Business in Dubai: Pitfalls and Nuances

Pauline Familara
Pauline Familara
10 January 2024
Business in Dubai: Pitfalls and Nuances

Establishing a business in a country with a favorable tax system is a popular choice for optimizing current expenses. The UAE stands out as the most attractive jurisdiction in this regard. This country demonstrates high economic growth and stability rates in political and financial spheres, offers advantageous conditions for foreign investors, and has a simplified taxation system. However, you should aim to open a company here. In that case, it’s essential to understand the specifics of conducting business in Dubai and the UAE to grasp the potential pitfalls along this path. We’ve compiled a brief overview of the intricacies of business in the Emirates and the promising niches in the country’s economy.

Dispelling Misconceptions About Doing Business in Dubai

Firstly, we aim to debunk several myths associated with conducting entrepreneurial activities in the Emirates, which often hinder business people starting their ventures here from adequately assessing the situation. Understanding these nuances will assist in organizing a business in Dubai correctly and avoiding pitfalls encountered at the initial stage and during further operations. Let’s explore the most common misconceptions.

Registering and Running a Business in the UAE is Cheap.

This statement can only be assessed in comparison. Indeed, the Emirates lacks many standard taxes in other countries, but mandatory government fees exist. The costs include the following:

  • Obtaining additional permits for certain activities.
  • The cost of a license and its annual renewal.
  • Processing resident visas for employees.
  • Renting an office and other expenses.

Moreover, registering a business in Dubai is more expensive than in other emirates of the country.

Opening a Company Can Be Done Quickly, in Just a Few Days.

The process takes longer, mainly if you handle the registration yourself. Each founder is vetted through a foreign person control system, which can take 4-5 weeks or even longer if you need to take the following steps:

  • Obtain additional permissions from government bodies.
  • Rent an office.
  • Carry out renovations in the office.

The registration period depends on the type of company and the emirate. Offshore companies can be registered the fastest, while a local company in Dubai will take the longest. The specialists at Dynasty Business Adviser can help open a company in an optimally short timeframe.

Opening a Bank Account in a Couple of Days and Without the Owner’s Presence.

This is impossible in the UAE. A bank will only open an account with the personal presence of the signatory. Banks in the UAE prioritize the principle of personal presence, ensuring a high level of trust internationally.

If you attempt to open an account independently, you’ll have to wait 10-15 days for a response to your application. Furthermore, receiving a debit card, checkbook, and activating internet banking will take up to a month.

The Local Partner Does Not Affect Business Operations.

Today, the requirement for a local Emirati partner holding 51% of the shares in a local company applies only to certain types of activities. Believing that an additional agreement with a local partner makes them inactive could pose a serious pitfall for businesses in Dubai. Hence, we recommend choosing a local company rather than an individual as a partner or registering the company in a free zone, where 100% foreign ownership is permitted.

Buying an Existing Company Is Less Troublesome than Starting a New One

Purchasing an existing company saves time on staffing, office rental, advertising, and client acquisition. However, it does not necessarily mean fewer hassles, as it’s crucial to check the following thoroughly:

  • The entire business and financial operations of the purchased company.
  • Its client base.
  • Its charter documents for the presence of a local partner.
  • The correctness of labor contracts with employees.
  • The visa status of the former owners.
  • The state of the bank account — we advise closing it and opening a new one.

All this can take 1-2 months, and then the company needs to be re-registered. We generally advise against purchasing an offshore company.

Additionally, it’s essential to consider that when starting a business in the UAE, you should plan the company’s structure with the future in mind, as any amendments to the charter documents will incur additional fees. If the company becomes unnecessary, more is needed to stop renewing its registration. It must be properly closed and resident visas annulled. It’s best to entrust the liquidation of the company to professionals.

What Niches Are in Demand in Dubai

Now that you are aware of the potential pitfalls for business in Dubai, you can choose a suitable type of activity. You can continue the same business in the Emirates as in your country or select another direction on the most in-demand niches. In the Emirate of Dubai, these include the following:

  • IIT Industry — Every company and enterprise, totaling about 200,000 in Dubai, needs IT services. The presence of special economic zones also facilitates the conduct of this business. Opening an IT business in other Emirates is also possible, where its registration will be significantly cheaper.
  • Tourism Business — Many free zones in the UAE issue licenses for working as a tourism consultant or agency. However, a local partner is required to open a company involved in tourism in Dubai.
  • E-commerce — Residents of Dubai and other UAE residents readily make online purchases, so opening an online store here can be very profitable.
  • Domestic and International Trade — The success of this business is guaranteed by high consumer demand in the UAE, a plethora of free trade agreements with other countries, the absence of customs duties, and the country’s geographical location.
  • Construction Business — Licenses in all free zones are issued only for engineering activities and design. However, opening a company engaged in construction and finishing works is possible only in the Emirate of Dubai.

How to Start Doing Business in Dubai, Avoiding Mistakes

To start a business in Dubai while avoiding common pitfalls, it’s crucial to do the following:

  • Understand all the legal intricacies of conducting business in the Emirates.
  • Approach licensing decisions responsibly, adhering to established regulations and undergoing additional approval procedures.
  • Make prompt decisions about opening and running the business independently without relying on intermediaries.
  • Choose the registration location wisely based on the business’s needs.
  • Not skimp on establishing a full-fledged physical office to enhance trust in the business.
  • Comply with bank requirements for Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures.
  • Officially employ staff, clearly defining their job responsibilities and accountabilities.

Following these simple recommendations will help avoid difficulties and mistakes while conducting business in the UAE.

Please note that this article should not be considered as legal advice. For professional legal consultation regarding conducting business in Dubai and other Emirates of the UAE, one can reach out to the managers of Dynasty Business Adviser company.

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