Things to Consider When Setting up a Business in the UAE

See all Posts
February 3, 2020

UAE attracts expats from across the globe to its sunny climates, and most investors find its economic stability, steady growth, larger markets, investor-friendly processes and a tax-free regime too attractive to pass up.

In 2017, there were 131,000 registered businesses in the UAE. When you combine this with the fact that 80 per cent of residents are foreign-born, it becomes clear that there is plenty of scope for foreign investment.

The current market trends in Dubai offer plentiful opportunities for foreign investors to tap into imports and exports of commodities, as well as taking advantage of the growing tourist traffic.

Before taking the leap into your new business venture in the UAE you should first get acquainted with the various facts associated with a business startup in Dubai to avoid the problems mostly encountered while launching a startup. 

These things said, starting a business in the UAE is fairly straightforward. Many companies and foreigners are jumping at the chance to make something of their business propositions.

This comprehensive guide explains everything you need to consider when setting up a business in the UAE:

  • Where will you Establish your Business?
  • How to Register your Business
  • What to Expect From Business Taxation
  • How to Employ Staff

Where Can You Establish Your Business?

Many businesses shy away from investing in the UAE due to the compulsion of having a UAE national as a partner with 51% shares owned by them as a business ‘sponsor’.

To combat this, free zones have sprung up across the Emirates and have become a popular form of business registration in the UAE. This is when 100% of ex-pat ownership is granted. 

A ‘free zone’, or free trade zone, is an area with special tax-free status and low trade barriers. These free zones work under their own regulations and are governed by their own Free Zone Authority or (FZA). Goods can be manufactured, imported/exported, handled, or reconfigured without paying any customs duty.

Free zones benefit from:

  • 100% foreign ownership of the enterprise
  • 100% import and export tax exemptions
  • 100% repatriation of capital and profits
  • Corporate tax exemptions for up to 50 years
  • No personal income tax
  • Assistance with recruitment and additional support services, such as sponsorship and housing. 

Free trade zones are generally located in strategic geographical locations like national borders, international airports and major seaports, to maximise trading advantages.

There are a number of free zones across the 7 Emirates and they can be found here. 

How to Register Your Business

If you are setting up a business in the UAE, you will first need to choose a trading name. Start by talking to your local Free Zone Authority or the Department of Economic Development; they will be able to tell you if your name is available and acceptable. 

UAE laws state that trading names must not violate public morals, should not of been previously registered and must comply with the business’ required activity and legal status. Once you have an approved name, you’ll need to apply for a business license.

Depending on your industry, there are four types available on the UAE mainland, such as commercial, professional, industrial, and tourism.

Registration and licensing are done at the same time. To register your business, you will need to apply to the relevant local authority or Free Zone. In addition, you will have to provide the following documents: 

  • Completed application form
  • Business plan
  • Passport copies of shareholders/directors
  • Specimen signatures of shareholders/directors
  • Letter of intent

Costs of registering differ from jurisdiction to jurisdiction and will be dependent on your free zone area. This is a one-time fee that you pay in the first year only and can be as little as a couple of thousand dirhams up to AED 9,000 or even AED 10,000. 

What to Expect From Business Taxation

When starting a business in the UAE, you have to remember to register for tax, the country normally applies two types of taxes on companies: excise tax and VAT. 

Excise tax is levied on specific products, including:

  • Carbonated drinks: 50%
  • Tobacco: 100%
  • Energy drinks: 100%
  • Electronic smoking devices: 100%

Businesses in the UAE are subject to paying a 5% VAT. This tax applies to all tax-registered businesses in the UAE mainland and Free Zones. If your company’s taxable supplies and imports are more than AED375,000 per annum, you have to register for this.

You may not be eligible to register if you don’t currently meet the VAT registration threshold. However, voluntary VAT registration is available, and it’s good practice to register as soon as you’re required to.

The UAE levies corporate tax on oil companies and foreign banks, it has not yet applied corporate tax to other industries. Businesses registered in the ‘free zones’ are exempt from corporate tax for a certain time and such time can be extended. Rules and regulations of independent free zones apply. Refer to the business file.

How to Employ Staff

Once your business is off the ground, you might be starting to think about employing staff. It’s important to note that many industries must meet local employment quotas. For example, some industries must employ a certain number of local staff. In banking, there is a 4% minimum, while insurance has a 5% minimum.

When hiring UAE nationals you must notify the labour department within 15 days of the employee’s start date. There are also requirements to provide the same social security and pension that government employees receive.

If your business is choosing to hire expat employees you must apply through the MHRE and the General Directorate of Residency and Foreigner Affairs in your local emirate. They must meet certain qualifications and provide a signed employment contract.

To apply foreign staff in a free zone, you have to apply directly to the local authority in the zone. Although visas are widely available, candidates must meet certain requirements. For example, they have to be between the ages of 18 and 60 years of age. 

Lastly, if you plan to hire an employee, there are certain things you must provide for them. Firstly, health insurance is mandatory. It’s common to offer 30 days of annual leave and 90 days of sick leave. Foreign employees might also be given a housing allowance, return flights home and education for their children.

Ai Investment Group is a UAE based financial planning firm, we’re experts in investment and wealth management for expatriates and UAE nationals. We believe in providing exceptional solutions for individuals, families and businesses.