Business Setup in Dubai
Dubai is the business hub of the entire Middle East. It is situated in the northeastern region of the United Arab Emirates. Dubai is among the fastest-growing economies in the world. The sectors of real estate, tourism, trade, and financial services mainly contribute to its GDP. Although the foundations of the U.A.E were laid on oil exports, oil and gas exports only account for less than 5% of its GDP now.
Dubai has attained the reputation of the biggest trading hub in the U.A.E. It is mainly due to outstanding business locations and a non-restrictive environment. Dubai gives business people easy-going business operating conditions, asset protection, limited liability, complete privacy, and huge tax exemptions.
Besides, Dubai provides businesses with a tremendous growth trajectory because of its unique policies of liberalization. Dubai is a diversified market which is located in the wealthiest and most prosperous regions of the world. It has an open market trading environment with no hidden trade barriers, controls, or quotas. Perhaps the best thing about Dubai is that it is easily accessible from both air and water. About 90 airlines and 170 shipping lines are in operation in Dubai at the moment.
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Why Set up a Business in Dubai?
During the last 3 decades, Dubai has grown at tremendous speed and shifted from an oil-exporting economy to an innovation-led business economy. Dubai has become the first choice of all business owners and foreign investors. There are multiple reasons for this choice.
Primarily, Dubai attracts foreign investment due to its strategic location and business-friendly government policies. These are the two biggest driving forces behind business owners wanting to set up their business in Dubai. Moreover, an open economy and sector-oriented free zones compel entrepreneurs to invest their fortune and set up a company in Dubai.
- Ease of Doing Business
Setting up a business in the U.A.E is simple and straightforward. Perhaps, this is why U.A.E has earned 16th place on the Ease of Doing Business rankings issued by the World Bank. If a business owner has all the documents approved, setting up a business in Dubai will not take more than 1 week. Another reason that the U.A.E ranks so high in Ease of Doing Business rankings is the number of free zones that the U.A.E government has established in Dubai. The free zones in Dubai allow 100% foreign ownership, complete repatriation of profits earned, and large tax exemptions.
- The Open Market and Low Taxes
The government and regulatory bodies do little interference in the activities of the private sector in Dubai. There are zero taxes on personal income. Dubai has a free-trade economy. It has insignificant import duties in place. As far as labor policies are concerned, Dubai has imposed liberal labor policies. This allows companies in Dubai to hire an employee from anywhere in the world regardless of their nationality. Moreover, Dubai has implemented strict measures to end fraud and money laundering. This allows foreign investors to invest in a clean place with little worries.
- World-Class Infrastructure
Dubai holds significant importance due to its highly modernize infrastructure in the entire world. There are numerous free zones in Dubai of international standards. A world-class airport and modern seaports that handle thousands of passengers daily. Moreover, Dubai has a modern and vast network of highways that allow easy travel. The reliable telecommunication infrastructure, uninterrupted power supply, and loads of amenities are enough to attract business owners from all around the world and set up their company in Dubai.
- Highly Accessible Location
Dubai is located at a strategic location. It is at the center of Africa and the Commonwealth of Independent States (CIS). Dubai falls at the center between the Far East and Europe. More than 85 airlines are operating in Dubai at the moment. These airlines fly passengers to more than 130 destinations globally. Moreover, Dubai is connected by more than 120 shipping lines. To put it simply, Dubai is the most easily accessible location from anywhere around the world.
- High Standard of Living
The residents of Dubai live in a comfortable city. Dubai has a large number of foreign residents which makes it one of the most diversified cities on the face of the earth. Dubai leads the world in real estate, housing facilities, educational institutions, and recreational activities. Moreover, due to its low crime rates, Dubai has become one of the safest cities in the entire world.
How to Set Up a Business in Dubai?
If someone is looking for the above-mentioned reasons to set up their business in a city, then Dubai is the best place for them.
Setting up a business in Dubai is a simple and pretty smooth process. Certain documents must be verified and a few approvals should be approved from the government authorities before a business owner can set up their business in Dubai.
Although the process for applying to set up a business in Dubai is simple, an individual with little knowledge about how things work in Dubai might not be able to complete the process.
The steps to set up a business in Dubai are following:
- If someone is looking to set up their business in mainland Dubai, they should get a local sponsor first. The local sponsor can only be a U.A.E national.
- After getting the sponsor, the step is to obtain a NOC letter from the local sponsor.
