Please enter your email address to receive a password reminder.
Log into Tax-News+
Setting up a company or business is one of the most difficult and complex tasks entrepreneurs face. Entrepreneurs who choose to set up businesses within the United Arab Emirates (UAE) are usually presented with numerous challenges that they need expert assistance to overcome. We have put together a guide, providing insight and information on how to set up a business within the UAE.
Research & Plan
Those we decide to set up their company within the UAE for the first time are usually concerned about the time they need to devote to their business and their financial investment. Once they have dealt with the aforementioned issues, they are ready to leap in and get to work immediately. This enthusiasm often results into rushed business ventures. They do not take the time to plan their steps and often face the consequence of their actions down the road. We recommend entrepreneurs take the time to plan and research a business venture.
Most entrepreneurs tend to prioritize what must be done wrongly. That is, they usually devote all their time on planning and researching their business venture, taking care of investment requirements and researching consumer demand. This means that the issuance of their business license is not their number one priority, which should have been on the top of their list. Licensing is the most important matter entrepreneurs need to settle and the issuance of a license must be obtained legally. Time and money will be saved if businesspeople decide on which license they need to apply from at the beginning. Many entrepreneurs have set up a business within a free zone or licensing authority, only to find out that the particular free zone or licensing does not suit the needs of their company, not allowing them to carry out particular business activities.
Where to set up a business is a decision that entrepreneurs should not take lightly. This is because entrepreneurs need to take into consideration the licensing jurisdiction they intend to set up their business in. the Department of Economic Development (DED) provides businesspeople with many onshore options. The DED is present in every emirate. Businesspeople may also consider setting up in one of the many free zones available across the UAE. The UAE free zones usually revolve around particular industries. Several licensing authorities allow businesspeople to operate as a professional servicer or freelancer. Other licensing authorities have restrictions regarding the range of business activities; therefore, if entrepreneurs plan to expand their scope of services in the long-run, they must be sure to obtain a license in a free zone or jurisdiction that will not restrict them from doing so.
The DED issues onshore licenses. Onshore licenses are required for those engaging in commercial companies, which enjoy the benefits of being a Limited Liability Company (LLC). Examples of onshore LLC companies include logistics companies, manufacturing companies as well as trading companies. Based on the UAE legislation, at least 51% of the shares of an LLC must be owned by a UAE national and must have physical office space within the UAE. Furthermore, state governments that control particular industries may require additional requirements. Free zones issue offshore licenses.
Free zones provide an adequate alternative to new businesses looking to engage in particular sectors. For instance, Jebel Ali Free Zone is most suitable for start-ups seeking to set up a manufacturing unit and export the products they produce. Other alternative free zones include Ras Al Khaimah and Hamriyah. Dubai's themed free zones help start-ups adapt and become a member of the business industry and community quickly and more effectively. For instance, start-ups looking to engage in the internet business sector may choose to set up in Dubai Internet City whereas those interested in media should opt for Dubai Media City. Likewise, stat-ups intended to engage in design should choose to set up within Dubai Design District.
Local Service Agent – Local Partner
Entrepreneurs who decide to opt for an onshore license will be told they need a local partner. However, professional licenses are issued for those looking to engage in various services such as services. In this case, the foreign national can hold 100% of the company's shares as long as he/she assigns a Local Service Agent (LSA). The LSA provides all the services related to the government registration process. The appointed LSA is given a fixed annual fee. Furthermore, the LSA does not hold any company shares and is not involved in the company. An onshore company is required to hold physical office space.
Office space is obligatory, therefore entrepreneurs are advised to research the rentals and rent prices within the location they have chosen to set up in order to make sure the office space is suitable for their specific needs and requirements. For instance, an entrepreneur looking to start-up a business relating to media cannot rent office space within Dubai Media City if the DED issued their license. This is because Dubai Media City is a free zone, and entrepreneurs need to obtain a Dubai Media City free zone license in order to be allowed to engage in business and rent office space within the city. Similarly, if an entrepreneur is granted a Dubai Media City free zone license, he/she is obligated to rent office space within the free zone. It is prohibited by law to rent an onshore office space.
Even though the cost of set-ups tend to be lower within a free zone, several restrictions and increased transaction costs regarding permits and visas that need the consent of the government may arise. Although free zones offer licenses for those engaging in freelancing or other services, there impose certain restrictions on the number of visas issued as well as business activity. Entrepreneurs must also consider their monthly running expenses such as electricity, internet, rent and water bills as well as salaries. Entrepreneurs may not have to pay salaries in the beginning as they have not hired anyone yet, but they still need to pay for the services they may need, such as an electrician or a cleaner. Entrepreneurs are advised to calculate their monthly expenses. Additionally, entrepreneurs may also consider renting a fully serviced office, whereby the cost of the office includes running bills, secretarial services as well as rent.
IMPORTANT NOTICE: Wolters Kluwer TAA Limited has taken reasonable care in sourcing and presenting the information contained on this site, but accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, users of the site are advised to take appropriate professional advice before committing themselves to involvement in offshore jurisdictions, offshore trusts or offshore investments.
All rights reserved. © 2017 Wolters Kluwer