Starting any business anywhere in the world is like raising a child. Any business in the world requires nurturing from day zero, as a child does. Setting up a business in UAE involves much hard work, planning, and various do’s and don’ts, amongst other things. This article will go through the prerequisites and basic requirements of setting up a business in the United Arab Emirates.
The United Arab Emirates is ranked 16th in the world in the ease of doing business index amongst 190 countries. Low taxation and various other business-friendly policies have made the UAE a business capital in the Middle East.
The government of UAE is also working in this direction to continue to benefit the business community in UAE or those who are interested in setting up a new business in UAE.
Businesses may be small or large and engaged in various profit generation activities by indulging in manufacturing goods or delivering services.
Activities or businesses which generate income can be called for-profit businesses, and those activities or businesses which are non-income-generating can be called non-profit businesses.
The first and foremost question while starting any business anywhere arises are how to start a business? Who can start a business? etc. Answer to your all questions are below:
How to setting up a business in UAE?
The most important thing in setting up a business anywhere in the world is the idea of starting a business. Do you believe in your business idea is the question you should ask before thinking about whether the company is viable for the long run?
Deciding on an idea of business is the first and foremost thing to do. After that, market research will tell you whether your idea has the potential to blossom into a successful business.
One should start with writing out the possible ideas of business and jotting down the constraints relating to them. Then by eliminating all the other pictures, one can arrive at the final thought, which you can pursue further.
Once you have decided which idea you need to pursue, we have got you covered. This article will guide you to the know-how of setting up a business in the UAE and the basic requirements to start a business in the UAE.
Who can setting up a business in UAE?
Irrespective of whether you are a resident or not, you can start a business in one of the most business-friendly environments hosted by the UAE. One can set up a business in an individual capacity or various other legal structures available for setting up a business in the UAE.
How to setting up a business in UAE as a foreigner?
While starting a business, if you wonder if a foreigner can setting up a business in UAE, then our reply will be yes, of course, a foreigner can start a business in UAE. Why is this so?
The UAE welcomes individuals and corporations interested in setting up a business wholeheartedly as policies set up for foreign investors and corporations are transparent and never changing.
The government hardly changes; hence UAE can be deemed the most politically and economically stable country in the world to start a business as there is no fear of changing policies due to change in government.
Setting up a business in UAE as a foreigner may seem challenging for many. Professional services are available, which helps foreigners setting up a new business in the UAE right from the word go.
Also, from June 1, 2021 rules for setting up a business in UAE by a foreigner has changed, previously an Emirati partner was required to start a business, but now due to an amendment in UAE company law, the said condition is not required for some commercial and industrial business activities.
It is to have an edge and facilitate ease of doing business more in Emirates.
Legal structures of business in UAE
One of the essential steps in setting up a business in UAE is choosing the legal structure or form the company follows.
It will lay down a path towards a successful company as this will appropriately define the company’s hierarchy, how profit will split and how the loss will be dealt with business. Also, it is compulsory before applying for the necessary licenses to setting up a company in the UAE.
Following are various legal structures in which a company can be registered with
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Sole proprietorship
A company can be formed by a single person or a group of persons. When a single person is involved, then a company is said to be a sole proprietary concern.
The loss or profit to the firm is directly considered to be the loss or gain of the owner. The owner himself is wholly and solely responsible for everything happening in the firm.
The main advantage of being a sole proprietorship business is that it is the most uncomplicated structure to be incorporated for starting a business.
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Civil company
A civil company is a partnership company set up by doctors, lawyers, engineers, accountants, auditors.
A civil company can be indulged in various income generation activities dealing in specialized segments. Profit / loss from the business distributed among the partners in an agreed ratio.
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Limited liability company (LLC)
When two or more individuals form a company, it will be known as LLC. These partners are not personally liable for company debts or liabilities hence the limited liability.
This type of company can be set up by a minimum of two individuals or a maximum of 50 individuals whose liability is limited to their share in the business as per the limited liability company law.
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Foreign company branch
A foreign company trying to extend its business in the UAE can come under this category. This company may be a branch of a foreign company or its subsidiary.
A company trying to open its subsidiary in UAE may be of any legal structure. Obtaining a trade license from the economic development department is a must to set up a company’s subsidiary.
