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Requirements to start a business in Dubai: All you need to know
Dubai, the commercial capital of UAE is not only known for its skyscrapers and gigantic architectural marvel but also its fertile grounds for new businesses So, if you are willing to set up our enterprise, this blog will help you explain what you need to know to get your company registered and get going.
What You Should Be Aware Of Before Starting A Business In Dubai?
As you get the ball rolling with the actual process of registering a business in UAE, below are the things you should be aware of to make things less complicated:
- Economic Zones
- Ownership
First thing first, you must find out the type of economic zone or ownership suit that your business model. And to finalize the zone, you must know that Dubai offers different types of Economic Zones for operating a business:
- Mainland
- Free Zone
- Offshore
These zones offer different advantages depending on your business type and activity. Below are the 2 zones that investors use most commonly in the Emirate:
Free Zone
Offering 100% foreign ownership, free zones are the UAE’s way of attracting and encouraging foreign investments. There are around 45 free zones in the UAE, each of which caters to specific categories of business.
Free zones are 100% tax-free and the foreign investor is able to repatriate 100% of their profits. However, there are a few restrictions when trading with the local UAE market. With International Trading as purpose-built, the companies can distribute goods to UAE through an authorized distributor by paying 5% as a customs duty.
Mainland
If you want to operate in Dubai Local Market, you should register with the Department of Economic Development (DED), which will issue you a Dubai Business License.
In this blog, we’ve specifically transcribed the process and requirements to register a commercial business in UAE Mainland.
To start a business overseas in a foreign country can be complicated at the best of times given the complexities and risks involved. However, it doesn’t stop foreign entrepreneurs from establishing a business in the UAE. Of course, it is difficult to set up and run a business anywhere in the world, it doesn’t mean you shouldn’t pursue it. All you need is to be aware of the challenges that you face.
One of the most common challenges in the UAE is the issue of foreign ownership. Any mainland business that has business activities that fall under commercial or industrial licenses can only be 49% owned by an expatriate with the other 51% shares owned by Local Sponsor (UAE National, Emirati) as per Article 6.2 in the company’s Articles of Association and the legal form of the company will be – Limited Liability Company (LLC). Naturally, the thought of handing over half of your business to a stranger is unsettling. In some cases, the license is 100% owned by a Local Sponsor and in some cases, you may not need a local sponsor at all.
Therefore, the business owners looking to set up a business in the Emirates must know exactly where they stand when it comes to owning their business. Do you need a Local Sponsor? If yes, what exactly does it involve?
What is a Local Sponsor?
As per the UAE Laws, Local Sponsorship is a mandatory requirement for any expatriate who wishes to start a business in the UAE Mainland. Local Sponsor must be a UAE National and shall own a minimum of 51% share of your business. This doesn’t mean that you have to split the dividends accordingly. The local sponsor is paid a set fee or minimal profit share, agreed upon when the business is set up.
There are three different types of Local sponsors available. The type you require will depend on the business activities you wish to conduct.
1. Individual Sponsorship
2. Corporate Sponsorship
3. Local Service Agent
Individual Sponsorship: This is when an individual UAE national sponsors your business and holds 51% shares of your company. Individual Sponsor must be a UAE Citizen over 21 years of age and can be male or female. As per Article 14.2, the profit sharing will be shown as 20% in the name of the UAE National. However, in actual practice, the UAE National is paid a fixed amount annually based on the understanding between the shareholders. In return for a set annual sponsorship fee, the local sponsor will grant absolute powers to the ex-pat (49% Shareholder) for the management of the Company including the power to operate a bank account.
Corporate Sponsorship: This is similar to Individual Sponsorship, however, the local sponsor here will be a Corporate (Company 100% owned by UAE national(s)). Even with this structure, the ex-pat can retain the full powers to manage the business. It is important to note that having a corporate sponsor will allow you to overcome certain legal requirements when compared to Individual Sponsorship. The operations of the company won’t be hindered even at the death of UAE nationals since the 51% shares are held by a company but not an individual.
Local Service Agent: This is required when a skilled professional sets up a business offering services in their area of expertise. In this case, the ex-pat can apply for a “Professional License” and own 100% stakes of their business. However, they must appoint a Local Service Agent who will act as a representative of the company when it comes to dealing with the government bodies. The Local Service Agent does not hold any stake in the company and instead paid a fixed amount annually based on the understanding between the shareholders for their service.
Now that you know the requirements to start the process of registering your company in Dubai Mainland, here’s how you go about applying and obtaining the business license in Dubai.
1. Select the business activity
2. Choose the right type of legal entity (Legal Form): Limited Liability Company (LLC), Branch, etc.
3. Reserve the Trade Name of the Company
4. Obtain Initial Approval: ‘No Objection’ from the Department of Economic Development (DED)
5. Approval from the External Department: Depending on the business activity
6. Prepare Memorandum & Articles of Association or Local Service Agent (LSA) agreement
7. Select Office Space: Physical Address of the company (Size: Min. 200 sq. ft)
8. Submit all the documents and get the trade license.
Once your company is registered, you can now move towards opening a corporate bank account with the local banks in the UAE for the company to start the business operation. Opening a corporate account is completely subject to fulfilling banks’ KYC requirements. The requirements vary from bank to bank. Most of the banks set a minimum account/balance limit.
Below is the list of documents required to open a corporate account in the UAE.
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Passport copies of all the Shareholder(s)/ Manager(s)
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Visa copies of all the Shareholder(s)/ Manager(s)
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Emirates ID
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Off late, one of the mandatory requirements to open a corporate account is that the legal representative/ Shareholder(s)/ Manager(s) of the company with banking powers must be a UAE resident and must have proof of residence (Address proof) in UAE.
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All the government/ semi-government and private entities are highly supportive towards business startups which makes Dubai one of the most sought out city to have business in. Of course, there is a lot more to think about when entering into any business arrangement in the UAE mainland and hopefully this blog has given you an outline of what is involved.
Opening a Corporate Account