- Now comes the preparation of the MoA of the company. A Memorandum of Association (MoA) contains the basic conditions on which the company will carry out its business. For instance: The primary purpose of the company, Capital investment, and Issuance of shares.
- At this step, the business owner must receive initial approval from the Department of Economic Development (DED), Dubai.
- After the DED grants initial approval, the business must be registered under a unique trade name.
- After the trade name of the business is completed, the business owner must look to arrange a physical office space for their business.
- Upon setting up a physical office, the business owner will have to apply for a trade license.
- After receiving a trading license, the business will be set up within a week in Dubai.
Where to Set up a Business in Dubai?
Another critical decision that one has to make while setting up a business is the location. There are a few different aspects that you need to consider:
- You get 100% ownership of your organization.
- You can avail tax benefits.
- The location is both convenient and economical.
- The location meets your business’s strategic goals.
Company Setup in Dubai Free Zone & Mainland
The business locations in Dubai are categorized into two major zones:
Setting up a Company in Dubai Free Zones
There are certain areas in Dubai designated as free zones. These are the ideal areas where foreign entrepreneurs can set up their businesses. The free zones are divided into various categories based on the specific area of operation.
Pros and Cons of Free Zones:
The two major benefits that the free zone offers are ownership and taxation.
- Some businesses, particularly those related to the service industry, perform better in the city markets. Common examples include eateries, retail stores, etc.
- Some spaces in the trade zone may end up costing you more than renting space within the city market.
Dubai Free Zone Areas:
There are about 45 free zones spread throughout the U.A.E. The demarcation of these is based on the particular area/sector of operation:
- Information technology(ICT)
- Information and Logistics
Setting up a Company in Mainland Dubai
This geographical jurisdiction targets commercial businesses and offers exciting opportunities. Entrepreneurs working in the following sectors can consider renting space on the mainland:
- Real Estate
However, in contrast to the free zones, it is mandatory for foreign owners to hold only 49% equity of the business. Exceptions to this rule are in case of business activities with GCC ownership and partnership of GCC companies with an Emirati.
Popular Business Locations in Mainland Dubai:
- Shaikh Zayed Road
- Business Bay
- Al Qusais
- Al Quoz
- Bur Dubai
- Al Karama
Selecting a Location Based on Strategic Goals:
Before you finalize the location, you need to ensure that it meets your business goals. You need to devise a location strategy based on your objectives and then find out which space fits best. These objectives can include but are not limited to the following:
For instance, if you are steeping in the service industry, you will have to make sure that your office is easy to reach. This will be more profitable than saving up on rent but shifting to a distant location. Retail chains and other businesses of similar nature need to stay around their competition so, they need spaces based within the market. Whereas a manufacturing organization will consider labor costs, logistics, and taxes & regulations while making the final choice.
Analyze the nature of your business, product, and your target market. After an in-depth analysis, you can choose whether or not the free zones will be beneficial for you.
Once that decision has been made, you can begin looking for places. After finalizing one, you will need to have a tenant contract in place. For the free zones, the processes are fairly simple and take up lesser time on average.
Types of Companies in Dubai:
Before setting up your company in Dubai, you need to know the categories of business incorporations in the Emirates. For each type of company, there are certain requirements that you need to fulfill. Therefore having an in-depth knowledge of the type of conditions will enable you to make an informed decision.
Following are the major categories of business establishments in Dubai:
1. General Partnership:
A general partnership business requires to be set up by two or more partners. The partners have to be Emirati nationals and will be equally liable for the company’s debts. Conditionally only the partners’ names can be part of the entity’s name.
Each partner’s interest can be recorded in the partnership agreement. The partnership dissolves in cases such as:
- The death of one member
- Bankruptcy of a partner
- Withdrawal of a partner
- Insanity of a partner
Partnership businesses in Dubai are categorized into 3 types:
- General partnership
- Simple limited partnership
2. Public Shareholding Company:
These business establishments are also known as Public Joint Stock Companies. The capital is divided into equal shares. To open a Public Shareholding Company, it is mandatory to have at least 10 founders, in most cases. The minimum capital requirement for PSCs is AED 10 million. The company needs to have a minimum number of 3 directors on the board. Another prerequisite is that the Chairman of the board along with the majority of directors be Emirati nationals. Only 35% of the share capital will be held by the founders whereas, the rest has to be offered to the public. Each member in a PSC is liable for only the share value he holds.