The registration of such companies takes place under commercial company law, which permits a wholly-owned subsidiary to open in the United Arab Emirates.
This subsidiary can conduct business in UAE and earn profits only through the purpose for which registration is done in the commercial license of the company.
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Partnership
A partnership company is started by one or more people, not necessarily professionals, for income generation activities resulting in profit and loss.
The profit and loss can or can not directly impact the profit and loss of partners depending upon the nomenclature under which the partnership is classified.
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Private shareholding company
A private shareholding company can be defined as a class of companies limited by the company’s outstanding shares. That means the liability of shareholders to the creditors is limited to the capital invested in the company.
In this case, the owners of a company are shareholders. The profit obtained is classified as return on equity or return on investment. The loss is limited, as shareholders’ assets cannot be attached towards loss incurred by the firm.
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Public shareholding company
A private shareholding company is a company whose shares have been listed on an exchange and is free to trade for the public. Anyone who can buy or sell shares of the company is said to be a public shareholding company.
In this case, the public can be the whole and sole owner. At any point in time, loss to the company is the loss of shareholders, and profit to the company is shareholders’ profit.
Approvals required for opening a company
The DED department of economic development may ask for various approvals, including local authorities, local civic bodies, and embassies.
These approvals are solely dependent on the nature of the business a company wants to indulge itself.
When a company is new and is directly registering for business in UAE, then the documents required for initial approval are as under
For initial support, you are supposed to provide
- Business plan
- Colored passport copies of individuals, partners, the company’s shareholder/s, and the appointed Manager/Director for the new company.
- Specimen signature of individual partners, the company’s shareholder/s, and the new company’s appointed manager/director.
- Completed application form
- UAE visit visa copy / UAE entry/exit stamp (Specifically for UID number)
When a company is already registered elsewhere and wants to open a subsidiary in UAE, then the following documents are required for initial approval along with all the documents above.
- Copy of existing trade license if any
- 2 years’ audited financial reports for a corporate entity or certificate of reference from a personal bank of the individual shareholder
- Unit title deed
And various other documents prescribed from time to time.
Selection of Jurisdiction to setting up a business in the UAE?
UAE is a big business hub, but it is divided into various economic zones, namely mainland, free zone, and offshore.
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Mainland
As the name suggests, the companies in this jurisdiction come under the purview of the Department of Economic Development (DED). To set up a business in the mainland, a company needs to be licensed by DED in every emirate.
Various approvals and paper formalities are required to obtain such as license. Also, multiple firms are indulged in the business of setting up a business in UAE.
The main advantage of setting up a business in UAE mainland is that laws are segregated for better growth compared to other jurisdictions.
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Free zone
As the word suggests, You can use this jurisdiction to setting up a business in UAE even without visiting the country. These zones are free to use for anyone trying to set up a business in this jurisdiction and also come with a host of perks and opportunities that new firms can nurture adequately. Some extras include Flexi desks/Flexi office setups, access to properties listed under freehold, and limited reporting obligations, and what else can be new business requirements.
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Offshore
Offshore as the word suggests, are those companies that are off the shores of the UAE. The authority only issues these companies’ certificates of incorporation.
Setting up a business in UAE’s offshore jurisdiction is an easy process as you can keep 100% of your profits and maintain complete secrecy about the business.
Business opportunities in UAE
The UAE comprises seven Emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Quwain, Fujairah, and Ras Al Khaimah.
Out of the seven emirates, free zone setups take around a week or two in Dubai and Abu Dhabi free zones, while in other northern emirates, it takes three days to setting up a business in UAE free zone.
However, specific information for licensing of various activities is present at the individual chamber of commerce, and the same may vary from time to time as per the government’s discretion.
An insight of all the chambers of commerce briefly is as under
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Abu Dhabi chamber of commerce
As the name suggests, all the activities leading to income generation in Abu Dhabi Emirate comes under the jurisdiction of other Abu Dhabi chambers of commerce.
To conduct business in the Abu Dhabi mainland, an entity needs to get approval from authorities in the Abu Dhabi chamber of commerce.
It was incorporated to protect the interests of businesses in Abu Dhabi. Although Free Zone Registered, companies are not bound by the laws of the chamber of commerce.
Being a member can make these companies a direct beneficiary of a long list of services included with this chamber of commerce membership.
