While opening a business in Dubai, either in a free trade zone or as an onshore company with an EAU sponsor has become easier, it is still not without its challenges. Most first-time investors in the EAU should set a priority to work with an experienced corporate law firm to assist in streamlining the application and also avoiding the common pitfalls that can complicate and delay the approval for the new business.
To get started, there are two options in company types if Dubai. One is an offshore company, which is a free zone company and has limitations in doing business with UAE customers. The other option is an onshore company, which is a business that is owned at least 51% by a UAE national, but that is able to do business with other UAE companies without any need to go through an authorized distributor.
Free zones, or free trade zones, have been set up in Dubai as well as in the other Emirates to allow foreign investors a place to start up businesses with zero taxes and support in the process of startup.
These areas are not in urban neighborhoods and locations, so they are not easily accessible for typical consumers. Each free zone is independently managed and operated, with each having its own rules, regulations, and requirements of the businesses that operate in that free zone.
Additionally, free zones are set up to cater to a specific type of business. In Dubai, there are over 20 free zones with more to be added to accommodate various business types and specializations. For example, there are current free zones for automobiles, healthcare companies, media, the internet, academic studies, commodities, gold, and diamonds as well as international finances to name just a few.
Businesses will need to consider which free zone they most appropriately fit into to be able to provide goods and services. It will be important to consider the rules and regulations in the various free zones that may apply to the business before procedures with the company registration process.
The benefits of choosing a free zone company as the type of business in Dubai include:
The ability to own the business outright without the need for a 51% sponsorship or stakeholder who must be an EAU national
One person can open the business; there does not need to be a group of investors
There is zero percent taxation on businesses operating in the free zones
Companies operating in the free zone can sell to international companies
It is possible for a company in the free zone to have a Dubai bank account
Relative ease in obtaining resident permit and visas for investors and foreign employees working in the business
Within Dubai, all businesses must apply for and be approved of for a business license. There are three categories of licenses to choose from, and it is important to understand the scope of work and business options available under any one license type.
Commercial licenses are used for any type of business that will be involved in international trading activities. Keep in mind that a free zone business cannot directly do business with EAU companies. These business transactions must go through a distributor which has been approved and appointed. There is a customs duty applied to the EAU company of 5% for these transactions.
An industry license is used for manufacturing, fabrication, processing and other types of industrial businesses with a professional license, for service providers, the final licensing options.
In addition to the type of license selected, it will also be important to understand the legal business structure.There are several possible options to consider, and each one offers different possibilities. In summary, the following are the business structures to consider:
Sole proprietorship – one person owns and operates the business, although there may be more than one branch of the business. There are limitations on these options with GCC (Gulf Coast Countries) or UAE national only able to have commercial or industrial sole proprietorships (outside of free zones).
One-person company – this is a limited liability firm that is owned by either a single person or a corporate body. Specific naming requirements for this business are in place.
Civil company – partnership of professionals providing a service. This can be foreign and national professionals or even all foreign professionals. If all foreign professionals are involved a Local Service Agent (LSA) must be appointed.
Limited Liability Company (LLC) – two equal shareholders (50-50) own the business and are liable for his or her own share. Only banking, investment, and insurance businesses can fall under the professional and consultancy activities in this category.
Partnership – there are two or more partners involved in ownership of the company with a general or limited scope.
There are several other types of options including branches of foreign companies, UAE companies, Dubai companies or even branches of free zone companies. Some types of options, including SME licenses, have to be 100% UAE owned but can include any legal form. Finally, for UAE nationals, it is possible to register a home business under the Intelaq option.
Once these issues with your business are determined, either for free zones or with sponsorship from the UAE national, there are several steps that will occur. These will vary based on the specifics of the company and if the business is free zone or onshore company.
Obtain a Business Name
This can be a challenge, so it is a good idea to have several possible names for the application. As each free zone has its own administration, it is possible for business in another free zone to use a name that is identical and still have the application approved.
This will not be possible to businesses outside of the free zones. The name of the business will be approved by the Department of Economic Development.
Find a Business Space
Unlike in some countries where a business can start and then move into a location, in Dubai the business has to have a valid and active tenancy contract in order to go through the registration process.
This can be a challenge in the free zones as there is limited office space, particularly at the lower rental levels. Carefully considering the different free zones will be essential early in the process.
Sponsorship Agreement (Onshore Companies Only)
It is important to have a legal document that outlines the responsibility of the sponsor and the foreign investor with regards to running the business, profit sharing, and other specifics. Most of these documents will be notarized through a court in Dubai. This will also need to be presented to the Department of Economic Development. The specific agreement form is known as a Memorandum of Association.
All of the documents are then submitted in the license application with the Department of Economic Development. There will also be specific fees that will be paid at this time, with different fees required for various business structures, license types, free zones and other factors.
For most business owners, after the complete set of documents, which includes the Memorandum of Association, tenancy contract, banking information and the application itself, there is a very short period of time for approval. Visit www.stalawfirm.com for more information.