If you are considering starting a business in the UAE, there are several business aspects to consider. For many investors and entrepreneurs, the UAE is an attractive place to set up business due to its liberal trade regimes, economic diversification, developed infrastructure and attractive tax policies. When entering a new country, it is important to be aware of the various legal forms available, so that you can make an informed decision as to which type best suits your interests.
Setting up a company in the Dubai Free Zone: available legal forms
- Sole Proprietorship
- Joint Venture
- Limited Liability Company (LLC)
- Branch office
- Representative office
Sole proprietorship
Any individual can establish a sole proprietorship; this is not possible for a company. A local service agent (LSA) is required for a foreign person (any citizen of a country outside the UAE) to establish a sole proprietorship. Sole proprietorships of an industrial or commercial nature can only be owned by UAE nationals. Therefore, foreign nationals can only establish a sole proprietorship of a professional nature.
Joint Venture
Generally, a joint partnership may be formed between foreign persons and UAE nationals. The management of the partnership must be with at least one natural person (not a company), and this person may or may not be one of the partners. Only the real names of the partners may be included in the name. Partnership interests may be transferred with the approval of the partners, or according to the conditions set out in the partnership agreement.
Limited Liability Company (LLC)
An LLC is the most common type of entity for foreign persons in Dubai, and can be formed by a minimum of 2 persons and have a maximum of 50 persons. The minimum capital requirement in the UAE differs from Emirate to Emirate, and the minimum in Dubai is AED 300,000 (US$81,688). In an LLC, a minority shareholder can exercise control, if the Articles of Incorporation and Bylaws confer appropriate powers on the shareholder. Due to the various steps, the formation of an LLC takes between 8 and 12 weeks. To avoid any delays, it is important to make sure that the supporting documents are available and fully legalised.
A branch office
A branch is considered an extension of the foreign parent company. In the UAE, free zone companies can establish branches in the extended area of the Emirate. However, branches must obtain an appropriate licence from the Department of Economic Development and, subsequently, approval from the Ministry of Economy. It takes 8-12 weeks to establish a branch.
Branches are wholly owned by their parent companies and there is no legal requirement for a UAE national to have any shareholding in the main business of the branch.
There is a limitation on the types of companies that may establish branches in the UAE. Generally, service providers and contractors can register their branches. The company wishing to establish the branch office must also appoint a sponsor, which is a national service agent in the UAE.
The sponsor is responsible for all administrative dealings with UAE government departments. The sponsor generally receives an annual remuneration and may be adjusted according to the contribution he/she makes to the branch.
Representative office
A representative office is quite similar to a branch office, however, the most important distinction is that a representative office cannot engage in any income-generating activity. It may be established for research, feasibility study or other similar purpose.
Starting a business in Dubai
- Choosing the field of activity
It is important to choose the right type of entity to suit the size of your business as well as the nature of your activity. Some free zones in Dubai only allow certain activities; therefore, it is important to choose the right type of business based on your intended location. - Incorporation formalities
The filing of incorporation documentation is very important and is one of the most cumbersome steps. Once the type of entity has been selected, the documentation must be completed and submitted, along with copies of the shareholder’s passports. Depending on the scope of the activity, the type of entity chosen or in which area it is located, additional documentation may be required. - Final steps
Once the documentation has been successfully submitted and processed, the business licence will be received. Thereafter, a corporate bank account can be opened and the applicant can commence their visa application.
SETTING UP AN OFFSHORE COMPANY IN THE UAE
Dubai is one of the perfect destinations to set up an offshore company in the UAE for many reasons, such as confidentiality, strategic location and/or the highly developed infrastructure of the country.
The advantage of the UAE as an offshore financial centre is based on the tax exemption. It should also be remembered that this offshore jurisdiction is not considered a tax haven, which has allowed it to sign some 114 double taxation agreements with other countries.
However, it should be noted that there are two types of company in this country.
Setting up an offshore company in Dubai is very interesting, but it is recommended to set up a company in the Dubai Free Zone.
Setting up an offshore company in the UAE allows you to obtain residency in the UAE in addition to being able to operate there. But more importantly, companies incorporated in the free zone have the privilege of enjoying double taxation while offshore companies do not have this benefit.
All offshore companies in the UAE, incorporated in the free zone, must have a licence to carry out their activities.