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Dubai chamber of commerce
All the business activities in Dubai are under the jurisdiction of the Dubai chamber of commerce. Established in 1965, it was incorporated with the vision to safeguard the interest of businesses in Dubai Emirate.
The vision of the Dubai chamber of commerce was to be the best chamber in the world on driving competitiveness and business growth by 2021.
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Sharjah chamber of commerce
It was established in 1970. Sharjah chamber of commerce was incorporated to vitally participate in the organization of economic life and the prosperity of its trade, industry, and professions sectors on all levels and in cooperation with the concerned establishments and bodies and local departments.
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Ajman Chamber of commerce
Ajman chamber of commerce was incorporated to promote ease of doing business in Ajman Emirate. It was established to guard business interest by easing business laws and nurturing the best possible environment for business.
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Umm Al Quwain chamber of commerce
Umm Al Quwain’s chamber of commerce promotes a competitive environment for businesses by safeguarding the interests over Umm Al Quwain’s chamber of commerce.
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Fujairah chamber of commerce
Fujairah chamber of commerce promotes activities leading to income generation in Fujairah E-commerce
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Ras Al Khaimah chamber of commerce
Ras Al Khaimah chamber of commerce promotes activities leading to income generation in Ras Al Khaimah Emirate.
Creating a Memorandum of association
A Memorandum of association is an important document defining how the company can exercise its power while conducting business in the United Arab Emirates.
This process can also be considered as the foundation laid to define the legislation in which the company falls and the boundaries that a company cannot cross.
In other words, it lays down the path and objectives of the purpose of the company’s formation.
This document is self-explanatory. It is a public document accessible by anyone interested in the conduct of business with the company. It induces confidence in the parties planning to enter into business with the company.
The memorandum of association comprises the name of the company, the business in which a company is indulged, the company’s registered office, the company’s liability, and the process by which the company will raise its capital.
It is important to note that while forming a memorandum of association, a private limited company should mention privately limited in its name, and a public limited company should say limited in its name.
It is essential to create a memorandum of association abiding by the local law or jurisdiction the company is set up in. You can take professional help for the same as all the government norms should be satisfied while preparing the MOA.
You need to apply for a Trade license
There are various trade licenses in the UAE, which can also be termed business licenses. These licenses are mainly necessary to set up a business in the UAE mainland.
There are four standard trade licenses available, namely the professional services license, the industrial license, commercial license, and tourism license.
The professional services license is mainly suitable for companies offering professional services in UAE like marketing/sales or any other service classified under professional services.
An industrial license is for setting up an industrial manufacturing or any other industry indulged in manufacturing activities.
The commercial license is for traders who do export-import or are indulged in the activities of trading.
Registration of a company is vital as we are now set to setting up a business in UAE. Choosing a name for a company is essential irrespective of whether registering in a free zone or the mainland.
The name used for the company should be acceptable to the local authorities as it should not hurt religious sentiments or it shouldn’t have been previously registered. Once we are done with the name, we can apply for a business license.
Applying for a business license and registering a company can be done simultaneously.
Finding an office space in UAE
As the company is registered now, the next important step is to find a space from which a company can work out.
Traditional office spaces are available in the UAE as there is no shortage of infrastructure. Still, these can be comparatively expensive, so one can opt for a coworking space that comes with a lot of amenities and facilities.
A coworking space is a place or arrangement in which professionals or people from different niches share a shared space, including infrastructure, amenities, and other available resources at their expense.
Getting Ejari
So, if you are planning not to work in a coworking space, then maybe looking for office space seems feasible.
Before you look for office space, you need to apply for ejari. What is ejari? Ejari is an online system of registration used for the registration of lease and license agreements.
A real estate regulatory agency sets up this system to legalize the relationship between tenant and landlord, ejari requires all the rental and lease contracts to be registered on this portal.
Employing staff when starting a business in UAE
Once you have started a business, you need to look after running that business regularly. You need skillful staff who can help you to run the business.
Every industry and firm set in a specific country needs to meet certain standards prescribed by local authorities. The same is the case with the UAE. In UAE, specific industries require to employ a certain number of local staff. These requirements vary from industry to industry.
You can also employ foreign nationals in your company. Still, for operating a foreign national, you must provide certain facilities to the employee, including 30 days compulsory leave, 60 days sick leave, a housing allowance, education for children, and return flights.
