Dubai represents one of the seven emirates of the United Arab Emirates. It is imperative to comprehend that the state’s legal matters are guided by the:
- Constitution;
- Laws that vary from one emirate to another;
- Federal laws;
- Sharia Law.
Prior to commencing on a path of launching a business in Dubai for foreigners, it is crucial to realize it is costly to reside there, plus the native entrepreneurial practice is different from what we are accustomed to. However, many entrepreneurs are not intimidated by this.
What you need to know before starting a business in Dubai as a foreigner
Why Dubai?
Within a short period of time, Dubai has grown into a wonderfully appealing location, where Eastern customs are intertwined with modernity and, by complementing each other, have transformed this piece of land into one of the finest cities across the Globe.
Comfortable circumstances for entrepreneurial growth are created here. The majority of firms appear to be discharged from profits-based levy responsibility, the VAT five percent, and the organization can be established remotely or even in a virtual commercial city. The United Emirates has established itself as a presentable and recognizable land for launching technology startups and running IT start-ups. The economy is rapidly gaining momentum despite the global crises or the effects of the coronavirus.
Organizational structure
One should decide, before opening a firm, on the organizational formation and legal scheme of the future enterprise. The issue is of great relevance since it is essential to establish such an entity, which could be ideally suited for the implementation of the intended entrepreneurial plan. Firms in the UAE are subdivided into onshore and offshore. The most demanded onshore organization forms are the following:
- Limited Liability Company is incorporated in partnership with a UAE national, possessing at least 51% of it;
- Free Zone enterprise is fully owned by a foreigner or foreigners;
- A sole Proprietorship Firm can be wholly retained by a foreign person;
- A Foreign Parent Company Branch enables you to preserve an entire enterprise and benefit from double taxation conventions.
Offshore firms, the activities of which are distinctly confined in the state, are equally in high demand. These companies carry no right to become occupied with entrepreneurial activities on the country’s territory nor to receive bank transfers from entities domiciled in the country and to rent an office for these purposes.
Whatever the organizational form, any enterprise established in the UAE demands separate endorsements from various state establishments.
Jurisdiction
The UAE has a strong, well-established reputation, a jurisdiction that possesses double taxation agreements with well over 50 countries, while also implementing international tax standards.
The concept of Free Economic Zones has been elaborated by the government as a means of conducting business on favorable terms. Those are commercial zones that permit international entrepreneurs to operate in the state without the intervention of a domestic counterpart. The Free Zone employs a special tax and customs system.
The company incorporation procedure is accessible to individuals and legal entities who are residents of any state. Proof of income and details regarding the origins of the funds appearance would be compulsory for registration.
- Mainland company is intended for unrestricted operations in the country. It enables entrepreneurial endeavors throughout the UAE;
- Free Zone firms are preferred for setting up a venture dealing with international markets. Its registration is accomplished by foreigners intending to perform transactions in the chosen free economic zone and outside the country;
- Offshore entities possess their registered address in the country, yet they can only engage in business activities abroad. Thus, such a firm may render services and distribute merchandise in the European market, except in Dubai;
- nternational corporations can found an affiliate in the state as a means of venturing into the Arab Emirates. An affiliate of an overseas entity must be engaged in identical operations as that of the parent company.
Licenses
The license constitutes the principal incorporation document of the entity, reflecting the location of incorporation, registration & prolongation deadlines, authorized operations, and details of the proprietors, and the management. It requires confirmation from the government as well as the Department of Economy to acquire the applicable type of essential document.
The Department of Economic Development allocated multiple occupations for entrepreneurs and investors, which may be implemented while holding any of the four types of merchant licenses:
- Industrial License. It is granted to firms engaged in industrial operation in Dubai and the UAE;
- Commercial license. This type is awarded to enterprises that buy and/or sell products either domestically or internationally;
- Professional services license. Such a license implies 100% ownership of the firm and allows consulting, legal, marketing, and other activities;
- A tourism license. The Department of Economic Affairs introduced the Tourism License to control the tourism domain. This kind of permit has to be granted to any tour operators, agents, and any establishments undertaking tourism-related matters.
Benefits of starting a business in the UAE as a foreigner
Individuals electing to incorporate a firm in the United Arab Emirates enjoy multiple tax privileges, among which are the following:
- If arranged properly, a corporate entity in the United Arab Emirates is an ideal venture for obtaining foreign income;
- Tax exemption, for both foreign entrepreneurs residing in the state as well as for the employees of the entity;
- A modified financial statements system that does not impose an obligation to conduct an annual audit;
- Quittance from capital gains taxes and income tax.
