It’s one of the biggest decisions you’ll ever make: setting up shop in a foreign country. There might be plenty to celebrate in the UAE, a country that is increasingly welcoming overseas investment. But there are a host of pitfalls, too. Here’s a 101 to opening a business in the Emirates – make sure not to skim!
First of all, congratulations: it takes a lot of skill, devotion and hard work even to know you want to open a business, not least in a foreign country. The UAE, too, is a good place to do business: it is a hub of the Middle East and the primary regional stop for multinationals, tastemakers and conventions. It’s also a fast-moving country of almost ten million people, with a diverse, multiethnic and young population.
That’s not to say, however, that starting a business in the Emirates is all plain sailing. According to the World Bank the UAE is the 31st easiest country in which to do business, indicating that while there have been many moves to ease the foundation of companies, there are still plenty of bureaucratic hoops to be jumped through, before you can begin trading in Dubai, Abu Dhabi or any other emirates.
Make sure you plan and research your UAE-based venture meticulously. The Middle East, and Gulf Region, can be complicated markets for most types of businesses, and local customs, habits and laws can be tough for a foreigner to navigate. Do not rush into any decisions, and make sure to get as much local advice as you can before spending any big cash.
Getting that local knowledge can be indispensable. Doing business in the Arab world can present its own cultural differences. UAE residents may already have noticed the locals’ reluctance to say an outright ‘no’ to proposals, and this can be the same in business as in everyday life. Check for signs that a potential business partner is not happy with something, as it can save a lot of hassle and time.
If you think your homework is pretty complete, you can let the bureaucracy begin. You will need to show the Ministry of Commerce that you have a substantial sum of money to invest. This amount varies between emirates but it falls within a US$10,000-US$50,000 (Dhs37,000-Dhs184,000) margin.
For this reason alone, make sure you pick an experienced lawyer with an intimate knowledge of local laws and bureaucracies. The last thing you need when starting a business is to be hit with legal setbacks, or to set up only to have to halt work because of a legal hitch.
If you wish to own 100 per cent of your company, your only option is to set up in a Free Zone. In Dubai that includes the following: Dubai Media City; Dubai Airport Free Zone; Dubai Internet City; DIFC; International Media Production Zone and Jebel Ali Free Zone. If you wish to launch your company from the Dubai ‘mainland’ – that is, anywhere other than a free zone – you will need to register with the Department of Economic Development (DED), a government wing aiming to streamline the company registration process.
Obtaining a DED license involves eight steps, all of which are laid out on the DED’s website. You must first select which kind of business you will found, before getting a raft of legal forms and selecting a trade name. You must then apply for initial approval of the business from the DED and prepare a Memorandum of Association, for which you will require a law firm, Notary Public or the DED’s Legal Affairs service.
Finally you must select and sign on some real estate for the firm and, in some cases, get further licenses for businesses in specific fields (for example, should you wish to open your own clinic you will need approval from Dubai Health Authority as well as the DED). Only then can a DED license be granted, which must be paid for within 30 days of receiving a payment voucher. The DED even has Apple and Android apps to help make starting a company even smoother.
Make sure you pick the right company and licensing authority. Making a false step at the first hurdle could cost you a lot of money, if you don’t pick up on the mistake quickly enough. Anyone attempting to do business outside a free zone without being licensed by the DED can expect a fine of Dhs100,000.
“The course of registering a company isn’t difficult as long as you follow the process, however the procedure is always changing as Dubai grows and is developing and improving which can be a little challenging sometimes,” admits Sergio Lopez, of hip Dubai café Tom&Serg.
“In total it took us around six months to get everything finalised,” he adds. “The companies that followed – The Sum of Us and Common Grounds – took around two to three months to get registered which was a lot faster as we were familiar with the process and were already registered in the system.”
Lopez says he didn’t make any glaring errors when setting up Tom&Serg. But one tip is to “seek advice…find someone that really understands the system and the processes. It’s worth paying someone reputable to advise you on the process and help you go through everything this will make it easier in the long run.”
An important part of the non-free zone route is the requirement to have a local partner who controls a minimum 51 per cent stake, therefore controlling its key decisions. Pick your local partner very carefully. In some cases, however, it is not requisite to have a local partner but instead a Local Service Agent (LSA), someone who can provide government registration services for a fee, without being a shareholder in the company.