COMPANY FORMATION
The most commonly used form of offshore company in Dubai for consultancy, internet, trading, investment, etc. is: the “Limited Liability Company”, the equivalent of the Limited Liability Company.
Limited Liability Company.
- There are no limitations as to the number of shareholders, their residence or nationality. A single shareholder may be sufficient and may also be a manager/director.
- No minimum capital is required and there is no obligation to “block” it in a bank account.
- The companies are suitable for all types of legal activities and can carry out activities related to finance, online gaming, banking or insurance after obtaining the appropriate licence.
appropriate licence. A company can carry on several activities. - Companies may own real estate in the UAE.
- The company must be domiciled in a free zone (Freezone). There are several free zones so it is important to choose the zone that best suits the activity of the company.
- Companies can be managed from another country. For example, all official meetings of shareholders and managers can be held abroad.
TAXATION
- An offshore company incorporated in Dubai pays no tax or duty on profits, dividends or capital gains. It must simply pay a fixed annual fee of a few hundred euros.
- Likewise, offshore companies are not obliged to keep or file their accounts.
- Discretion: Shareholders setting up an offshore company are anonymous and their identity is not recorded in the local registry. A “nominee” nominee system can also be established for both shareholders and the manager. Dubai applies banking secrecy.
Characteristics of the creation of a Dubai company
- Type of company: Limited Liability Company (LLC).
- Capital requirement: No minimum capital requirement.
- Legal system: Civil law and Muslim law.
- Number of directors/shareholders: Minimum 1 director / 1 shareholder.
- Anonymity and Confidentiality (Nominee Service): The names of directors and shareholders do not appear on the Public Register.
- Secretarial service: Yes.
- Corporation Tax (On profits): 0%.
- Wealth Tax: 0%.
- VAT: 0%.
- Government levies: Yes (ND)
- Accounting Requirements: No bookkeeping or annual reporting requirements.
- Bearer Shares: Not permitted.
- Non-resident exchange control: No.
Setting up a company in Dubai: 11 fact you should know
Starting a business in Dubai has its own hurdles. GN Focus asked people who have started a business in recent years about their biggest challenges.
- Nobody tells you about administration
“Administration is key,” says Rachel McArthur, managing editor of Digital Ink, the Dubai-based digital content company Silicon Oasis.
“There is a lot of guidance in the UAE, but realistically no one will ever know what it’s like to start a business in the UAE until they do it themselves. In the early stages, I kept having to go to the customer centre because I didn’t have a certain document or hadn’t paid for something.
“Oh, and I soon got into the habit of taking a company stamp with me everywhere. That’s how many documents that thing needed!”
2 – You have to make a big investment
From the capital brought in to the mandatory office space and business licence, entrepreneurs have to budget up to $10,000 (Dh36,730) in annual costs, depending on the nature of their business.
“Compared to our experience in Singapore, the start-up costs were a very important factor for us in deciding whether or not to expand into this market.” – Says Jaya Maru, a Singaporean and founder of social media platform Flabuless, which has an office in Fujairah.
“Fortunately, that paid off and we are fortunate to have strong customers and partners supporting us.” The company now has more than 50 clients, from Mashreq Bank to InterContinental Hotels.
- Operational funding can be an issue
Many of the companies we spoke to used personal funds or loans from friends and family to start their business. This is mainly because banks in this country are limited in their willingness to lend to start-ups, preferring to watch the development of their business for several years before approving a loan.
“The availability of easy credit from banks is a challenge for SMEs in the early years,” says Navin Navendran, an Indian entrepreneur who founded GoLive in 2014. The DMCC-based company develops mobile apps that solve a persistent problem in the lives of workers or consumers.
“Banks do say they support, but most of them require a minimum turnover of Dh2 million. If we had such a turnover, we would probably look for money elsewhere, not from the bank”.
- Be an evangelist for the company 24/7.
The UAE is one of the “smartest” countries in the world in terms of internet penetration and infrastructure, making it an ideal place for connected start-ups.
But social media-based companies in particular can face difficulties in the start-up and licensing phases. This was the case with Alan Devereux, a Brit who founded Cave Chalk, a company registered in Umm Al Quwain, with his wife a few years ago.
“One of the challenges was understanding how the government works in terms of trade names. – He said. “Trying to explain what a social media company is in order to get a trade licence was difficult. After all, a licence name is not a trade name.
“This issue comes up every year when renewing the licence, because the inspector wants to see desks and computers, but Cave Chalk works online and we work from home. There is no need for an office.
