Excellent piece explaining in plain English how to set up a conpany in the UAE.
After years of experience helping foreign companies set up in the UAE, I can say pretty confidently that you know which questions are most likely to come out from your clients. It does not mean that a client will not surprise you and throw a curve ball (maybe the topic for another post) but here are the top 10 questions I have seen when a foreign business owner is considering setting up his business in the United Arab Emirates.
1- What kind of business can I set up in the UAE?
There are mainly 3 categories of business set up available in the UAE.
First the offshore entity. This will allow you to hold assets and wealth but you will not be permitted to trade and work in the UAE. You will receive only a certificate of incorporation and not trade license.
Second, the Free zone entities. These are hugely popular in the UAE with more than 30 free zones to choose from. They allow you to hold 100% of the shares in your business. It has some geographical restrictions though and you cannot trade on the mainland.
The last form is the onshore entity. That will allow you to do your business anywhere in the country but it comes with the fact you need to have a local (Emirati) partner who will hold 51% of the shares in your business. As you can imagine, this will deter many foreigners from choosing the onshore set up. Sometimes, there is no choice though, so there are mitigating solutions out there. (Also a full topic for another post)
Additionally, you can also establish a branch/representative office or select to only work with a professional services license.
2- How much time will it take me to set up in the UAE?
Every consultant and free zone will tell you that it’s super easy and fast to start your business in the UAE. Don’t trust them. Somehow the whole process always gets stretched. There is this paper missing, that paper is not properly attested, one signature is missing, etc. Realistically, you should count on 8 weeks for the Onshore ( LLC) and the Free zone set up. The offshore set up can be faster but still you can count on 3 weeks at least depending on the offshore. The other issue with timing is that you would need to be present at various stages of the set up. Most of the time, you need to be physically present at the beginning of the process to sign all the forms. What takes lots of time for my clients is to get all the necessary documents from their home countries. They need to put them together, but they also need to get them attested and certified.
3- What activity category do I fit in?
There are 3 main categories of activities. And literally hundreds of sub categories. You need to really take the time to study which one will fit with your activity. Not selecting the correct one will sometime prevent you from operating and getting the contracts. The 3 main categories are
Commercial activities: activities that require capital and involve trading, construction, real estate, transportation, communication, leasing, etc.
Industrial activities: these are activities such as manufacturing, mining, quarrying, electricity, water, etc.
Professional activities: education, consultancy, healthcare, social work all fall within this category.
4- Do I really need to rent an office?
Yes, unfortunately, there is no way around it. Most of the government licenses will require you to show the lease and the municipality will even come and inspect it before they give you your trade license. If you are going for a free zone set up, you will be limited to selecting an office in that particular free zone. If you want to start slow, and build the business gradually, you don’t need big spaces in the beginning. You can go for the flexi desk options or serviced offices. This will cost you a minimum of 17 000 AED (5000 USD) per year. Typically the size of office will determine how many visas you can apply for on your license. The logic is that you can’t have 100 employees in a space that can fit only 10. Good logic. The only entity where you don’t need an office is the offshore set up. But again, you won’t get your residency visa either. Rental prices in the free zones are more expensive than in most mainland areas. So you really need to check the overall price of your set up, not only the initial cost. Another detail to keep in mind. You need to be a UAE resident in order to rent an onshore office. For the free zone you are ok, if you are not a UAE resident.
5- What’s a price range I should expect all in?
Let’s start by listing all the various cost elements.
Onshore ( llc)
– Initial approval from the Department of Economic Development
– Trade name registration
– Lease of office space
– Attestation of the Memorandum of Association
– Drafting of contract in Arabic and English
– Ministry of economy fee
– Mainland trade license
– Commercial license
– Chamber of Commerce fee
– Commercial improvement fee
– Local sponsor fee ( in case you don’t want him to be involved in the business)
The element that can vary a lot in this list are the office rent and the local sponsor fee. You should not expect to get access to any decent office space of 1000 Sq.ft for less than 200 000 AED (approx. 60K USD) per year. The local sponsor fee can start as low as 20K AED per year, but if you want some more senior and /or prominent names on your license you can spend 100 000 AED per year (30K USD) . So all in all, you could start your LLC business onshore for a 1st year budget of about 150 000 AED . ( approx 40K USD)
Freezones
– Free zone trade license
– Free zone registration fee
– Free zone visa fees
– Bank guarantees
– Registered agent fee
– Other fees
o Name Approval Charges
o Notarisation Charges
o Insurance expenses
o Premium bank account in Dubai
o Typing and shipping fees
o Medical check
o Police clearance
o Emirates ID card
So of course, if you ask me now, how much does it cost I need to give you an answer that I hate: it depends. So the Free zone set up total fee depends mostly on which of the 30 free zones you will go for. For example if you are a web consultant, maybe a simple Fujairah or UAQ free zone with flexi desk will do. That will set you back approximately by 20 000 AED ( 6000 USD) . If you need one of the more prestigious Dubai free zone like Jebel Ali, DMCC or Media City you can expect to spend north of 50 000 AED.
Offshore
– Offshore company registration fee
– Offshore registered office fee
– Nominee services
– Bank account opening
– Agent fee
A few emirates offer the offshore regime and all in all fees can go from 1500 USD to 6500 USD . It’s much cheaper than the 2 other options but be careful, you won’t be able to do any business in the UAE, and no residency visas either.
6- Is there really a difference between Free zones across all the emirates?
That’s another question I hear a lot. And even more now that there are about 40 different free zones available in the country.
When trying to answer this question, you need to start by understanding if your specific activity can only be done through a specific free zone. For example if you are involved in airfreight you have to work from either one of the Airport Freezones, period. If you work in sea freight you won’t locate yourself in the middle of the desert, you will go to Jebel Ali freezone. So that’s a hard criteria of decision for you.
