December 02, 2024
Dubai's advantageous location, ease of doing business, and alluring tax incentives have made it a top choice for both new and existing business owners. In 2024 alone, more than 67,000 new businesses established themselves in Dubai, and the number appears to be increasing annually. Everything for a start-up that needs to be understood in order to ensure a successful and seamless launch of your business in Dubai is covered below, from selecting the best business structure to licensing requirements. The blog covers all the necessary basic information that is helpful while planning for doing a business in Dubai.
Comparing Economic Zones: Mainland, Free Zones, and Offshore
People have to choose between operating the business offshore, in a free zone, or on the mainland before they start it. Every option has advantages and features that vary depending on the company's needs.
Mainland
Businesses on the mainland in Dubai have the freedom to trade within the UAE market and operate directly within the local economy. Businesses can operate throughout the UAE market by establishing a mainland company, which removes limitations on the kinds of industries or business operations that can be carried out. Because of this flexibility, mainland jurisdictions are appropriate for businesses looking to conduct a variety of commercial activities and fully tap into the local market. Federal Decree-Law No. 26 of 2020 allows foreign investors to fully own businesses in more than 1,000 commercial and industrial activities. Complete foreign ownership is still prohibited in some strategic sectors. In order to participate in these arrangements, a local sponsor or service agent must own at least 51% of the business. Nonetheless, a well-written shareholders' agreement that protects the interests of the foreign partner and specifies management duties and profit distribution can be used to manage this ownership structure.
Free zone
For individuals who want complete control over their business, they could choose to apply for a licence and a location in one of Dubai's free zones. The government of Dubai introduced the free zone concept in an attempt to attract foreign investors to establish businesses in the city. It is a special economic zone where entrepreneurs can benefit from 0% personal income tax, 9% corporate taxation (applying to UAE companies with profits over AED 375,000), and full ownership. One of the main drawbacks of running a business in a free zone is that they are unable to conduct direct business with the local market in the United Arab Emirates. At the moment, Dubai has more than 30 free zones in operation. Each free zone is typically created around a particular industry category and grants licenses to businesses that fall under that category. Here are a few instances
- Dubai International Financial Centre (DIFC)
- Dubai Multi Commodities Centre (DMCC)
- Dubai Airport Freezone
To set up business in the free zone, individuals must follow these seven steps:
Determine the Line of Work
When launching a business, it is crucial to first identify the type of venture you are undertaking. There are more than 2,100 business activities to pick from, all of which fall into various categories within the commercial, professional, industrial, and tourism sectors.
Choose a Free Zone
Given that Dubai offers more than 30 free zones, it usually makes sense to locate your business near other companies operating in the same industry. Which free zone you choose to establish in may depend on the nature of your company. For the past nine years, Financial Times' fDi Magazine has named DMCC, the Government of Dubai Authority on Commodities Trade and Enterprise and the world's premier free zone, the Global Free Zone of the Year.
Select a Name for Your Business
It's crucial that the name you choose for your company complies with UAE naming standards. Names that contain foul language may be interpreted as disrespectful to religious beliefs. It is not permitted to mention political parties or the mafia. You must provide proof that the person is an owner or partner in the business if you are naming it after them (no initials or abbreviations allowed.
Request Initial Approval
Initial approval from the Dubai DED is required so that there are no objections on starting a business. You can apply in person, online, or through a third party, like a law firm. The documents you must submit will vary depending on the type of business you run, but typically they consist of:
Form for business registration and licensing
A duplicate of your ID or passport
A copy of your visa or residency permit
The articles of association of the business
Study of the project's viability
Offshore Companie
Many of the same advantages are available to offshore businesses that register in a free zone. It isn't a replacement for a free zone business, though. The primary distinction between an offshore company and a free zone company is how the business is run. Offshore businesses are permitted to conduct business outside of the United Arab Emirates but not within it. Additionally, they don't have any minimum capital requirements prior to incorporation. However, a sponsor is necessary, which limits the foreign ownership to just 49%, in contrast to operating as a free zone business.
Determine Your Company’s Legal Structure
When starting a business in mainland Dubai, it is important to choose the right structure because it determines control, financial and legal liabilities, and tax obligations. The requirements of the business will determine the laws and regulations that the company must follow. The following are the various types of business structures that are available:
1. Sole Proprietorship: Run by one person with total authority over operations and earnings. All debts and financial commitments are the owner's responsibility. A residence permit is one of the requirements that foreign owners must fulfil.
2. Limited Liability Company (LLC): A well-liked option where partners' liability is capped at their investment. Partners' personal assets are protected because they are not liable for company debts beyond their investment.
3. Partnership Company: Two or more partners share ownership and divide gains and losses in accordance with a predetermined ratio. It may be a limited partnership, in which liability is restricted to the amount of investment, or a general partnership, in which all partners bear equal liability.
4. Private Companies with Shareholdings: It is appropriate for commercial and industrial operations , with the exception of professional businesses, and requires a minimum of three investors. Up to 100% of the shares may be owned by GCC citizens.
5. Public Shareholding Company (PJSC): A type of legal entity with particular incorporation requirements that is appropriate for large-scale endeavours. Unless the trade name is patented or owned by a shareholder, it cannot be one of the investors'.
6. Civil Company: For recognised professionals such as doctors, accountants, engineers, and lawyers. It is fully owned by its partners, has specific establishment requirements, and is limited to professional activities.
7. Foreign Company Branch: Allows a foreign company to expand its presence in Dubai while keeping the parent company's name and ownership. It increases the parent company's sales and profits even though it has no legal standing of its own.