Also, the procedure for hiring staff in the free zone and the mainland is different, depending on what type of staff you are hiring, either foreign national, or local. All the necessary licenses and registration certificates are required to employ staff through local authorities, the Ministry of Human Resources & Emiratisation (MOHRE), or the general directorate of residency.
Business insurance in UAE
Business is highly susceptible to failure; hence ensuring the company for loss or bad days is an excellent option.
There are various types of insurances available depending upon the requirements relating to business and its employees.
Various types of insurance include worker’s compensation insurance. A worker is insured against all work-related injuries and accidents. Personal accidents cover those injuries and accidents that are not work-related, health insurance covers the employee’s health-related expenses, and travel insurance covers travel-related contingent expenses.
Also, business-specific insurance is available, including marine insurance, fleet insurance, fire and theft, and loss of property.
Taxes on business in UAE
While registering for business and obtaining necessary licenses, we need to register for tax too. UAE levies two types of taxes which include VAT and excise duty.
Vat is levied on all the business enterprises registered in the mainland or free zones of UAE and is taxable at 5%. And excise duty is imposed on those items which can be classified as harmful to the human body. These include heavy taxation on carbonated drinks, energy drinks, tobacco & tobacco products, electronic smoking devices, liquid used in such devices.
One more tax levied on the companies incorporated in UAE is corporate tax. Corporate tax is the tax levied on a company against its earnings.
However, every company incorporated in the United Arab Emirates doesn’t have to pay corporate tax. The rule of corporate tax applies only to the companies dealing in oil and foreign banks only.
Oil companies attract a corporate tax of 55% on their income in the UAE, and banking services companies attract a corporate tax of around 20% on the revenue generated in the UAE.
Calculation of tax in both cases is different in the case of banking companies. It is calculated on the firm’s balance sheet, and in the case of oil companies, it is estimated as per the concession agreements.
Business banking in UAE
While your business is set up and necessary licenses are obtained, you now need to open a business banking account to undergo business-related transactions.
To open a business banking account in the UAE, you need all the necessary licenses.
In addition to that, you need to submit an application form duly filled, trade licenses, certificate of incorporation, share certificates, MOA, AOA, passport copies of all the directors or partners.
You can open a business account at a bank you find feasible to open an account as a business banking account is necessary for all business transactions, including those transactions that will procure more business and benefit from other business-related activities.
Nowadays opening a bank account of the company fully depends upon the owner’s profile. The final decision of the opening bank account shall be the bank’s compliance team and it depends upon their approval.
Engaging with experts
If you are looking to start a business in UAE and all the procedures above are too much for you to carry out, we will take care of the same on your behalf, and we will complete all the business setups required to set up a business in UAE.
We will provide you with end-to-end assistance right from the word go till your company is up and running.
We have been in the industry of setting up businesses in the UAE for a decade.
We have experienced personnel looking after various aspects to set up a business. Book your consultation today and avail yourself of our premium services at your doorstep.
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What type of business activity should you choose to start a business in the UAE?
After the company’s legal structure is done, it is vital to decide on business activity.
Those sectors that draw maximum consumer participation owing to great demands can be very feasible business options.
As high demands and high consumer participation is directly proportional to more significant business opportunities.
Considering the local demands following are the businesses that have high local needs and high consumer participation.
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Catering business
As 80% of the population is migrant workers in UAE, catering services business can have a greater scope as dealing with the requirement of 80% population working in UAE can make a business self-sustainable for a more extended period.
Owing to a large consumer base and customer participation, this business can offer great opportunities for a new company to nurture into a full-fledged organization.
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Hotel business
UAE is a business hub where people set up various businesses in this country. Many executives visit the country as they visit and they need a place to stay hence hotel business Can be a great option as the demand for accommodation will never stop.
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Construction
Due to Eased out norms, many companies are trying to set up business in UAE, leading to new office spaces for the company. These spaces require construction and modifications as per the company’s requirement; hence the demand for construction in UAE seems never-ending.
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Engineering services
Engineering services are included in the professional services sector, and there is a high demand for professional services all over UAE due to newer incorporations day by day.
Hence starting a civil company dealing in professional services can be profitable and sustainable for the long run due to the increasing demand for professional services like engineering services in the UAE.