“The local service agent’s obligation is to ensure the branch is able to continue its business in Dubai but he shall not have any legal interest in the management, business, profits or assets of the branch,” says Al Tamimi lawyer Sherif Rahman. Any licensing through an LSA will also require a physical office address. Sentinel Business Centres is a recommended company, that can help get you set up with licenses, premises and other necessities.
Natasha Hatherall-Shaw set up TishTash Marketing and Public Relations four years ago. She went down the free zone route, as it was “much easier and affordable for a freelancer, or startup company. There are so many free zone options these days, that deciding on the right one and trying to figure out the differences between them all took time and a lot of reading and research. Looking back, there wasn’t too much difference between them, more about geography in which you are registered, what you get is pretty standard.”
After 18 months Hatherall-Shaw switched up to an onshore LLC with a local sponsor. “There are a lot of people who will offer sponsorship in exchange for backing your company, all with different annual fees,” she says. “I have seen options from Dhs10,000 to Dhs100,000 a year and it does depend on who the local sponsor is. I would just emphasise the importance of working with someone reputable here with years of experience. If something goes wrong at the sponsor level, it can affect all companies under them.”
Employment, for both Lopez and Hatherall-Shaw, has been a thorny issue. “In Dubai employees require a residency visa and health insurance to be able to work and that is something that the employer must provide,” says Lopez. “Back home you just pay social security and taxes. For each employee here you are required to provide their visa as well as health insurance as stipulated by the UAE labour law. You also cannot employ staff until you have your trade license as to do so an E-Signature and immigration card is required prior.”
“The costs of visas and permits are also high, so this is always a consideration when hiring new staff,” adds Hatherall-Shaw. “It varies by company set up you have, but typically an employee visa costs around Dhs10,000 and a work permit Dhs5,000 and they are valid for two years, so you have to factor these costs in.”
Hiring staff from other companies can also be a headache. If that employee has not been with another LLC for over two years, they will be issued with an automatic employment ban (see our article on employment rights here). This means that you cannot take them on your visa for the remainder of the ban – something that might not be discovered until a deal is signed.
“There are ways around this, but it all involves money and every time a new staff joiner’s visa gets declined you still have to pay Dhs1,000 and I have had cases where I had to re-apply three times (Dhs3,000 later) until a visa was approved,” says Hatherall-Shaw. “This all said, recently they announced they were stopping employment bans, so I’m hoping this is a thing of the past.”
Hatherall-Shaw adds that one of the most important things in the UAE is to accommodate unexpected costs in your business plan. You may not factor in the cost of a computer virus, or technical failure, or a bad batch of food or hiring process. But these are all things that should be included in your business plan. Budget for things to go wrong and when they don’t, you’ll be sitting pretty. “If something looks too good to be true, it probably is,” she adds.
Banks can also be challenging to deal with. To open an account with a bank you require a trade licence. To obtain the Trade Licence you need many prior documents such as the tenancy contract, Dubai Municipality and Dubai Economic approvals. It’s only difficult in the sense that it is very admin-heavy and requires patience. “I think it’s hard to recommend any one bank that is the best for business banking as I have heard horror stories on all,” adds Hatherall-Shaw.
Then there are physical costs which may be hidden, such as planning permission for offices, and finding a good location. Bear in mind foot and car traffic in parts of the UAE’s major cities. Because of extreme weather and urban planning, you won’t want to fall into a customer blackspot. Make sure to scope out your business’ location, if it is in the service industry, with great care.
With an LLC, too, you have to submit a few name options which DED review and approve. It isn’t always possible to have the name you really want, which can be frustrating. “So even if you’ve spent ages brainstorming and thinking of what you want, it may not be possible,” says Hatherall-Shaw. One quirk of the UAE patent system is that you must have it published in the press, to ensure that the product or brand is yours.
It should be obvious from this advice that the best thing to do ahead of opening your business, is to research, research and research. Overall, however, the UAE is proving an increasingly enticing place to set up a business. Ask as many questions up front and you’ll be left with far few – if any – nasty surprises once your doors are open. Just ask Lopez and Hatherall-Shaw: despite the difficulties, they’ve grown two successful businesses in the heart of Dubai. You can do it, too.
Words: Sean Williams