Opening up the UAE
The UAE is a modern economic marvel and one of the biggest success stories of the 21st century. Starting as an unspectacular port town, Dubai has grown into one of the most attractive locations in the world. Most important, however, is that openness and ease of doing business that the UAE offers have turned it into an economic powerhouse. With a GDP of over $400 billion and ambition plans to grow and diversify its economy, its little wonder Dubai, and the UAE in general, is such a compelling prospect for businesses looking to expand into the Middle East.
In this article, Tom Keya, co-founder of legal consultants Ruthberg LLC, details how companies can successfully expand into the UAE.
Economic Opportunities and Emerging Markets in the UAE
With a strong economy, excellent infrastructure, and transportation links, the UAE is widely regarded as a desirable location to conduct business.
However, like many countries, the UAE suffered a deep recession due to the COVID-19 pandemic. This economic downturn was largely caused by downturns in vital sectors like tourism and oil. Fortunately, tourism is recovering slowly, while oil prices are soaring. However, it’s the UAE’s commitment to less oil dependence that offers companies the best expansion opportunities.
Most notably, the government announced a series of initiatives, to coincide with the nation’s 50th birthday. These initiatives are designed to help the UAE become a global player across industries as varied as robotics, healthcare, finance, and information technologies.
Ecommerce is an example of an industry the UAE is attempting to develop rapidly. To that end, the government has created free trade zones dedicated to eCommerce in the Middle East and North Africa (MENA). These contain specific infrastructures, such as e-commerce logistics units, multi-client warehouses, and end-to-end warehousing services like order management systems.
Similarly, the UAE has moved quickly to set up a regulatory framework for companies in Blockchain, crypto, and DeFi space. This will help attract talent and companies in the industry and encourage them to set up business in specially designed free trade zones.
Opening an Office in the UAE: Free Trade Zone or Mainland?
When expanding into the UAE, one of the most important decisions — if not the most important — is deciding is between a free trade zone (FTZ) or the mainland. Knowing the differences between the two and matching them to the needs of your business is crucial for avoiding challenges down the line.
Opening an Office in a Free Trade Zone
Setting up a branch in an FTZ allows foreign companies to retain 100% ownership of their business. There are over 45 free trade zones across the UAE, with more than 30 of them located in Dubai. Opening a business in one of the free trade zones is designed to be straightforward — as a way of attracting foreign investment. Each FTZ is different: with specific zones best suited to particular business activities. Subsequently, each FTZ has different exact requirements on how to legally set up an office or branch.
Taking all this into account, you need to consider several factors when deciding the best free trade zone to establish an office in. This includes:
· Business activity
· Need for physical space needs, i.e., offices, warehouses, etc.
· Number of employees: i.e., how many visas you’ll need to apply for
· Do you need to be near a port or airport?
Once, you’ve decided on the right free trade zone, the process for opening a business is as follows:
· Pick a Legal Structure for the Business
In an FTZ, your business can be:
o Free Zone Limited Liability or Free Zone Company
o Free Zone Establishment
The main difference is the number of shareholders. But not every free zone allows both structures, so research each structure carefully.
· Select a Trading Name
Your company name has to meet a few requirements, such as not featuring “Dubai” or “United Arab Emirates” and not referencing any religious names or iconography.
· Apply for a Business Licence
Depending on the planned activity of your business. Depending on your business offering, you may be required to apply for multiple business licenses.
· Choose Office Space
The specifics will depend on how many employees you aim to employ and your proposed business activities.
· Register Your Business and Obtain Licences
Submitting all relevant forms, licences, financial reports, legal documentation etc, and paying all relevant registration and licence fees to the appropriate free trade zone authorities.
· Begin The Visa Application Process for Your Employees
With your business registered, it’s now time to start getting your staff up and running.
Opening an Office on Mainland Dubai
The alternative to setting up a business in an FTZ is to open it on what’s referred to as the mainland (mainland Dubai or Abu Dhabi).
The process of opening a business on the Dubai mainland shares many of the same administrative steps as opening a business in an FTZ. This includes selecting a business activity, completing the required paperwork, etc. — as outlined above. The main difference is having to find a local Emirati sponsor. Additionally, your Emirati partner will have to retain a 51% ownership stake in your business.
Now, while this is a significant extra step and transforms the entire shareholder structure within your business, this does pose a few advantages. Firstly, you’ll have fewer restrictions on how and where you operate; you won’t be bound by the regulations of your FTZ and the licenses you hold. Secondly, there’s no limit to the number of staff visas you can apply for.
Living considerations for staff relocating to UAE
Once the paperwork for your business has been submitted and approved, it’s time to arrange visas for your staff. If opening a business in a free trade zone, you’ll be assigned a quota of working visas for your employees. This quota depends on the FTZ, the size of your office space, and your registered business activities.
First, each employee must apply for an employment entry visa. When they have that, they can apply for an Emirates ID card (resident identity card), and then they’ll receive their residence visa and work permit.
However, as well as the visa application process, each employee coming to work in UAE will have to go through a short process of cultural assimilation. For your staff to be successful in the UAE, they must learn and respect cultural norms, public holidays, religious festivals, etc.
Economic And Legal Challenges of Expanding into the UAE
As lucrative as expanding into the UAE is, it’s not without its challenges. Without doing their due diligence and, more importantly, seeking assistance in setting up offices and subsidiaries, unsuspecting companies can find themselves in over their heads. Economic and legal roadblocks include:
· Choosing The Wrong Location
Business owners fail to do enough research, so misunderstand the implications of setting up on the mainland or in an FTZ.
· Choosing The Wrong FTZ
Similarly, businesses choose to set up offices in an FTZ that doesn’t fully cater to the requirements of the business.
· Failing To Properly Understand the Company’s Obligations and Running Costs
Both the mainland and FTZs, as well as individual FTZs, have their own set of obligations and, consequently, running costs. Improperly calculating these costs can add up in the long run.
· Wrong Shareholder Structure
The overall cost of your business structure will be determined by the shareholder structure. The shareholding structure then goes on to impact the operating and decision-making efficiency of the company.
· Misunderstanding Local Laws and Regulations
Because of its rapidly developing economy, regulations in the UAE can evolve quickly, so keeping up to date is crucial.