Dubai, the commercial capital of UAE is not only known for its skyscrapers and gigantic architectural marvel but also for its fertile grounds for new businesses. And these factors makes the Emirate of Dubai the best place to live and work. And for starting a business, there is no question that there is a lot of potential business opportunities in Dubai. So, if you are willing to setup your own 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
First thing first, you must find out the type of economic zone or ownership suits your business model. And to finalize the zone, you must know that Dubai offers different types of Economic Zones for operating a business:
- Free Zone
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 Department of Economic Development (DED), which will issue you a Dubai Business License.
In this blog we’ve specifically transcribed about the process and requirements to register 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 the 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 challenge 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 Local Sponsor and in some cases you may not need a local sponsor at all.
Therefore, it is important that the business owners looking to setup a business in the Emirates knows 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. In fact, 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.
- Individual Sponsorship
- Corporate Sponsorship
- 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 the 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 expat (49% Shareholder) for the management of the Company including the power to operate 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 expat 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 national 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 expat 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 to apply and obtain the business license in Dubai.
- Select the business activity
- Choose the right type of legal entity (Legal Form): Limited Liability Company (LLC), Branch etc.
- Reserve the Trade Name of the Company
- Obtain Initial Approval: ‘No Objection’ from Department of Economic Development (DED)
- Approval from the External Department: Depending on the business activity
- Prepare Memorandum & Articles of Association or Local Service Agent (LSA) agreement
- Select Office Space: Physical Address of the company (Size: Min. 200 sq.ft)
- Submit all the documents and get the trade license.
Opening a Corporate Account
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 are the list of documents required to open a corporate account in the UAE.
Passport copies of all the Shareholder(s)/ Manager(s)
Visa copies of all the Shareholder(s)/ Manager(s)
Emirates ID of
Off late, one of the mandatory requirement 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 a proof of residence (Address proof) in UAE.
All the government/ semi-government and private entities are highly supportive towards business startups which makes Dubai as 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 UAE Mainland and hopefully this blog has given you an outline of what is involved.
For any further information or assistance regarding New Business Registration/ Set-up. Please contact ADAM Consulting or you can directly contact Mr. Ashwin Chandrashekar on +971 54 329 7867 or drop an email to [email protected]