Making business in the UAE in 2019: what should a first-time entrepreneur take into account?
The UAE provides many variants and jurisdictions for starting business. Business is registered in a certain licensing body. From the very outset, it is important to choose this licensing body, as well as the organizational-legal form in which business will be registered. If you make a wrong decision, later it may happen so that the selected variant will not suit the needs of your company or will prevent performing certain types of activity.
For sole proprietors and small businesses that wish to make business in the UAE, the location will probably be the most important factor. The location is not just a place where you would like to open an office, a shop or a factory – this is a licensing jurisdiction.
There are several variants to register business In the UAE, starting from a “local” business, license for which is issued by the Department of Economic Development (DED) available in every emirate, and ending with business that is registered by the constantly growing number of free economic zones, many of which specialize in certain sectors or segments of business.
Starting business in the UAE in free economic zones
The number of free zones is always growing; zones may offer proper conditions for opening startups in certain sectors of activity. Startups that wish to start manufacture and export their goods may open business in the free zone “Jebel Ali”, although expenses in this zone can be too high for small entities. Other variants, for example, include the free zone “Hamriyah” and the free zone “Ras Al Khaimah”.
Specialized free zones, such as “Dubai Internet City”, “Dubai Media City” and “Dubai Design District”, offer a nice alternative for startups in those sectors where it is important to be a part of a business community.
It should be noted that while an initial cost of opening business in free zones can be lower, there often arise limitations and higher transaction costs related to such issues as visas and permissions, which require approval of state bodies. Still, some free zones have variants which allow opening business with rent of not a real office but only a “shared desk” or even as a freelancer, but it should be remembered that in such cases there often occur limitations on business activity and the number of resident UAE visas that may be issued.
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Opening business in the UAE outside free economic zones
“Local” companies (i.e. companies registered outside free zones) are suitable for all types of commercial entities. Usually such companies are registered in the form of limited liability company (LLC). For example, this may be trade companies, logistic companies, or manufacturing companies.
Nevertheless, in a case with “local” commercial companies the applicable legislation requires that at least 51% of shares was owned by citizens of the UAE. In other words, a local partner must be attracted (our specialists help with this). A company should have real office areas. Besides, a company may need different permissions from state bodies regulating any certain types of activity.
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Starting business in the UAE for professional activity
There are “local”, not commercial but professional licenses. These are available for such types of activity as consulting and other services. In such a case, a company may completely 100% be owned by a non-resident, who has necessary qualification in the sphere of business activity. Moreover, in this case it is also necessary to assign a “local service agent” (LSA). LSA provides services of state registration for a fixed annual fee, and does not obtain shares or any participation in business. Such licensing also requires a real office and will perfectly suit businessmen who wish to provide services for a local market, including for state bodies. The requirement on availability of a real office means that an office must be rented in the corresponding district at price of rent, which may not always suit a small business.
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What should be taken into account when starting business in the UAE?
For instance, entrepreneurs who plan to make business in the media sector, and who had just started their activity, sometimes are unaware that if they obtained a “local” license through the “Department of Economic Development of Dubai”, they may not rent an office in the free zone “Media City”. They wrongly assume that if media is their sphere of activity, they automatically may rent an office here, which is impossible because “Media City” is the free zone, and to rent an office here a company must be registered. This works vice versa – if you opened a company in the “Media City”, you may not rent an office in Dubai outside this free zone. Therefore, if you plan to register a company in the “Media City” and a small office is necessary, first you should verify that such offices are available (waiting on a queue for suitable office for lease can take several months and even years), or you will have to rent a bigger and more expensive office without any need.
Now therefore, a businessman must first verify that the selected jurisdiction is economically lucrative and prospective. It often happens that businessmen in the UAE only after a year or two begin to understand that they had registered unsuitable company, and consequently they may not develop their business. Expenses and procedures related to termination of business in one place and its re-registration at another place are usually much higher than expenses businessmen would bear if registering in suitable jurisdiction and that could be initially perceived as much higher.
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