The United Arab Emirates (UAE) is a federation of seven emirates – Dubai, Abu Dhabi, Sharjah, Fujairah, Ras Al-Khaimah, Umm Al-Quwain, and Ajman. They all have their own rules and regulations, which means that doing business can sometimes be challenging. The UAE is well known for having many multinational companies, a business-friendly environment, favorable tax structure, and a straightforward legal framework. Every country has its own procedures and set of problems to face as challenges investing for any business. While Abu Dhabi is one of the biggest economies in the Middle East, there are still obstacles and challenges with doing business in the city.
Challenges that Businessmen Face While Doing Business in Abu Dhabi
Abu Dhabi hasn’t fulfilled its potential just yet, despite the huge amount of investment and the pace of development. But it is still growing, so it is great for businesses looking to set up or expand, but it’s important that you do your research before you set up your own business in Abu Dhabi. Here are 8 key challenges of doing business in Abu Dhabi that you’re likely to encounter:
Getting Set Up
Companies looking to operate in or from Abu Dhabi, or have employees based there, are required to register a legal entity. Every company active in the country requires a company license, which is linked to the registered activity of the entity. In general, there are two options when setting up an operational entity:
Free Trade Zone – free zone entities are not required to have any UAE national shareholder or split ownership; a foreign entity or individual can have 100% business ownership. Each free zone has its own laws and regulations. There are also some Common Law Free Zone jurisdictions with their own regulators and court systems. Free Zone companies are limited to doing business within their Free Zone, with other Free Zones or internationally, they are limited in what they can do within the Abu Dhabi mainland.
Onshore Jurisdiction – the onshore jurisdictions refer to any areas, not within a specific Free Zone, they are subject to federal laws and regulations with regulating and authority bodies under the Ministry of Economy in Abu Dhabi. The most common types of companies within the onshore jurisdiction are representative office, branch office, and Limited Liability Company (LLC). An LLC requires a 51% local UAE shareholder. A branch or representative office requires a local service agent to be their point of contact with local authorities. Being based onshore allows you to do business anywhere in the UAE.
For mainland company ownership, the foreigner has to partner with a national. The majority share will be vested with the local sponsor. Developing trust, reliability, and rapport with local sponsors and grow business is quite a challenging effort. The Free zones of Abu Dhabi and the UAE promotes foreign investment greatly due to 100% foreign ownership in the business, zero taxation policies, and a host of other benefits for the investor. However, Free zone companies have fixed visa quotas and small office spaces as compared to the Mainland ones.
Finding a Suitable Office Space
An entity set-up in Abu Dhabi is always a combination of the license, legal entity, and facility. The UAE is a real estate-driven economy and it is the law that a company license is always linked to physical office space. Many of the free zones offer flexible desk solutions or business centers to provide companies with affordable options for office space. The conditions of minimum office space differ from one jurisdiction to another, and the size of the office space will be linked to the visa quota/visa allowance for the company.
Finding a Local Sponsor
To find a perfect trustworthy sponsor dealing with the legal business is another challenge for an investor. Thus, finding one in Abu Dhabi owns the major stake of the company and gives you the liberty to deal with the business of your terms.
Understanding the Tax Environment
The UAE is known as a largely tax-free country, but it introduced VAT for the first time in January 2018. The VAT rate is low at only 5% and has not impacted the cost in doing business in the country significantly. The Federal Tax Authority (FTA) has stated that it will get tough on companies that are obliged to register for VAT but don’t do so. Penalties include Dh20,000 for late registration, and other fines for late payment and conducting business without VAT registration.
To take advantage of their amazing education and home base in Abu Dhabi, enterprises often recruit workers from abroad. There are a lot of places in the world where you can find skilled workers looking for a job, but Abu Dhabi is one of the places where it’s very difficult to find such workers, and thus people are in high demand. You can expect that talent to run from any low-quality jobs to any high-quality jobs. They will do it for the money, so you are going to have to outbid the competition for every opportunity you get.
Understanding the Market
If you are not an Emirati, you must keep in mind that the market in Abu Dhabi is not like the one in your hometown. People in the UAE and Abu Dhabi come from different backgrounds and countries and everyone has a different taste when it comes to almost every product, be it food, clothes, or fashion. You will have to understand the diversity in order to pitch products to the market and succeed in making sales.
Obtaining Approvals and Permits
Often entrepreneurs fear business setup in Abu Dhabi formation because they are not aware of the processes completely and are not able to navigate themselves from one department to another for different approvals. But this issue can be solved by Riz and Mona Consultancy, which has consultants in Abu Dhabi and all over the UAE which will help in business registration as well as all other matters related to it. The experts at the firm will provide you with information on the processes and approvals that you need for doing business in the UAE. Support services like corporate bank account opening and product registration will also be provided by Riz and Mona Consultancy.
Talk to Us
Riz and Mona Consultancy provides a one-stop solution for all your compliance needs in the UAE. From recommending the most appropriate type of entity and jurisdictions for your setup to ongoing management accounting, corporate governance, and even your payroll. Whether you want to set up a new venture in the UAE or streamline your existing operations. Get in touch with us today.