Setting up a company in the UAE – Practical advice for newbies

Practical must read information

Setting up a company in the UAE

Dubai is one of the seven emirates and it is the main city of the UAE. Known as the hub for business and also tourist attractions and the main transport hub for cargo and also passengers.With strong economical stability investors are always encouraged to invest at Dubai, however the reality of setting up a company in Dubai can be very different.

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Setting up a company in the UAE

However the rules of trade are consistently unclear when it comes to setting up a company in the UAE.  Firstly if you want to operate a UAE company you will need to deal with a broker / partner that effectively has control of your business, there are many companies that offer business set up and license creation for you, keep in mind that unscrupulous ones are in a position to hold your business to ransom when it comes to license renew time, or when it comes to getting your deposits back for setting up the business.  For this reason many companies choose to register in one of the many UAE Free Zone areas that allow you to have 100% of the equity and ownership of the business. If you are setting up a company in the UAE just for you then go with a free zone business.

Setting up a free zone company in the UAE

One of the quickest and less risky ways to set up your company in the UAE is to go with a Free Zone set up.  These tend to be quicker although the categories of business you can operate tend to be limited by free zone area.  The benefit of a free zone company is that you can own 100% of the business, although by law you are not able to conduct trade in the UAE, for example to UAE companies operating outside of the free zone, this law tends to be openly flouted with no one really paying attention to it when conducting trade.

Managing commitments and post dated cheques – Important

When you open your company think very carefully about the commitments you will make to third parties, especially office providers and anyone offering a line of credit or set up costs guaranteed by a post dated cheques that you have written and signed.  If for any reason you run into financial difficulties with your business at a later date your creditors will hold these cheques against you and threaten to place you in jail unless you honor them.  Do not believe anything about it being standard procedure, if you do not have the money at hand do not write the cheque.  We suggest anyone considering starting a business in Dubai reads our guides to cheuqes in Dubai – it could save you a stint in prison.

Offering credit lines in the UAE

If you have to offer credit in Dubai be very careful especially if you deal in the real estate sector, real estate companies come and go in Dubai – someone that owes you money for a new build may never even complete the build and leave you hanging.  In 2008 I was left with a balance of $148,000 USD that was never paid by some of the very large and established UAE companies and it has still not been paid to this day. Something to consider if you are setting up a company in the UAE.

My suggestion is to at least cover the cost of your products and services with a prepayment, normally 50% up front and 50% on delivery.  Alternatively if you must offer credit try to do so using a factoring company that will lessen the load for you.

Starting up capital requirements

Setting up a company in Dubai requires you to know and understand the set up capital. The set up capital includes the trade license and fee which will depend on the Dubai free zone that you choose to start your business. Most free zone areas require you to have a minimal capital for setting up the business.  There is also the cost of sponsoring your employees and also having to provide for them their visas and the paper work that will allow them settle and work in Dubai. You should also consider the future costs that you will incur in case you decide to import goods to the country. Sometimes the capital will be funded by your partner organisation if you are operating outside of a free-zone, and of course different free-zones have different deposit amounts.

Licensing options

For any business activity to be licensed in the UAE it should fall under one of the following categories:

Industrial licenses,given to those investors who would like to start a manufacturing or industrial company in the Emirates.  This is not a very good small business to start in Dubai, if you are an established business then great, if not consider starting this type of business outside of the UAE’s costly manufacturing base.

Professional licenses for those who would like to start artisans, services ,craftsmen and professionals, you will normally need to show some type of professional certification or university degree in order to do this, although this can often be navigated by submitting the right CV.

Commercial licenses are given to those who deal with any kind of trading, normally these are not available within free zone areas, so you will be required to get a general trading license outside.  Be very careful here and be very mindful when writing out post dated cheques.

All business in Dubai are to be registered with Dubai chamber of industry and commerce.

Ownership requirements

All businesses in Dubai should be owned by a UAE nation with 51% participation,apart from few exceptions which includes if the company is registering a branch in Dubai,and some free zones in the airports. In case a your company needs to enter into partnership with an UAE national it is very important not to sign a sponsorship until you draw up legal agreements, sponsorships normally require you to pay an annual sponsorship fee to operate your business on behalf of the UAE national.  If you do this you should ensure you have full ability to operate your company in the form of a legal document that gives you power of attorney.

My recommendation here is to wait until you find a UAE national that you trust and are friendly with before you get a local partner – also make sure all fee’s including year 2,3,4,5 fees are agreed and documented up front.  NEVER give your sponsor your passport, they can legally hold this and can potentially use it against you to extort fees from you.  If they need your passport for a government department offer to go with them.

My advice always go for a Free Zone company unless you absolutely must operate a UAE company – you do not need the hassle of having to deal with an intermediary in your business, it just adds another layer of unnecessary bureaucracy and complexity to your business and there are a few bad ones that will strip you of every penny you have and leave you to languish in jail.  This is the fact.

Other documents you need include:

Setting up a company bank accounts will required as part of your licensing, Seek approval from all the concerned departments and ministries. Have your permits and visas permitting you to stay in the Emirates ready together with your ID, HIV Test, and other documentation.  Draft the necessary documents in advance before going to get your licence, and make your you have all the files required ready, this will include legalization documents, translations and notarization documents ready. Seek a good and a well known business consultant to advice you on the best company model that suits you.  You will find that setting up a company in the UAE will require hundreds of documents, get a list from your broker.

Cultural Differences

As you plan to start a business in Dubai it is important to also know the culture and the religion, the businesses in Dubai are always closed on Friday in the afternoon and opened on Sundays, this is because Friday is the prayer day and failure to follow this rules can lead you to jail and also result in a heavy fine.

You should know that half of your employees should be local UAE passport holders although this is often not enforced, and as you source for staff outside the country you should have authorization from the Ministry of labor which will require you to provide employment deposits for  each member of staff which can end up costing a fortune as the business grows.

You should also register the native workers at the ministry of labor and submit copies of their employment contract,copies of employer passport ,trading license for each employee.

Do you really need to do this ?

One word of advice, if you are thinking about setting up a new business in Dubai as a small innovative enterprise and as an expatriate my honest advice is don’t. The UAE is not very business friendly for new enterprises, better you start off in a country that has an infrastructure that is more business friendly for start ups, and when you are established create a branch office in the UAE.  If you are simply looking for a company in order to ensure you have your VISA and ability to live in Dubai then I suggest you buy the lowest cost free zone license you can get your hands on and go with a virtual office agreement that does not require you to write post dated cheques.

businesssetupMany people have set up successful businesses in the Emirates, however for every one that succeeds there are many more that fail in this highly volatile market.  If anything happens to the economy and you establish debt it is likely you will be paying with time in jail.  If you don’t believe me here is an article from the news paper in 2008 when Dubai defaulted on some of its bonds causing thousands of expatriates to flee the country and never come back.  Be careful Dubai is not an innovative business hub friendly to entrepreneurship or consummate with open and honest business policies no matter how much they say it is. Setting up a company in the UAE is not easy, making it successful is even harder.

If that does not put you off then read this open letter form someone that set up a new business in the Emirates only to be met with death threats against his family when it all went wrong.  Read the letter. Please think very carefully it is a jungle out there, except this jungle is full of sharks.

About John Robberts
John Robberts is a journalist with 12 years experience of living and working in the United Arab Emirates.