Five steps to start a business in Dubai as a foreigner or non-resident
Consultation with a local expert
A local professional will show you the big picture of starting an enterprise. Even though a firm foundation procedure is relatively uncomplicated, a newcomer happens to not be aware of all the intricacies or administrative regulations of the country as well as of Dubai in particular. Therefore, at the beginning of your path, it is judicious to reach a trustworthy regional professional who may be able to mentor you throughout the nuances and ensure that all your paperwork is both errorless and systematized before the outset of the application process.
Select your activity
Arguably the single most substantial choice you will have to contemplate is what kind of practice you will be running. Not only does this impact bureaucratic matters like the type of organization and license you need, but, you should also examine whether or not your trade will be in demand in the UAE. Certainly, it is advisable to set up the kind of venture that you can manage and have expertise in. It is mainly this decision in all its elements that will determine your success.
Free zone or mainland
The decision of where to base your operation will vary depending on the nature of the work and activities. A local consultant may suggest you the best choice, whether to locate your business in a free zone or on the mainland. However, no straightforward answer to this question can be given, as individual factors always contribute to the selection of the preferred site.
Select a company name
There are specific rules for each type of legal entity concerning the permissible and prohibited terms and expressions in the names, as well as the legal form indicated at the end of the trade name. It is always worthwhile to consult the relevant naming registries prior to registering and to ensure that all necessary approvals and permissions are obtained.
Apply for a license
All entrepreneurial operations are to be licensed according to the regulatory acts of the country. Your successful launch of the business necessitates the appropriate type of license as well as the proper understanding of all the peculiarities of its issue and prolongation. The acquisition procedure, expenses, and requirements for approval vary based on the type of the corporate activity.
How long does it take to set up a new business in the UAE?
The overall time of establishing a company is made up of a series of phases. The longest process of registration in Dubai may take up from 2 weeks to a month. The Visa of a resident requires a period of up to 3 weeks. The bank account opening process may take at least 1 month.
How much does it cost to open a new business in the UAE?
The registration price for an enterprise ranges from 8,000 to 25,000 USD. Though, it is not possible to estimate the exact sum that should be invested in establishing a corporation unless you are aware of all the exact details. Company name registration costs can go from $109 to $191 according to the nature of the enterprise. The registration fee in Free Zones begins at $2,180. License fees are approximately between $2,180 and $3,270 for each year of operation. Besides that, other fees, such as office rent and visa processing, might be also counted as part of the total amount.
What you need to know about the business environment in the UAE
Setting up a commercial operation in the United Arab Emirates can be comparatively uncomplicated, although some particularities are worth being aware of for someone who would like to get immersed in the cultural and corporate environment.
Hidden Costs of Starting a Company
Every single enterprise in the state is subject to a licensing procedure. The licensing system in the Emirates can be described as a disguised tax system, and simultaneously as a state regulation of the companies operations.
It is essential to bear in mind that this permitting paper is granted for one year, and each year it has to be extended. Once it expires, an entity is typically granted one month to obtain an extension. Otherwise, a fine will be charged, ranging from $28 to $275 per month overdue, at the risk of having the document revoked.
Opening a corporate bank account
You can always approach local banks to arrange a corporate account if you happen to be the proprietor of an organization registered in the country. Alternatively, international banks are also an option for you to apply for a corporate account. However, in the case of a small and medium-sized enterprise or a start-up firm, you are better off opting for the local bank as it is a more flexible option. A visit to the bank is required just to sign the application form.
Taxes and VAT
Corporate tax will soon cease to be equal to 0%. Effective from the summer of 2023, there will be a 9 percent tax rate. Organizations whose annual earnings will exceed $102,100 are obliged to pay it. Till that time the rate for majority of institutions is 0%. Value Added Tax is low, a mere 5 percent. It is obligatory for enterprises, whose annual profit exceeds $102 100. Items judged by the governing agencies of the UAE to be unhealthy or hazardous to persons or the environment, so the excise levy can be imposed on them.
Economic content report
A holder of a relevant license would be obligated to disclose the financial substance of its operations and comply with the deadlines for submitting a notification with a report of economic substance to its regulating agencies. The obligation to demonstrate such information is not imposed on all firms, but on those that engage in the following classes of enterprises:
- Insurance;
- Distribution;
- Corporate headquarters;
- Intellectual property;
- Fund management;
- Holding entities;
- Finance or leasing;
- Maritime.
