Dubai is a key global business destination, enjoying a fairly central location on the map that makes it a suitable hub for managing operations across the globe. Setting up a business in Dubai is not a complicated process, but it is essential that you know all the steps involved to avoid any unpleasant surprises later down the road.
We have put together a handy guide that should give you a clearer idea of how to start a business in Dubai.
Before anything else, it is important to understand what kind of business you are planning to operate and what your options are. Will it be a professional service, a commercial enterprise or an industrial operation? That will determine the type of license you will need to apply for. It is worth noting that there are further processes involved for certain types of businesses. As an example, if you are planning to open a restaurant or a jewellery store, there will be additional government permissions and approvals required prior to applying for a license.
Company Types – Ownership
Companies in Dubai are split into two general categories – Mainland and Free Zone.
Mainland companies are the most common type and can operate in any commercial area of the city. This is especially beneficial for small businesses and startups as this gives them flexibility to choose a location that would be most suitable for their budget or target customer base.
In order for a foreign national to start a mainland company is mandatory to have a local partner or sponsor with a minimum 51% share. Typically, the local partner is paid a yearly fee and is not involved in day to day operations and management, but can be instrumental in sorting out administrative matters when dealing with the authorities.
Last year, it was announced that foreign nationals would be able to have 100% ownership of mainland companies, but that ruling has yet to go into effect.
Free zones are specially designated commercial areas that cater to specific activities. They are effectively similar to offshore companies, meaning that you can have 100% ownership of the company without the need for a local partner. Free zones also have their own regulatory authorities, which helps to streamline some of the processes involved in the setup.
They are not allowed to operate on the mainland and are primarily for multinational companies or those with clients outside of Dubai. While the idea of 100% ownership is enticing, free zones aren’t the most suitable options for smaller enterprises because leasing costs tend to be higher in these areas.
There are currently 45 free zones in the UAE, 27 of which are in Dubai.
The legal structure of your business will determine what laws and regulations are applicable to you. For example, only GCC nationals can have sole proprietorship in mainland companies whereas expats can only be partners. There are also separate rules for limited liability companies (LLCs), branch offices of multinational companies, and so on. This is a key part of the setup process.
The company’s trade name is what will appear on the trade license and is the name that will be used in all official and legal proceedings. The trade name should indicate the nature of the business and the services provided, though there are exceptions under specific circumstances.
You can now submit an application for initial approval from the Dubai Economic Department – typically, you can do this at the same time as you are applying for your trade name. The initial approval is valid for a period of three months, giving you time to complete other necessary formalities.
Once you have established the exact nature of the company, it’s time to look for an office (or warehouse, as the case may be). Ideally you would want to be in an area that is easily accessible by clients and associates, though it ultimately depends on your own location preferences and budget. Free zone companies will generally have assistance from the free zone authority in finding suitable premises and also in setting up basic utilities for the office.
Memorandum of Association
Your company will need to have a Memorandum of Association, which defines the role of the shareholders, their exact percentage of ownership and their liability to the company.
Management & Employees
Depending on the type of license you are applying for, you may need to hire a manager and have him/her on board and ready to handle operations for the company before you can get your license. In other cases, you might not be allowed to hire any employees until the company is fully set up.
At this point, all other formalities have been completed. You have your trade name, initial approval from the Dubai Economic Department, any other necessary approvals and a tenancy contract for your office space. Now you can apply for your trade license and take the final step toward becoming an officially registered company.
The above guide should give you a general overview about company formation in Dubai. We would always recommend that you get legal advice prior to initiating the process and that you contact the Dubai Economic Department to get a more comprehensive understanding of the steps required in establishing your business.