The UAE is a major economic power in the in the Middle East and North (MENA) region. Its market-driven policies make it an ideal pivot for developing markets globally. However, there are some challenges of forming business for entrepreneurs in the UAE.
The economy of the United Arab Emirates is dominated by industry, trade, products, and services. As a result, entrepreneurial activity and inventiveness are encouraged in the UAE. Yet, accomplishing ambitious goals necessitates a complete plan and market understanding.
Particularly given the legal and financial peculiarities of the United Arab Emirates. In this post, we cover the key problems that entrepreneurs and investors encounter while starting a business in the UAE. So, keep reading to get an in-depth overview of it.
Scope of Starting a Business in the UAE
The UAE’s capital raising market will keep growing in the near future. Its traditional capital raising is set to continue dominating with a projected volume of US$696.08m. The US is expected to generate the most capital raised globally. Also, a surge in demand for Sharia-compliant financing options among local and international investors is a contributor.
Major challenges faced by entrepreneurs in Dubai, UAE
Let’s see what problems businessowners may face while establish their firms in Dubai, UAE.
Ownership rights for newly established business
The ownership rights of UAE-based businesses vary based on their structure and type. Freezone-based companies can have 100% ownership from the beginning. Whereas, mainland-based companies can hold full ownership since 2021. Still, mainland businesses can advantage of broader reach across the UAE.
Opening a corporate bank account
The UAE faces challenges in opening bank accounts, with 50% of business owners finding it difficult, compared to the global average of 25%. The Dubai Chamber of Commerce found banking as the biggest challenge for 65% of entrepreneurs. Compliance issues, lack of information, and long application processes, also pose challenges.
Factors contributing to this include high demand from local and international businesses, strict regulations, as well as lack of transparency. These factors can deliberately cause delays in processing applications. Accordingly, they affect the overall banking infrastructure Dubai, UAE.
Cultural differences
The UAE, a multicultural city with over 200 nationalities and religions, requires mastering soft skills like understanding local business culture to avoid common mistakes. Key aspects include personal appearance, building hierarchical relationships, and fostering sympathies. Decision-making processes may take time, and impatience is considered impolite.
The challenge is to show flexibility and focus on goals while engaging with business partners without losing sight of personal goals. Appointments are often postponed, and expectations regarding local partner commitment are unrealistic. Foreign investors bear responsibility for creating documents, following up, and executing agreements. Reservations are not reasonable, especially towards women, who are open-minded and educated in Europe or the US.
High initial investment cost
Starting a business in the UAE requires a high initial investment. But with good management skills, it can be done with low costs. Prioritize essential expenses and minimize overhead costs like rent and equipment. Utilize your negotiable skills to negotiate with vendors and suppliers.
If passionate about starting a business in the UAE, sacrifice personal resources and secure funding. Approaches to overcome high initial costs include raising capital through crowdfunding platforms. Moreover, seek government grant opportunities, and find angel investors for financial backing.
Choosing an appropriate location
Selecting the right location for a new company is crucial as it determines legal permissible and prohibited commercial activities. It’s essential to define the business’s medium and long-term activities. In the UAE, three areas should be considered: the UAE mainland, free zones, and offshore areas.
These areas differ in operational radius, import possibilities, work permits, residence visas, and administrative handling. It’s essential to consider these factors when considering a company formation. For a company formation in a free zone, you must consider factors like connectivity to airports and seaports.
Office and warehouse space requirements are the predominant focus of the free zone. The choice between these factors will determine the most suitable location for your business venture. To establish a company in the UAE, you must apply for a company license in one of the seven Emirates based on factors. For example: proximity to customers, the possibility of obtaining a license for your business activities, and available budget.
Understanding tax environment of the UAE
The UAE, despite its tax-free status, imposes several corporate levies on its products and services. Most are subject to a 5% VAT tax, which must be registered and collected by enterprises. Corporate income tax is a 9% tax on earnings earned by UAE-incorporated enterprises, which must file annual tax reports.
Some firms, such as those with taxable income under AED 375,000, qualified free zone residents, and international bank branches, pay no taxes. Customs charges apply to imported items, while excise taxes apply to specific products. Therefore, you need to keep in mind all these taxes, as they increase your operational expenses.
Compiling necessary legal documents
It is crucial to compile all necessary documents for the company’s establishment. Ensuring completeness of these documents is essential to avoid delays and waste time. Key business formation documents in the UAE include the extract of commercial register, memorandum, and articles of association. They must be notarized and legalized up to the diplomatic mission of the UAE in the country where the legal entity operates.
All documents must be submitted in the language specified by the respective authority. Remember, the Arabic language is the only accepted language for setting up a company in the UAE mainland. However, the free zone authorities do accept documents in either Arabic or English language.
How can entrepreneurs overcome these challenges?
The UAE is an excellent place for expanding the Middle East, North and East African markets. Bear in mind, it is also quite competitive. To stay ahead, you must have a complete plan and market knowledge, as well as the ability to recognize opportunities and identify dangers.
- Understanding employment legislation is vital for seamless operations and compliance, making recruiting and managing personnel easier.
- Getting familiar with the UAE tax climate helps businesses avoid penalties and fines.
- Consulting a business counselor is helpful to determine the optimal location for a firm based on its unique requirements.
It is quite beneficial to engage a competent business setup organization such as KWS Middle East. They let you overcome the aforementioned and other corporate problems you may encounter. Consequently, establishing your business in Dubai becomes as easy as a pie for you.