Recruitment
After your start-up is up and running, eventually you might desire to hire staff. In the majority of sectors, local hiring quotas must be met. Thus, some industries have to retain a specified percentage of native citizens. Specified guidelines ought to be followed when hiring locals, like notifying the Labor Dept no later than 15 days after the employment commences. It is essential to seek approval straight from the area’s competent regional administration for hiring foreign personnel in the free zone.
Working rooms
The prerequisites for onshore incorporation in Free economic areas concerning the operating rooms or other facilities rental prove to differ substantially, taking into account the chosen FEZ plus the essence of the firm’s work. While some FEZs enable to rent a VR office, others oblige you to utilize a specific size real ones.
Onshore firms in Dubai involve banning of the rental of digital spaces, each enterprise obliges to possess separate working rooms. The offices or other facilities prerequisites are analogous to those applicable to FEZ dependent upon the line of their endeavor. Offshore entities are restricted from hiring an actual office or any other property.
Local sponsors
International shareholders may not possess the excess of 49% of any enterprise certified in the territory of the mainland, which is outside the free zones (i.e. a local company) and which operates under commercial, industrial, or trade licenses. The remaining segment has to appertain to locals. That is a mandatory legal demand. Alternatively, the sponsor could be an organization that is wholly owned by the Arab Emirates citizens. When registering a corporation within the free zones, a foreigner can, however, hold 100% ownership.
The exception is the case when the entrepreneur opens a professional services institution. Foreign entrepreneurs may apply for professional service licenses in this case while retaining 100% ownership of the firm. They are required, however, to designate a local service agent as their representative in all official dealings with governmental institutions. Likewise, a sponsor does not pose a requirement when founding a branch or representative office in the state.
Residence permit in the UAE through the opening of a business
There is no reference to a stay permit as a permit of residence in the state. Instead, it is mentioned as a visa, which is granted on multiple grounds, such as studying, real estate acquisition, or work. Entrepreneurs and investors could be granted a visa for residence for up to ten years. In order to do that, they are to invest $136,000 or more into their trade.
Foreigners may acquire a residence visa by incorporating a mainland either a Free economic zone enterprise. The residence visa could be extended repeatedly, contingent upon the entity still existing or as long as the worker is hired there. It is not mandatory to lodge in the country constantly, whereas not visiting it for 6 months in a row could cause the permit to be revoked.
Should you outsource your business?
Outsourcing introduces a great solution for representing interests in the country & reducing the cost of supervising a firm. Secondary affairs, such as personnel recruitment and accounting, could be outsourced to third parties who have the expertise, experience, and equipment specific to their field of work.
The transfer of a portion of the operations to external providers reduces costs since outsourcing price is much lower compared to in-house staffing. Outsourcing secondary duties enables employees to concentrate on their tasks as much as possible.
Yet, not every organization can comfortably entrust its internal information to an external provider. Since outsourcing in the Emirates is in a stage of evolving, the potential risk of losses, time, and money, is significant due to the possibility of low-quality of services.
TOP-5 business options for foreigners in Dubai
Recruitment agency
Dubai has a demand for employees daily. Enterprises are not usually capable of a thorough recruitment process. Therefore, a recruitment agency may be established to generate potential employee waiting lists and bring the employer and the employee together.
Catering business
The majority of this country’s residents have trouble finding enough time to enjoy their meals at home, turning them into would-be customers of the catering establishments. The state’s society is multicultural, so virtually any cuisine from any country is going to be in demand here.
Travel and tourism
The travel industry, which attracts over 8% of the total investments from abroad every year, remains a major industry for the state and employs 5% of the population. The tourism sector in the country delivers a stable income since the number of visitors coming to the United Arab Emirates is increasing every season.
Recreational and cultural activities
Dubai has hundreds of fascinating venues and events that are a must-see. A management company may be established to guide performers, artists, singers, actors, stand-up comedians, circus performers, and others. It will be an agency that arranges artists’ arrival in Dubai. Your main responsibility as an entertainer management agency will be to help facilitate the coordination with artists from various industries and countries while offering them a venue to showcase their artistic endeavors.
Salon services
A beauty salon proves able to generate a generous stable income. It is worth considering this type of business in Dubai for foreigners, albeit it is defined by a highly intense level of competition because beauty is a pretty vital section of everyday routine in the UAE. Only proper marketing, qualified personnel, and the original idea could make it accomplishable to expect success. Be sure to study the desired locations, the vendors, and the demand prior to deciding on a venue for the salon. For instance, one spot may be more suitable for launching a women’s salon, while another might be in greater demand for a men’s salon.
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