- Talent is hard to find
The UAE’s convenient location as a hub for three continents and its good connections to the rest of the world mean that expats from nearly 200 countries live here.
Yet finding the right team can be difficult.
“Finding the right partner for your business is not an easy process,” says Maru. “[This] is more true for start-ups because you have to find people who believe in your vision. It took me over four months and 30 interviews to get my first hire in Dubai.”
6 Information can be hard to come by
While every licensing authority has a website with detailed information on setting up a business, fees and regulations, some entrepreneurs say it could be easier.
“There is no clarity on the process of starting a business,” says Jaya Maru, a 33-year-old Singaporean who founded Flabuless FZE, a social fitness platform registered in Fujairah.
“When we start a business, of course we try to do everything ourselves to keep the initial investment as low as possible before we realise there is a viable market for our services and build a cash flow cycle.
“It is clear that you need to hire a professional service provider and work with companies that specialise in start-ups to get your business off the ground. It would be great if you could simplify this process and do everything yourself – preferably online.”
Girish Narayanan, the 46-year-old founder and CEO of Granteq, a distributor of integrated AV, control and IT technologies, attracted angel investors in 2013 to fund his Indian company’s expansion into the Middle East.
“As a start-up, we had to raise our own money to create a sustainable business model,” the start-up says. – He said.
“Once we were reasonably established, we turned to banks for suitable structured finance, and today we even have high-quality cross-border financial instruments that span three continents.”
- Time is money
Living in Dubai can be expensive if you have no income. Start-ups without external investment should therefore have enough in the bank to support themselves for up to a year.
“Time is a bigger currency than money when working for yourself. If an entrepreneur decides to spend nine months developing an app, that means nine months for nothing and nine months for the competition to catch up or overtake him.” – says Ben Walton, 33, co-founder of Styck, a fitness app and pedometer that rewards users for reaching certain goals.
The company has a Creative Zone licence in Dubai and a commercial licence from Fujairah Creative City.
“We decided to build our first app in just four weeks, launch it and improve it from there. That way we could adapt what we built to the way our customers use our product, rather than making too many assumptions.” – He adds.
- Diversity is important
The UAE’s relatively small population makes it necessary for large companies to work across borders. But business opportunities in one country are not necessarily the same as in another.
Anand Kapoor, a 42-year-old Indian, is founder and vice-chairman of Midcom, which has operations in the UAE and Africa. His DMCC-based company covers four sectors, from mobile phone and consumer electronics distribution to dairy products and education.
“Diversify to avoid being dependent on one industry or region, and never chase money. Instead, try to build sustainable businesses that bring you long-term profits.” – He advises.
“The UAE is very advanced and competitive. Starting a business in the UAE is relatively easy compared to some of our markets and is supported by great infrastructure, but ultimately it is a very competitive environment where you have to be careful.”
- You must take cultural values into account
Doing business in the UAE can be different from your home market for many reasons. The country’s Islamic values underpin everything from the legal system to working life, and entrepreneurs need to take this into account.
“When I opened my business, it was the summer/Ramadan period, and I was shocked to find that people were going on holiday for a few months. – says Maru.
“But it was the perfect time to network and understand the UAE market – there’s been no turning back since then!”
10 – Travel is important to stay on top of things
In many industries, being first to market with a new product or special service can have a huge impact on a company’s bottom line.
However, the culture of innovation in the UAE is only just beginning to develop. Keeping abreast of technology trends and educating the public here is a challenge, says Hudson.
“The US and Europe have always been leaders in the world of technology. When you offer a product that can be used all over the world, as we do, it’s hard to keep up and keep track. We catch that by regularly attending events in the US and Europe throughout the year.” – he says.
- It can be hard to stick to your principles
Because people from different parts of the world bring their own beliefs and value systems, it can be difficult to stick to your principles.
The rules of doing business in your country may not apply here – and they may not apply in the countries where your colleagues come from.
“Never forget your ethics,” says the author. – McArthur advises. “In the short time Digital Ink has been around, we’ve had many encounters where certain people/companies pretended they wanted to work with us, when in reality they were just interested in finding out how they could take our business.
“Dubai is small, word travels fast and trust can be lost in a second. Look after your business more than your competitors. There is work for everyone here and every business gets its share. You don’t have to trample others to make a name for yourself.”
