How to Set Up a Business in the UAE as an Expat – 101 for Beginners

  • February 21, 2022
  • 10 Minutes

Index

The UAE has always been the ideal oasis to start your business. Strategically located between Asia, Europe, and Africa, it tops the ranks for being the most lucrative country for foreign investments. If you plan on setting up a business in the UAE, the time is ripe, especially if you are an expat.
Several new reforms have been announced in recent years to make the setup of a company in the UAE easy. In fact, as many as 20,000 red tape policies have been abolished in the business setup section. New areas of business establishments have also been introduced to make the business arena accessible and inviting for all business enthusiasts. This probably is why the UAE jumped the ranks to 16 in the World Bank’s list of “Ease of Doing Business.

Let’s Start with Taxes

The first thing that most expats want to know about is the tax situation in the UAE. The recent announcement that the UAE is no longer a tax-free haven, may dampen your desire to start a business. Corporate tax for all business entities in the UAE has been announced. Yet there are still tons of advantages for an expat-owned business.

  •  0% tax rate on taxable profits up to AED 375,000 for SMEs and startups
  • 9% tax rate for businesses above this threshold
  • You only start paying taxes on business profits on or after June 2023.

Another form of tax that the UAE introduced in 2018 is the Value Added Taxes (VAT). The 5% tax is levied on all taxable goods and services in the UAE. But here too there are exceptions and advantages.

  • You only need to register for VAT if the taxable goods and imports exceed AED 375,000 per year.
  • The VAT is optional for those businesses whose supplies and imports exceed AED 187,500 per year.
  • Foreign businesses recover the VAT they pay in the UAE from their own country of residence.

Business Activities That Need No Local Sponsor

Before establishing a business in the UAE, you need to understand what type of business you want to set up. Most on-shore companies are taken as local companies that require you to partner with an Emirati local who acts as your sponsor. Under this agreement, you would keep 49% of the share, while your Emirati local partner would get 51%. This law has recently been amended where now certain businesses are entitled to 100% ownership, and only a few businesses require a local Emirati sponsor.

You may need to check with your Emirate governances, as business activities under the 100% ownership rule aren’t uniform. In general, some of these activities are:

  • Construction
  • Healthcare
  • Manufacturing
  • Space
  • Renewable Energy
  • Transportation and Storage
  • Food and hospitality industry
  • Information and Communication
  • Science and Technology
  • Education
  • Agriculture
  • Art and Entertainment

Types of Business Licenses in the UAE

Your business activity has a direct correlation to the type of business license you apply for and the legal formation of your business. You are also allowed to select more than one business activity under your business. This perhaps is the best feature as it promotes a low-cost business setup in UAE framework.
In general, the UAE offers six business licenses:

  • Industrial
  • Commercial
  • Professional
  • Tourism
  • Agricultural
  • Occupational

The cost of a business license in the UAE is dependent on the Emirate you are planning to setup your business. Another factor of consideration is whether you are a GCC expat, meaning your passport belongs to Saudi Arabic, Oman, Bahrain, and so on. For an approximation, expect a minimum cost of around AED 10,000 to 12,000, but this may go up depending on the business activity, and also how many business activities you are planning under one license.

Settling on your Legal Form

The legal form is a critical area where you need to spend some time thinking before you decide to setup your business in the UAE. Based on what you consider the legal form, governing laws and regulations are dictated. Documentation requirements are also dependent on the legal form of your business.
You can choose the following legal forms:

  • Sole proprietorship
  • Limited Liability Company (LLC)
  • Public Joint Stock Company
  • Private Joint Stock Company
  • Civil company
  • GCC company branch
  • Local company branch
  • Foreign company branch

Additionally, you may also opt for the Joint Liability Companies Professional services. This is a new type of legal form which requires no local sponsor. You do need to possess qualifications pertaining to the professional services you plan on providing, like a law degree for a legal consultancy in the UAE.

