Dubai continues to attract entrepreneurs and companies from around the world as a premiere business location. If fact, The Gulf News reported that there were 8,000 new businesses in Dubai in 2016, despite a “global economic slowdown.”
Doing business in Dubai has many advantages, including: a strategic geographical location, outstanding infrastructure and communications, economic diversity, a talented pool of workers, business-friendly tax laws and relatively easy business formation procedures.
The first step in establishing a business in Dubai is determining the type of activities your company will engage in. This critical step will determine where and how you should set up shop. Depending on what these activities are—and the type of license you need—the choice of where to set up will become clear.
The two location choices for new businesses are: one of Dubai’s 30 Free Zones or the Dubai mainland.
Setting up a business in a Free Zone allows for 100% ownership by a foreign investor, tax exemption for imports and exports, and other benefits that some companies desire.
However, for other foreign companies and expatriate entrepreneurs, operating a business on the Dubai mainland provides the ability for direct trade with the local economy, as well as many other advantages.
While there are many tips for planning a business in either location, let’s take a look at setting up a business on the Dubai mainland.
#1 TIP: PICKING AN APPROPRIATE NAME
Choosing a business name in the UAE goes far beyond coming up with something catchy or memorable. There are societal conventions that prohibit the use of references regarding religion, other organizations, or obscene language.
Also, many businesses throughout the world bear the name of an individual or family. While this practice is fine in Dubai, the person must be an owner or partner in the business, and both first and last names must be used. The name must also include a reference to the business activity.
The name may not already be registered by any other company, nor should it contain special characters or punctuation marks. If the name is in a foreign language, consider what it means when it is translated to Arabic to make sure it is not offensive.
#2 TIP: GETTING A LICENSE
Even though general trade licenses are a bit more expensive, they are a great option for many companies doing business on the mainland. Here are some of the reasons why general trade licenses can be very beneficial:
Governmental processes are easier. The Department of Economic Development (DED) makes the entire application and approval process relatively painless for general trade licenses. With the proper paperwork, businesses who qualify can sometimes secure a general trade license within one week.
Also, with a general trade license, you are eligible to apply for multiple visas for both employees and family members. The number of visas you can apply for is scalable, according to the size of your business.
Additionally, governmental authorities do not require those with general trade licenses to submit yearly audits.
There are no taxes. One of the greatest benefits of operating under a general trade license is that these businesses do not need to pay taxes on profits, income and more.
“Borderless” trading opportunities. General trade licenses are perfect for businesses that import, export and trade products such as furniture, clothing, jewelry, handbags, electronics, and more. These businesses can not only do business in the local Dubai market, but in regional and international markets as well.
Multiple Business Activities are Covered. Trade activities within the same, or different, industry can all be covered under a general trade license, which is very advantageous to companies that engage in a variety of business activities.
#3 TIP: PICKING A SPONSOR
Expatriates that choose to set their business up on the Dubai mainland are required to secure a UAE national as a sponsor. You can choose from a local individual partner or corporate sponsor (also known as a sleeping partner or LP), or a Local Service Agent (LSA).
Although similar, LPs and LSAs are different. The kind of license a business needs will dictate whether an LP or LSA is needed. Other than civil companies, branch offices and professional licenses (which work with LSAs), most businesses operating on the Dubai mainland will need to find an individual or corporate LP.
Since business in Dubai and throughout the UAE relies heavily on personal relationships and trust, the LP is very important. The LP will act as a representative of the foreign investor and help facilitate the proper filing of documentation regarding set up, visas and permits, labor agreements and so much more.
The UAE government insists that the LP hold a 51% share of the business, which also means 51% of the liability. LPs are typically compensated with a pre-determined annual lump sum in exchange for their services.
Here are some tips to make the partnership between foreign investor and local sponsor successful:
Research. The local sponsor’s status and reputation will have a direct effect on the business. Making sure to partner with a scrupulous party is essential in this process to minimize risks. Foreign investors should meet potential sponsors personally. Also, to thoroughly vet the LP, sponsorship portfolios should be examined, keeping an eye out for warning signs such as Wage Protection Services (WPS) blocks, expired licenses, etc.
Trust but verify. It’s very important to look ahead and capture details of the partnership in writing upfront. For instance, if the sponsor is an individual, the contract should stipulate who would inherit the LP’s shares and responsibility in the event of their death.
The overwhelming majority of individual and corporate LPs have no interest in interfering with the operation of the business. They are gratified with being compensated for their liaison services which allows the business to fulfill governmental mandates. However, it is important for each party to clarify their intentions and get everything in writing.
Ask for complete control. Many sponsors will go so far as to agree to give Power of Attorney to the foreign investor, thereby transferring their rights. This not only gives foreign investors complete control over their business but comes in handy as many operational aspects of the business would otherwise require signatures of both parties.
Use a PRO services professional. Instead of trying to find and vet potential LPs on their own, foreign entrepreneurs would be well advised to use a PRO services professional to recommend trustworthy and experienced local sponsors. Some of these firms even offer free lifetime local sponsorship as part of their service packages.
#4 TIP: HIRE A PROFESSIONAL
PRO services professionals do so much more than recommend or introduce expatriate entrepreneurs in Dubai with qualified local sponsors. They are experts in Dubai’s governmental procedures, laws and regulations. They provide complete PRO business services and support that handles all aspects of formation and set up, making the process infinitely easier, error-free, and faster.
With a PRO services team taking care of all the details and procedures, foreign investors are free to concentrate on critical aspects of their business. Everyone does what they do best, which is especially important in the beginning stages of a business in order to ensure its success.
Learn more about why Business Sponsorship is Important in Dubai.