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Branded materials sale and purchase
As there is much money involved in the UAE, people working in the UAE have a particular affinity towards branded materials; hence branded material sale and purchase business can work wonders in UAE.
Many businesses fail, and countless companies are set up every day. One can engage in the purchase and sale of fixed assets purchasing the same from falling businesses and selling them to new companies along with any other branded items or materials available for sale and purchase for people working in such firms or corporations.
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Tourism
UAE is the oil capital of the world. It is host to some tallest skyscrapers and modern-day marvels in the world.
People visit UAE for its tourism-friendly policies as UAE hosts various amenities very suitable for tourism industries. Starting a tourism-related company can be beneficial for a company holder due to incoming tourist traffic.
As this tourist traffic is never-ending and people are amazed to see what UAE offers, tourist business can be a great success.
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Automobile accessories sales home-based
When a mention of UAE luxury comes along, dealing in automobile accessories sales can be beneficial as the automobile industry in UAE is well flourished, resulting in a never-ending demand for accessories.
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Real estate agency
As UAE is a land of a never-ending goal, estate sale and purchase of real estate is a never-ending phenomenon. By starting a real estate agency, one can reap the benefits of the never-ending demand for real estate in the UAE by gathering the sellers and purchasers at a single forum and charging a fee.
Frequently Asked Questions
How much does it cost to start a business in the UAE?
The cost of starting a business depends upon various factors. One of the most important factors is the nature of the company you want to establish. The industry can pertain to retail, manufacturing, trading, and services.
A primary outlay of how much amount is required to start a business is as follows
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Legal costs
Legal cost includes license fee, trading certificate fee, set up costs, professional services fee, and government charges. It may range from anywhere between AED 10,000/- to AED 50,000/- . It can be considered an approximate budget for setting up a business in retail, manufacturing, trading, and services.
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Obtaining a lease
When an individual or group of individuals starts a business, the business requires a place out of which the firm employees work out. The company will be necessary to enter into a lease and license agreement.
The cost of acquiring a lease may start from AED 100/- per sq ft and may go up to AED 500/- per sq ft on a higher end.
And also, after setting up a business and acquiring a lease, you will be required to have a working capital to cover the operational expenses of your company/business until the industry turns successful or breaks even.
Do you need a sponsor to start a business in the UAE?
Previously, you were required to have an Emirati sponsor to start a business in the UAE. You were only allowed to hold 49% shares of a company and the other 51% shares were to be held by an Emirati partner. But, after a recent amendment in law, there is no requirement of the sponsor as you are now allowed to have 100% ownership in certain businesses in UAE.
However, there are both advantages and disadvantages of having a business sponsor in the UAE. The benefits of sponsors provide a back door to local markets, which can be a deciding factor in making the business sustainable for the long run.
Depending on the requirements, one can opt for individual sponsorship or corporate sponsorship, as sponsorship has now become optional.
One of the most talked-about advantages of having a sponsor is that those LLCs that have a local sponsor as a partner are exempt from tax.
Is it easy to start a business in the UAE?
It is effortless to start a business in the UAE as it comes with a lot of investor-friendly reforms that can help new companies nurture themselves initially. Market in UAE is well flourished, and the demand for goods and services from the market is never-ending; hence starting a business in manufacturing or services can be easy and beneficial for the long run.
Risks of doing business in the UAE
Every business, whether new or old, is associated with its risks. The main risk associated with the company is the risk of failure. There are many institutions providing solutions for the scientific risk management of a business.
One can ensure a business for failure. If your business fails, you can safeguard the interest of investors and those working for your business to keep it up and running. One more risk of doing a business is the risk of lawsuits.
One can hire the professional services of a civil company to deal with such lawsuits against the firm.
Wrap up
This article has gone through all the necessary formalities required to start a business in the UAE, from how to start a business, selection of legal structure, selection of trade license etc.
Along with exploring various options to start a business to the requirements of starting a business in the United Arab Emirates, we have covered it all.
Anyone trying to start a business should not stay back now and wait for any more as starting a business in the UAE is very easy.
What are you waiting for? You should start now. If you are still skeptical about starting a business, you can hire a professional business setup agent or agency that will help you from the word go till your business is up and going. Good luck.
