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Setting Up A Business in Dubai

Hi – Sunil here to talk about setting up a business in Dubai

This is a confusing topic for so many of my friends, family and website visitors.

I am sure you have a question or two as well or you wouldn’t be reading this discussion.

So the idea is to give you a synopsis of the key aspects of doing business in Dubai and then lead into the “How” question.

I am a big believer in that the “what” and the “why” must be clearly understood before the “how” aspect of a complex question is answered.

By the time you are done reading this I hope to have addressed your question of “how to set up a business in Dubai”. Even if you feel like you know everything there is to start a company in Dubai, I would be glad if you took away a thing or two from this discussion that you weren’t aware of before.

To start off let me talk about why Dubai is such a desirable place to do business. There is not one single reason for this but rather a combination of many.

Freehold Zones

These are areas designated by the Dubai government where foreigners can invest in property (typically you are not allowed property ownership in Dubai).

These are also areas where businesses are not taxed on corporate income. Payroll taxes also do not apply.

Dubai was built on free trade and relaxed tariff laws, and the designation of freehold zones have encouraged multinational companies to set up a presence in Dubai.

The laws are no different for the small mom and pop business.

In my opinion, the best benefit the freehold zone concept offers you is the exemption from having a local business partner who owns at least 51% of your business (keep reading below).

Labor Arbitrage

I do not believe there are minimum wage laws in Dubai (as of early 2008). Labor is very cheap in Dubai as workers from nearby countries like India, Sri Lanka and Pakistan often come to Dubai to seek work and a better lifestyle for their families. These workers do not get paid much. Most times, their arrival in Dubai is facilitated by employers looking to hire.

Excellent Geographical Location

Dubai’s wealth was made through trade, not oil. Less than 7% of Dubai’s annual GDP is oil driven. Rather, its central geographical location near water has made it a premier destination for trade.

Many merchants from both Asia and Europe meet at one of many Dubai ports to conduct business. Dubai’s relaxed trade and tariff laws make trading in Dubai even more attractive for foreign merchants. It is a win-win situation for all involved.

Because of these advantages Dubai is a very attractive place to start a business for many entrepreneurs and even International companies. As a multi-national, you want your company to be near your vendors and customers. If everyone is establishing a presence in Dubai, it becomes difficult for you not to. You may just lose your position in the industry you play in.

You want to be close to people and businesses that you frequently deal with. You want to be at the forefront so that when opportunity knocks on the door, you are there to openly welcome it.

And perhaps the most underestimated reason is that local businesses and people prefer to work with companies that are established locally. In such cultures, building personal relationships is very important, and that involves the sense of sight and touch. You need to be there for that to happen!

Business Licenses

As a business in Dubai, you will need an operating license for the business activity your company conducts. There are three general types of business licenses you can apply for:
  • Professional License – for companies engaging in professional services
  • Commercial License – for companies engaging in import/export trading
  • Industrial License – for companies looking to establish manufacturing operations
These business licenses can be obtained from Dubai’s economic department, a body established for the sole purpose of governing economic activity. The general application process is similar for each; however each license application has its own nuances.

For example, if your company is involved in trading or certain services, the department may require that you obtain a guarantee from a local bank in Dubai. No matter what kind of business you start in Dubai, it has to be registered with the Chamber of Commerce. Similarly, there are several other important things to understand to be able to successfully set up a business in Dubai.

The 7 types of business entities you can form in Dubai:

  • Public Company (Traded in the Stock Exchange)
  • Private Company (Not required to disclose publicly)
  • Joint Venture Company (JV)
  • Limited liability Company (LLC)
  • General Partnership
  • Partnership-en-commendams
  • Share Partnership Company
My personal choice has always been an LLC. I have multiple LLC registered at the time I am writing this discussion. I find them to be the most flexible. At the same time I get the liability protection from separation of business from personal assets.

I would recommend you go with an LLC as well. You will not be alone if you decide to establish a limited liability company in Dubai. Many successful companies in Dubai that have been in existence for a while are LLCs. It’s the number one choice of business entity.

