The Ultimate Guide to Starting a Business in the UAE

The United Arab Emirates (UAE) has become a global magnet for entrepreneurs and investors, thanks to its strategic location, robust infrastructure, and favorable tax environment. However, navigating the complexities of setting up a business in the UAE requires not just ambition but also a deep understanding of the local business landscape. As an expert in business setup consultation, I’m here to guide you through the essential steps and insights you need to know to establish a successful business in the UAE.

1. Choosing the Right Jurisdiction: Mainland, Free Zone, or Offshore

One of the first and most critical decisions you'll face is selecting the right jurisdiction for your business. The UAE offers three main options: Mainland, Free Zone, and Offshore, each catering to different business needs and offering distinct advantages.

Mainland: If your goal is to operate across the UAE and internationally with no restrictions on market access, then setting up a mainland company is the way to go. Licensed by the Department of Economic Development (DED), mainland companies have the flexibility to trade directly with the UAE market. Recent legal reforms have opened up opportunities for 100% foreign ownership in many sectors, although some strategic areas may still require a local Emirati partner.

Advantages:

• Direct access to the UAE market and beyond
• Flexibility in business operations
• Eligibility to bid on government contracts
• No limitations on office location and visa issuance
• Audit is optional unless your revenue exceeds AED 50 million in a year

Considerations:

• Subject to VAT (5%) on most activities, with specific sectors or activities zero-rated or exempt
• Corporate tax at 9% on taxable profits exceeding AED 375,000

Free Zone: Free zones are tailored for businesses that focus on international markets, offering 100% foreign ownership, tax exemptions, and full repatriation of profits. These zones are designed to support specific industries, providing the infrastructure and services needed to thrive. However, free zone companies face restrictions when trading directly with the UAE mainland unless they work with a local distributor.

Advantages:

• Full foreign ownership and 0% corporate tax under the qualifying free zone regime, subject to meeting specific criteria
• Tailored industry-specific infrastructure and support
• Full repatriation of capital and profits
• Simplified setup processes with no currency restrictions
• 0% VAT on the trading of goods within designated zones, provided specific criteria are met and there is no direct dealing with mainland end customers

Considerations:

• Restricted from direct trade with the UAE market without a local distributor
• Must operate within the designated free zone area or activity outside UAE is permitted
• Limited number of visas based on the size of the office
• Office space and topping up visa quota is expensive
• Most freezones impose mandatory audit report submission as part of the renewal requirement

Offshore: Offshore companies are an excellent option for those looking to engage in international business, asset protection, and tax planning without engaging in business activities within the UAE. Offshore companies offer significant privacy and do not require a minimum capital deposit.

Advantages:

• 100% foreign ownership with high confidentiality
• No minimum capital requirements for incorporation
• Ideal for international trading and asset protection

Considerations:

• Cannot conduct business within the UAE market
• No physical office allowed in the UAE
• May require a local sponsor for certain operations within the UAE

2. Selecting the Appropriate Business Structure

The structure you choose for your business will determine your legal obligations, ownership rights, and operational flexibility. The UAE offers several business structures, each suited to different business goals.

• Limited Liability Company (LLC): The most popular choice for businesses in the mainland, and provides flexibility in various commercial activities. Thanks to recent reforms, many sectors now permit 100% foreign ownership of LLCs.
• Free Zone Company: These entities are set up within specific free zones and can be established as a Free Zone Establishment (FZE) with a single shareholder or a Free Zone Company (FZC) with multiple shareholders. Free zone companies enjoy significant tax and ownership benefits.
• Branch Office: A branch office allows a foreign company to operate in the UAE under the same name and liability as its parent company, making it a seamless extension of the business.

