Starting a business in Dubai places entrepreneurs at the heart of one of the world’s most vital economic hubs. It connects East to West, and the tax-friendly nation is now a magnet for the world’s largest corporations and ambitious start-ups alike, and it continues to expand.
In this piece, we will guide you through the most essential steps for setting up your business in Dubai.
Free zone Versus Mainland
Those looking to establish a business in Dubai will have to choose whether to open it in one of the city’s various “free zones” or on the mainland.
Mainland companies are considered onshore entities and have to be certified and regulated by the Department of Economy and Trade in Dubai.
- Mainland companies have fewer operational restrictions overall and are free to trade with the local market, but ownership for mainland companies is a bit more complex.
- Investors wishing to establish a mainland company in Dubai have to register it with an Emirati national partner or have a local sponsor.
- Mainland companies are also liable for a 9% corporate income tax for profits higher than AED 375,000. There are certain exemptions to this rule, though.
- Some companies can apply for exemptions on the ownership or tax requirements depending on their industry, operations, and more.
- Mainland companies also need to set up their HQ in the Emirate that they obtained their trade licence from, but that does not restrict them from conducting business throughout the entire UAE.
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Free zone companies can be 100% owned by the investor without the need for an Emirati partner or sponsor.
- They are also exempt from any corporate income tax and adhere to favorable import and export regulations.
- Free zone companies do have some restrictions, as they cannot freely deal with the local UAE market but have to adhere to zone-specific trades.
- Free zones are regulated by private and independent entities within the zone itself.
- There are over 30 free zones in Dubai, allowing investors to choose the one with the regulation framework that favors them the most.
In short, mainland companies are good for people who want to do business and sell to the local market, while free zone companies are an excellent option for those wanting to conduct international business on a no-tax basis.
Mainland companies are suited for individuals focused on local market trade, whereas free zone companies are ideal for those seeking to engage in international business without taxation.
Steps to Start a Business on the Mainland
Those looking to start a virtual business in Dubai can do so online through a dedicated portal.
For entrepreneurs looking to establish a physical business presence, though, they will have to follow these steps:
1. Identifying a Business Activity
Starting a business in the UAE involves the initial step of identifying a suitable business activity from a diverse range of options, including industrial, commercial, professional, tourism, agricultural, and occupational categories. This choice lays the foundation for subsequent decisions in the business setup process.
2. Selecting an Appropriate Legal Form
Entrepreneurs must then select an appropriate legal form based on their chosen business activity. Options include general partnership, limited liability company (LLC), public joint stock company (PJSC), and others. It is crucial to ensure alignment between the chosen business activity and the selected legal form.
3. Registering the Trade Name
Following the selection of a business activity and legal form, entrepreneurs need to register a distinctive trade name. This involves adhering to specific provisions, such as ensuring compatibility with the business activity, not violating public morals, and avoiding names associated with religion or governing authorities.
4. Applying for Initial Approval
Obtaining initial approval from the UAE Government is a critical step that signifies the government’s non-objection to the establishment of the business in the country. However, it does not grant the authority to practice the business activity. Foreign investors must secure approval from the General Directorate of Residency and Foreigners’ Affairs before obtaining initial approval.
5. Drafting Memorandum of Association (MoA) and Local Service Agent Agreement (LSA)
Depending on the chosen legal form, entrepreneurs must draft either a Memorandum of Association (MoA) or a Local Service Agent Agreement (LSA). MoAs are required for legal forms such as limited partnerships, LLCs, PJSCs, and PrJSCs. These documents are prepared and attested by UAE-based law firms, courts, or notary public.
6. Selecting a Business Location
All businesses in the UAE must have a physical address that complies with the regulations set by the respective emirate’s Department of Economic Development and local municipalities. This involves providing office and warehouse rental agreements, with some emirates requiring attestation.
7. Getting Additional Government Approvals
Certain business activities may require additional approvals from relevant government entities. Examples include activities related to general transport, legal affairs, security affairs, and financial securities and commodities, each requiring approval from the respective ministry or authority.
8. Submit Documents for Licence
To obtain a licence for all legal forms, entrepreneurs need to provide essential documents, including the initial approval receipt, a copy of the lease contract duly attested by the Real Estate Regulatory Agency (RERA) in Dubai, attested Memorandum of Association (MoA), approvals from other government entities concerned, and, if applicable, a duly attested service agent contract.
9. Collecting the Business Licence
After completing the above steps, entrepreneurs can collect the business licence from service centers of the economic departments or through their websites. This finalizes the process and allows the business to legally operate.
10. Payment and Renewal
Entrepreneurs must pay for the trade licence within 30 days of receiving the payment voucher. Failure to make the payment within the specified period may lead to the cancellation of the application. It is important to note that trade name certificates obtained during the registration process are renewable.
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How to Set Up a Business in a Free Zone
Each free zone has its own set of unique requirements, but the process for establishing a business in any of them is about the same.
The process is quick and simple, and here are the main steps to follow:
1. Determine the Type of Legal Entity
Entrepreneurs must decide on the type of legal entity for their business in a free zone. Options include Free Zone Limited Liability Company (FZ LLC), Free Zone Company (FZ Co.), and Free Zone Establishment (FZE), each having variations based on the number of shareholders and whether they are natural or legal persons.
2. Capital Requirement
Different free zones may have varying capital requirements. For instance, twofour54 Abu Dhabi has no minimum capital requirement, while in KIZAD, forming an LLC requires a minimum paid-up capital of AED 150,000. The capital requirements differ across free zones and business types.
3. Choose a Trade Name
While determining the legal entity, entrepreneurs should also choose a trade name. Checking with the respective free zone authority or the Department of Economic Development is necessary to confirm the availability and permissibility of the chosen name.
4. Apply for a Business Licence
The type of business licence depends on the primary activity of the business. Free zones like twofour54 Abu Dhabi cater to specific business activities such as content production, advertising, animation, and more. Entrepreneurs need to apply for the relevant licence based on their business activities.
5. Choose an Office Space
Entrepreneurs can either buy or lease office spaces in free zones. The office requirements depend on factors such as the number of employees and the type of business activity. Different free zones offer various office space options, ranging from flexi desks to executive offices.
6. Get Pre-Approvals, Register Your Business, and Get Your Licence
The process of obtaining necessary approvals involves several steps. Initially, entrepreneurs need to secure initial approval by submitting an application form, a business plan, passport copies, and other required documents. Following the initial approval, registration fees and licence fees must be paid. Additional documents, such as a board resolution and memorandum of association, are submitted during the registration phase. The final steps involve the issuance of the trade licence and the commencement of the visa processing.
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Open Your Business in Dubai
Setting up a business in Dubai has been the dream of many entrepreneurs. With a variety of options and accessibility to different business benefits, this dream has become a reality for many. Start your business journey in the UAE with the right migration investment and explore the benefits it brings.
Dubai is renowned for its extraordinary landmarks, making it an attractive destination for entrepreneurs seeking investment opportunities in the country.
Finally
To know more about opening a business in Dubai, contact Savory & Partners today to book a comprehensive consultation with one of our experts.
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