    • Bank account closure letter
    • NOC from authority like RERA, KHDA in case of regulated business

    Why is company liquidation necessary? 

    The ultimate option for any business team is to liquidate the company. So, this means that the company can no longer operate and must close. A firm liquidation has various advantages, including:

    • Liquidation is an alternative for firms wishing to stop losing business and restart. This process ensures the proper allocation of the organization’s assets. During liquidation, the company first uses its assets to clear its outstanding debts. Any surplus funds are then distributed among the shareholders.

    Why Choose Shuraa Tax Consultants for Company Liquidation in Dubai?

    The company liquidation procedure can be time-consuming and costly because corporations must coordinate with a variety of external parties and authorities to complete everything on time. So, any missing step or document can result in extra delays and issues.

    With the introduction of Value Added Tax (VAT), Economic Substance Regulations (ESR), and Ultimate Beneficial Ownership (UBO) rules in recent years, the company liquidation process in the UAE has also become more complex, requiring companies to approach the winding-up process with greater caution.

    Shuraa offers comprehensive corporate liquidation services for all types of UAE entities, including mainland and free zone companies. Our services cover the entire liquidation process, and we can also assist with specific aspects of the process according to the customer’s preferences and needs. Our liquidators can assist you at every level of the corporate liquidation procedure. For further information on our liquidation services, please contact Shuraa Tax Consultants Dubai. You can contact us by sending an email to info@shuraatax.com  or by giving us a call at +971 508912062.