3. Private Shareholding Company:
A Private Shareholding Company in Dubai is similar to the public type. You need to have at least 3 shareholders to open a PrSC. However, the shares are not offered to the public. It is mandatory to express in the paperwork if any shares will be made available to the public.
4. Limited Liability Company:
The LLC is the most common type of business incorporation in Dubai. These companies can be set up in the Dubai mainland area. An LLC license allows you full operating rights within the U.A.E. There is a requirement of minimum capital for these entities which depends on the type of business. To establish an LLC, you must have physical offices in the country. Foreign owners can hold no more than 49% of the shares of an LLC.
5. Free Zone Companies (FZC and FZE):
There are two main types of companies in Dubai free zones:
- Free Zone Companies
- Free Zone Establishments
Both sorts of companies can be opened in any one of the allotted free zones. FZCs and FZEs are quite similar to each other. Both allow 100% foreign ownership and provide a license for doing business in the Emirates. The only difference is that FZEs can only have a single shareholder.
6. Branch Office:
These establishments can include branches of foreign organizations operating with the same name in Dubai. Branches of free zone companies, GCC companies, and civil companies also fall under the same category.
Benefits of setting up a business in Dubai:
Now that we have discussed the two major business jurisdictions in Dubai, let’s have a detailed look at the advantages that each has to offer.
Advantages of Setting Up a Company in Dubai Mainland:
- Exemption for Personal and Corporate Taxes
Mainland companies in Dubai are exempted from personal and corporate taxes. However, there are municipalities and custom taxes applicable that need to be kept in mind.
- No Minimum Capital Requirement
There is no restriction on the minimum share capital requirement. Most free zones do have a minimum value set that each establishment operating in the area needs to declare.
- Flexibility of Operation
Companies operating on the mainland generally enjoy more flexibility and lesser restrictions. They have the option to operate anywhere within the U.A.E. Whereas free zone companies are completely restricted to operate in the mainland areas.
Businesses in the Dubai mainland also have the authorization to trade with other companies within Dubai or U.A.E. Unlike free zone companies, if you are looking to indulge in any form of trade, you wouldn’t have to fear legal implications. There are a few conditions of course, that need to be met. But most administrative procedures are simple and take less time to complete.
- Flexibility of Business Activities
Businesses in many free zones are restricted to perform activities that are not related to the specific sector. For instance, in a free zone where you are allowed to open up a financial management business, you may not be allowed to open up a business of a different nature. Even in cases where that is a possibility, you will have to go through legal procedures to get the required permissions. So within free zones, there will not be a scope for much business diversity. With mainland companies, this will not be a problem. You can offer multiple business activities on the Dubai mainland without going through any hassle.
- Opportunity to take up Government Projects
Dubai free zone businesses are not allowed to take up any governmental work and are only allowed to do private business. Mainland companies in Dubai, on the other hand, can take up government contracts. They have permission to tender for government projects. If selected, these projects can generate substantial profits and pave the way for other business opportunities.
- Rent Multiple Offices
Mainland companies have the opportunity of diversifying and expand their scope. They can even rent out multiple offices in the city enabling them to penetrate into and capture the market easily.
- Employee Visas
As a mainland company owner, you have the benefit of obtaining visas for multiple employees. The number of visas will depend on the office space but there is far greater flexibility as compared to that allowed to free zone owners.
Moreover, the registration processes are much faster. There are no restrictions on currency, recruitment, and no obligation for annual audits. All in all, setting up a company in Dubai mainland offers better business evolution along with the ease of adapting to new markets.
Advantages of Setting Up a Company in the Free Zones:
- Sole Ownership for Foreign Entrepreneurs
In free zones, foreign business owners get to keep 100% proprietorship of their business. This means you will not have to depend on a national to become a sponsor or partner. As a sole owner, you get to have complete control over your business decisions. Single-owner businesses also don’t have any restrictions on a minimum capital requirement.
- Tax Exemption
Most free zones offer an exemption on import and export taxes and minimal custom duties. This way you get to enjoy maximum profits; these exemptions can also be renewed over a certain period of time.
- Awareness of Market Trends
The free zones are mostly sector-specific. This enables you to stay aware of the current business trends in the particular market that your business is catering to. Most free zones offer infrastructure and logistics facilities that your business needs to thrive and prosper. Free zone businesses get to enjoy collaboration and learning along with the opportunities to save costs.
You can benefit from flexible lease terms, convenient registration & renewal processes along with the free return of profits.
