Avoiding Mistakes When Setting Up a Business in Dubai

Business Setup in Dubai offers a wealth of possibilities for both nationals as well as foreign investors. Dubai and the UAE offer one of the fastest growing economies, providing businesses moving into the area with opportunities in virtually all sectors of industry and commerce.

This is also an area that attracts investors with the zero percent taxes, allowing even startup companies to realize a profit and reap maximum returns on their business investment. In combination with the zero percent business takes, this is also an emirate with a very progressive and welcoming attitude towards new business operated by both nationals as well as foreign investors and business owners.

The cost of starting a business in Dubai is also very reasonable compared to other emirates and in particular to other areas of the Middle East. With the free trade zones strategically developed throughout the city, businesses owned by foreign investors can choose a market area and get started for a fraction of the cost of a startup in other countries.

To be able to develop outside of the free trade zones, at least for foreign investors, it will be essential to partner with a national acting as a shareholder in the business. For these types of business startups, the national must be at least a fifty-one percent shareholder in the company. The alternative is to use a Local Service Agent to represent your business in the UAE, which avoids the requirement for the 51% national ownership outside of the free trade zones.

The additional benefit of choosing Dubai as your business location centers around the type of professionals attracted to this area. Both nationals from the UAE as well as foreign professionals are attracted to the possibilities in this area, which makes it an easier process to find highly qualified professionals to fill positions in new companies expanding across the UAE.

With all of these benefits, including an approval process for business in the free trading zone or outside of the zones with a national as a majority stakeholder, having an attorney to guide you through the process is important. Despite being a streamlined application process, there are mistakes that are easy to make, often resulting in delays in approval to open the business.

Not Arranging For a Resident Permit and Visa

In general, it is relatively simple and straightforward to obtain a visa and a resident permit for anyone wishing to open a business in the free trade zones in Dubai or outside of these areas with a national sponsor/partner.

Just as with all countries, it is important to provide all required documentation with the initial application paperwork. Missing information or documentation can significantly delay obtaining a visa or resident permit which, in turn, will limit your ability to start the process of opening a business. It is recommended that you turn to lawyers in Dubai to obtain precise information as to procedures and obtain necessary advice on corporate structures and documentation to be drafted.

It is also important to ensure other key players in your business also have their resident permit and visas in place at the same time. There are specific issues that can prevent someone from being allowed into the country, so understanding these requirements and verifying key business employees do not fall into these restrictions will always be work that can be done in advance.

When working with a sponsor or partner for the onshore companies as opposed to free trade zone companies, the sponsor will also need to contacted and provide the required information. Ensuring this is done fully understood by everyone involved can prevent a refusal or denial of the application.

Selecting the Incorrect Business Category

When applying to open a business in Dubai, it will be essential to choose a specific business category. Each free zone caters to specific businesses or services. Choosing the incorrect business category for the scope of work or products your company provides can limit your ability to be located within specific free trade zone areas.

It is also important to realize that the free trade zones are not in the major urban areas with other businesses. This is an important consideration as it is a much focused consumer that will travel to the free trade zones to find a particular product or service. Being in the incorrect business category can be devastating for a company as a startup business will not be in the correct market.

As many companies and businesses do more than one thing or provide more than one service, it is critical to work with a legal representative with experience in helping foreign investors start up their business in the UAE. Of course, if you are using a 51% national stakeholder arrangement, your options for locating are not as limited.

Another important factor that any business needs to consider is their growth direction. Expanding into new products or services may be limited in the future based on the rules for the specific business license and category selected when opening the company.

Not Checking on Office Space

Within each free zone, office space is provided for companies to rent to have a place to do business. In many free zones, there is a range of office options from the lower cost open workspace types of arrangements to private offices in more of a corporate setting.

The cost of each of these options and even the current availability of office space in the free zone is continually changing. Timing your entry into the free zone when there is office space within your budget allocation available will be important for long-term success of the company. Check with the freezone if they provide shared office arrangements or if there are other suppliers in the area who provide such infrastructure.

It will also be important to verify any usage restrictions on office space for foreigners in free zones. Some have office space available only for the investor while others may limit the number of employees that can be housed in the space. Keep in mind, each free zone develops rules and regulations independently, and these can change at any time. Do not use online sources with regards to specific free zone policies as this is often out of date information.

Not Formalizing and Agreement with the Sponsor

For mainland companies, those not in the free zones, the 51% stakeholder must be an UAE national. These individuals are called sponsors, and they must be approved by the specific free zone as well as by the government.

In most cases, the sponsor will provide services and support for the foreign investor. The foreign investor often pays the sponsor for these types of services. This will vary based on the arrangement between the sponsor and the investor.

While this may seem like a partnership agreement, it is critical to formalize the details of the arrangement in writing. By creating a contract that outlines the services the sponsor will provide, the fees the investor agrees to pay, and the details of the working arrangement conflicts are much less likely to occur.

Just as in other countries around the world, unless an agreement is in writing and signed by all parties to the contract, it is not admissible in court. This will also be more likely to result in problems in the partnership that may be compounded by different languages, cultures, and expectations.

An attorney in Dubai familiar with opening a business and working with a sponsor can draft up an agreement or contractual arrangement for operating the business. This will avoid problems and, in many cases, the attorney will be instrumental in creating precise, clear language that gives everyone a complete understanding of the agreement for the business.


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