If you are used to the western business laws, there are a few key things you must know about an LLC in Dubai. Your LLC will require a minimum of two individual shareholders. You can have as many as 50 (somewhat similar to an S Corporation in the United States).

There is also a minimum capitalization requirement to establish an LLC. As of 2008 this number is about 300,000 Dirham or just around $80,000 USD. You can have this in either cash or capital assets.

The Biggest Disadvantage of Doing Business in Dubai

Not everything can be on the up and up. Every place has its pros and cons and this is what I absolutely cannot stand about setting up a company in Dubai. You (the owner), cannot own more than 49% of the company. Yes you read that right!!

This goes back to Dubai’s protective culture. It does not want a foreign entity to be able to make any decisions that would trump the decision of the local Arab population. But companies in Dubai have so much positive going for them, they are willing to give up 51% ownership stake on paper.

I say on paper because profit split arrangements can be stated different from the ownership stake. This is an interesting concept. Many of my friends have been settled in Dubai for a long time now. Their parents had set up businesses decades ago and have many other Dubai investments in forms of silent company ownership. Each one of them has a different profit sharing agreement with their local partner. However on paper, the local partner appears to own the business.

This is all good until tides turn one day, and we are all hoping that one day never comes. I cannot imagine what would happen if things ever turned sour and the locals decided to take over the businesses in Dubai. This can be a discussion that would take days, weeks and months. I just want you to understand that there is this slightest, most remote risk involved in doing business in Dubai.

Few Exceptions to the 51% Rule

There are a handful of cases where companies can get away with assigning 51% of their shares to a local Emirati or UAE National.
  • If foreign businesses are not truly based in Dubai but rather set up only a branch (face presence)
  • GCC – Gulf region companies partnering with UAE locals
  • Companies operating in freehold zones like the Jebel Ali Free Zone Dubai
There are certain business practices that a foreigner cannot get into at all. There are other professions where the laws are quite precise regarding the ownership split, number of shareholders, entity structure, etc.

While Dubai is a very attractive destination to start a company, doing business in Dubai isn’t as easy as it can be in countries like the United States (by far one of the easiest places to legally set up a business in and succeed). It has its own unique set of challenges that are difficult to understand and navigate through.

I do not recommend you try to set up a business in Dubai on your own. Rather, you should engage a local expert who has extensive experience in setting up businesses in Dubai to guide you or to do it for you.

My go-to person has always been Christine Orth. She runs a highly credible firm in Dubai called Global Office FZ that is in business solely to help foreign companies and entrepreneurs set up a business presence and Dubai. The firm is extremely reputable and has a solid track of experience and client satisfaction testimonials to go with it.

I personally know Christine and have referred all my colleagues to her who are successfully doing business in Dubai. She has been running her firm for over 6 years as I write this discussion. I have heard nothing but good things from people about her firm. You can read more about her and her firm here.

Whether you are planning on moving to Dubai to set up a business or already live in Dubai and want to do business, and if you are even remotely serious about doing business in Dubai, you do not want to take this process lightly. Make sure you do it right every step of the way. The time you take now to plan and prepare will pay off multiple times over in the long run.

I have personally witnessed companies get in to legal issues and many that have ended up spending a ton more money that they should have navigating the grey areas. Professional fees can rack up rather fast, especially legal fees. More importantly, you want to make sure you get the business establishment process right so that you can focus on the core of your business rather than worry about what problem you are likely to face next.

I wish you well on your journey. Certainly come back and let us know of your experiences and we would love to feature it on our website.

2010 UPDATE New – Virtual Office company set up with full business license and 3-year residence visa now available in Dubai. Costs start at AED 18,000 p.a. You as an Investor are entitled to get 5 visa for you and staff and can sponsor your family and a maid.

The set up is approved by Abu Dhabi High Court and is being licensed through a Northern Emirates Free Zone that is legally entitled to provide Free Zone business licenses in Dubai.

Their business center is conveniently located in Dubai Marina with loads of restaurants, hotels and ample free parking in walking distance . For more information, please contact our business partner Christine.

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