Types of business licenses in Dubai:
Setting up a business in Dubai is extremely advantageous. But in order to reap these amazing benefits, you need to have a business license.
How to Obtain a Business License in Dubai
The business license is a document that legally permits you to carry out business in Dubai. It also acts as evidence of your skill and expertise. The license in Dubai is issued by the Department of Economic Development (DED).
To encourage business development in the region, the DED has made the procedures easy and fast.
Categories of Business Licenses in Dubai
There are three types of licenses offered in Dubai, these are:
Entrepreneurs who wish to conduct trading activities in Dubai need to obtain a commercial license. The business activities in Dubai that fall under this license category are:
- Importing & exporting goods
- Selling electronic products
- Real Estate
- Commercial brokerage services
- Selling of construction material
- Retail stores
- Rent-a-car services
Legal Liability Companies (LLCs) are the most common type of organizations that are set up under a commercial license. The license can be used whether the organization is set up on shore or in a free zone.
How to Obtain a Commercial License in Dubai?
- The first step in applying for a commercial license in Dubai is to make a list of activities that you will undertake. However, keep in mind that you can’t take up more than 10 activities (main and tertiary combined) on one license.
- The next step is to draft an MOA listing the activities.
- The third step is to register the organization with the DED.
- Once the registration is done, you can then pay the fee and obtain a commercial license in U.A.E.
This type of license is provided to industries that undertake manufacturing activities. These are companies that transform raw or semi-formed material into the final product. The business activities for industrial license include:
How to Obtain an Industrial License in Dubai?
The DED provides the industrial license to business owners in Dubai. There are a few prerequisites to be eligible for a license:
- Local Sponsor
You must have an Emirati holding 51% of the shares in the company.
- Office Space
The second prerequisite is having space for a physical office in Dubai. Virtual offices are not accepted under this license type.
- Local Industrial License
Thirdly, it is required to obtain a local license from the company’s area of operation.
- Minimum Capital Requirement
There is a minimum requirement for the share capital which is around AED 250,000.
- Number of Workers
Lastly, the company needs to have more than 10 workers at least.
Procedure for Industrial License in Dubai:
- Firstly, you will have to submit documents to the DED for initial approval.
- After receiving the approval, you can apply for the industrial license in Dubai. The whole process may take up to 3 months.
- Afterward, you will also need permission from Municipality and other authorities. Each will have its requirements for paperwork.
The third and final type of license is granted to individuals based on their skills and expertise. The biggest advantage of a professional license is that it allows 100% foreign ownership. The only condition is that you need a local as your service agent.
How to Obtain a Professional License in Dubai?
The professional license in Dubai is provided by the Department of Economic Development. It can be granted for business activities related to the service sector. The process for obtaining the license is quite simple.
- The first step is to make a list of business activities for the professional license which you will undertake.
- The next step is to appoint your service agent who will handle all legalities.
- The agent can submit the documents to the DED for initial approval.
- Afterward, you will also have to apply for and register a trade name.
- The final steps include renting out office space and submitting the documents for final approval.
Cost of Setting up a Business in Dubai:
A major factor that entrepreneurs need to consider is the total cost of setting up their business in Dubai. You need to have a realistic calculation in mind to enable you to plan effectively. Having a clear cost breakup will also save you many undesirable overheads and expenses.
As discussed above, there are two areas in Dubai to set up businesses. The costs for both these locations vary considerably. Other factors that affect costs are:
- The type of business license you obtain
- The type of business you set up/ company you form (LLC, FZE)
Other charges for LLC formation in Dubai may include:
- Rental charges for setting up an LLC in Dubai
- The fee paid to the Department of Economic Development
- The fee to acquire a mainland trade license
- Administrative fee
- One-time Contracting license fee
- Fee for a real estate broker
Other charges depend upon the type of company formation. For LLC companies, you may have to incur investor visa charges and employee visa fees as well.
How much does it cost for Investor Visa?
The investor visa costs approximately 3200 AED including basic insurance, medical, and Emirates ID.
How much does it cost for Employee Visa?
The average cost for hiring an employee is between 7000 to 7500 AED approximately including insurance, medical, and residency card.
To sum it up, Dubai is a business hub with exciting investment opportunities. Setting up a business in Dubai has never been easier. However, if you feel difficulty in performing the process, you have the option of hiring a reliable consulting firm. In case you need any assistance in setting up a business in Dubai, you may also contact us!