When you are doing other activities that don’t require a specific location to operate from, then you have dozen of choices available.
There are 3 criteria that I use when recommending the best free zone option to my clients.
First is the pure cost factor. If you are stuck with a limited budget, then a few freezones would become unsustainable. Jebel Ali, Media City, DIFC are all on the expensive side so better stay away.
The second criteria is the ease of set up and maintenance. Some free zones are trying to make it very easy to set up and streamline their customer experience, so if you want to avoid extra headaches, try to go for places like DWC. ( Dubai World Central) .
The third criteria is more a question of branding. The free zone where you decide to establish your business will communicate a lot to your prospects, clients and partners. The free zone selection becomes a little bit like the name of the street in the rest of the world. If you have your head office on les Champs Elysés in Paris, people know you mean business. In the UAE it’s the same. People who have been doing business in the region know that to afford a Jebel Ali set up or DIFC set up you need to have some solid financial backing so it sends a signal of reliability. A virtual office from Fujairah would not be able to convey the same message.
7- What about my own visa and residency?
So initially I was dealing mostly with entrepreneurs who wanted to establish their business in the country so their residency visa was an option that would be available to them after establishing their free zone company. Nowadays I see a lot of clients whose main objective is to get the residency visa and who need to establish their free zone entity to obtain it.
If you set up a Free zone entity you will have a minimum number of visas allocation. You have a choice to either get the investor visa as a shareholder of your entity, or you can also get an employment visa.
If you establish an onshore LLC , as a shareholder you will obtain the investor visa . This is also the case for a free zone set up. The investor visa is simpler to deal with since you don’t need to go through all the other formalities like in the employment visa. This investor visa is valid for 3 years.
8- What’s the difference between local partner, local service agent and the public relations officer?
I have seen that there is sometime some confusion when it comes to those 3 roles. Let me try to explain the differences.
Local partner:
He is the Emirati National you would have as the 51% shareholder of your business in case you want to establish your LLC. He may or may not be involved in your business on a day to day level. Many Emirati business people will present themselves as having all the big contacts at the government, it might be true but you need to do a thorough due diligence. Having the big contacts does not mean that they will necessarily act on it. You need to have your expectations made very clear with your local partner so there is no misunderstandings moving forward. In all the years I have dealt with foreign and local partners, all the catastrophic disputes have had at their roots these expectations that were not clear from the beginning.
Local service agent:
The local service agent is the Emirati national who needs to be appointed in case of a professional license set up. He will have no liability in the business and no shares either. He has no involvement in the operations, he only needs to sign the local service agent agreement for a lump sum. This rule does not apply for engineering consultancy, legal consultancy and bank representation office.
PRO:
The PRO or Public Relations Officer is an absolute must if you don’t want to pull your hair out when dealing when all the governmental bodies and rules. This PRO will take care of all the paperwork when it comes to company registration, immigration, certification, municipality, etc. He knows the system, the people, and the shortcuts. If you are a small company, you don’t need a PRO on your payroll. You can hire one externally. Quickly once you go above a certain size you will see that having one on your payroll will save you so much hassle and stress.
9- We heard there are ways to not let the local partner control the business. Does that really work?
Everyone selling you the onshore set up LLC will try to convince that there is no issue at all, that you can totally control the local partner through side agreements. Some lawyers will just refer you to the latest law clarification and tell you that anti fronting rules have been reinforced and that nominee arrangements are not recognized by UAE courts. Some other lawyers will tell you that there are some sophisticated strategies that can be put in place to mitigate the potential risk related to the local partner owning 51% of the business. The honest truth is that it’s complicated, and you need to be very careful with this step. If there is a dispute at one point between the shareholders, you will end up in front of the local courts.
There are sophisticated ways involving a special purpose vehicle and a share pledge registered in DIFC. This is not a cheap way to do it but it seems to be working, on paper….
The other way to look at it is to say, how can I keep what is important in my business even if all things break between me and the local partner. This is when you need another company, like an offshore where you will be the sole shareholder and where you will put your valuable assets. Your brand, your intellectual property, your client files, your expertise. You then license everything to you LLC. If the LLC does not work anymore, you still have all your assets under your control.
10- It’s not working for us, we want to close shop. Is it easy?
It’s a real pain to close down a company in the region, get ready for more paper work and government offices visits. If you have a dispute with your local partner, it’s pretty much impossible to do and you will probably end up in front of the judge.
– You need to get the company board resolutions
– Submit all the necessary documents to DED and get the company dissolution letter from the department.
– Put the company liquidation notice in a newspaper
– Get the clearance letter from Etisalat ( local telco provider)
– Get the clearance letter from Dubai municipality
– Get the clearance letter from the customs department
– Close your bank accounts and get the no-liability certificate
– Get your financial statements audited for company liquidation
– Get the no-liability certificate from your sponsor
– Get your employees’ visas cancelled
– Get your investor and partner visas cancelled
– Get your employees’ labour cards cancelled
– Prepare the liquidation report and submit it to the department concerned.
These are just a little top 10 of the questions that I keep hearing over and over again from my clients. Each one of those points would deserve an extra ten page of explanation and nuances. One of the difficulties reported by foreign expats when dealing with authorities in the region is the lack of clarity on procedures in general. Those procedures change often and you will hear different versions depending on who you talk to.
In short, if you want to minimise any type of bad surprise when setting up a business in the UAE, do your homework and get some help. Believe me you don’t want to walk in that maze by yourself. I have done it in the beginning, never again.
If you think the information in this article can be useful to you or someone you know, please click the like button below and share the article. It takes one second and if it can avoid one entrepreneur making a costly mistake, then it’s worth it.
AlphaBet Capital Advisors 