3. Navigating Legal Requirements and Documentation

Setting up a company in the UAE involves several legal steps and documentation requirements. Here’s what you need to know:

• Trade Name Registration: The first step is to choose a unique trade name that aligns with UAE regulations. The name should avoid any inappropriate or offensive language and should not resemble existing businesses.
• Initial Approval: Before moving forward, you must obtain initial approval from the relevant authorities. This step is crucial as it indicates that there are no objections to your business activities.
• Memorandum of Association (MOA): The MOA is a foundational document that outlines your company’s structure, activities, and shareholding arrangement. For LLCs, it must be notarized by a UAE notary public.
• Obtaining Licenses: Depending on your business activities, you’ll need to obtain the relevant license—whether commercial, industrial, or professional—from the DED or the appropriate free zone authority.
• Office Space: Securing physical office space is a requirement for company registration in the mainland- however there is an option to apply for a virtual office agreement as well. In free zones, you may satisfy this requirement with a virtual office arrangement, and the share capital often only needs to be documented rather than deposited.
• Bank Account: Opening a corporate bank account is essential for managing your business’s financial transactions. Wio Bank is one of the easiest banks to set up an account with, offering a seamless digital onboarding process. Other recommended banks include Mashreq, Emirates NBD, and Abu Dhabi Commercial Bank (ADCB), which provide a wide range of services catering to different business needs.

4. Compliance and Understanding the Tax Environment

Compliance with UAE regulations and understanding the tax environment are critical to maintaining your business’s legal standing.

• VAT Registration: If your business’s taxable turnover exceeds AED 375,000 in the last 12 months or next 30 days, you must register for VAT with the Federal Tax Authority (FTA) within 30 days of meeting the criteria. The standard VAT rate is 5%. Entities operating within designated free zones enjoy a 0% VAT rate on the trading of goods, provided specific criteria are met and they do not deal with mainland end customers.
• Corporate Tax: From June 2023, the UAE introduced a federal corporate tax at a rate of 9% on business profits exceeding AED 375,000. Free zone entities can benefit from a 0% tax rate under the qualifying free zone regime, provided they meet all the necessary criteria. Otherwise, they will be subject to the standard 9% corporate tax rate. Mainland companies are also subject to 9% corporate tax on taxable income above the threshold, with certain sectors or activities being exempted.
• Economic Substance Regulations (ESR): If your company engages in certain activities, you must comply with ESR by demonstrating adequate economic substance in the UAE through annual reports.
• Ultimate Beneficial Ownership (UBO): Companies must maintain a register of beneficial owners and disclose this information to the relevant authorities.
• Anti-Money Laundering (AML) Compliance: Implement robust AML policies, including customer due diligence and reporting any suspicious activities.

5. Cost Considerations and Capital Requirements

Understanding the financial implications of setting up a business in the UAE is essential for planning and budgeting.

• Government Fees: Expect to pay fees for trade name registration, initial approval, and license issuance, which vary depending on the business activity and jurisdiction.
• Office Rent: The cost of office space depends on the location and size. Free zones offer flexible solutions, including virtual offices.
• Share Capital: In mainland setups, some business structures require a minimum share capital deposit, whereas in free zones, the capital requirement is often only for paperwork purposes without the need for an actual deposit.
• Professional Fees: Hiring legal, accounting, and consulting services can be invaluable in navigating the setup process and ensuring compliance with local regulations.

6. Hiring Employees and Navigating Visa Processes

Hiring the right talent is key to your business’s success, and navigating the UAE’s visa processes is an integral part of this.

• Employment Contracts: Draft employment contracts that are compliant with UAE labor laws, clearly outlining the terms and conditions.
• Visa and Work Permits: You’ll need to secure residency visas and work permits for your foreign employees. These are typically sponsored by your company.
• Wages and Benefits: The UAE mandates specific regulations regarding wages, working hours, leave entitlements, and end-of-service benefits. Ensure your policies are in line with these requirements.

• Emiratization and Diversity: Meeting Emiratization and diversity criteria in hiring is mandatory for businesses operating in the mainland. Emiratization policies require companies to employ a certain percentage of Emirati nationals, particularly in strategic sectors. Promoting diversity within your workforce is not only encouraged but aligns with the UAE’s broader goals of fostering an inclusive work environment.

Conclusion

Starting a business in the UAE is a significant opportunity, but it requires a strategic approach and a thorough understanding of the local regulations. At Peakvisory, we specialize in helping businesses like yours establish a successful presence in this dynamic market. Reach out to us today to learn how we can support you every step of the way.