Registering Your Trade Name

Before registering your company in UAE, you need to first decide on a name for your business. There are certain bylaws that govern the name. Depending on the Emirate of your choice, you need to register with the local department of Economic Development with the Ministry of Economy registering your trademark. For Dubai, you can register your trade name here while for Abu Dhabi you can apply for a trading name via this link.

Things to keep in mind while choosing your business name:

  • The name is transliterated to Arabic or English, it won’t be translated.
  • Alphabets and names are allowed, but not icons and special characters.
  • You can add your and/or your partner’s full name, but not just one name.
  • Your name shouldn’t include any references to any religion or religious connotations and symbolism.
  • You can include specific words like Gulf, abbreviations, or foreign words.
  • The name shouldn’t exist already in the database.

Getting the Initial Approval for Business Setup

Once you have the trade name, you need to get initial approval from the UAE Government. This step is necessary as the UAE governances need to ensure your business aligns with the legalities of the UAE business decree. This is the first hurdle a business owner must pass when trying to setup a business in the UAE.
You may also need to get additional approvals before you come to the initial approval stage. For a foreign investor, you need to get approval from the General Directorate of Residency and Foreigners’ Affairs before the initial approval. For certain activities, you need approval from the governing bodies before the initial approval. These governing bodies are:

  • Ministry of Interior – for activities like driving schools, used-car dealerships, car rentals etc.
  • Ministry of Justice – legal consultancy and law-related activities.
  • Local municipal department – all activities related to engineering and architecture.
  • Telecommunications and Digital Government Regulatory Authority (TDRA) – telecommunication activities
  • Executive Council – charter trading ship and maritime activities, travel and tourism etc.
  • Ministry of Economy – all insurance-related activities
  • Local health authorities – comprise of all health-related business activities
  • Supreme Petroleum Council – both for onshore and offshore gas and oil-field activities including drilling operations.

Memorandum of Association and Local Service Agreement

The Memorandum of Association (MOA) is an important document that has all the details related to your company. Things like the names of the shareholders, percentage of shares per shareholders, operations of the company, business activities, and so on. This document is a mandatory requirement by the UAE Federal Law and needs to be attested before submitting for business establishment.
The local service agreement (LSA) is mandatory for those businesses that have 100% ownership under the new decree. That means, if you don’t have a local sponsor, you need the LSA. Most professional service businesses like legal practices, medical clinics, tax consultancy firms must hire a LSA that acts as their representative in administrative dealings with the different government agencies. The LSA is like an employee who gets paid annually for their services but isn’t considered a shareholder in your business.

Deciding on Your Business Location

As your company is onshore, you need a physical location for your business. Make sure the rented place suits your requirements and your budget. A rule of thumb here is that the more rent you pay, the more are the government fees.
In general, an office or a warehouse needs a rental agreement. You need to bring the documentation to the governing body of the Emirate you have chosen when you collect your business license. Some Emirates may need the documents to be attested. For Dubai, you also need to register the documents on the online Ejari platform.

Cost of Registering a Company in UAE

The cost of registration is dependent on several factors. Your business activity, license, legal form, rental agreement etc. The actual cost is only seen after you have submitted all the above documentation to the governing Emirate officials of your choice. Expect to pay a minimum of AED 25,000 or more, but this again depends on if you need a local sponsor for your business or not.
The UAE is dedicated to making the setup process easy for business owners. One such service is the “Instant License” from DED. You don’t need an MOA or even register with Ejari for the first year. Just submit the documents online and get a Dubai registered business in a day.
The following businesses are approved for this service:

  • Limited Liability Company (LLC)
  • Sole Proprietorship
  • Civil Company
  • One Person LLC

Collecting your Newly Established Business License

As a roundup of all the things you need before you collect your license are:

  • Get the receipt for the initial approval.
  • A collection of all the documents submitted previously like the trade name, your personal details like passports, Emirates ID, NOC from the employer if you are currently working etc.
  • Copy of the rental agreement attested by the governing body like the Real Estate Regulatory Agency (RERA) of Dubai.
  • Memorandum of Association that is attested.
  • Attested Local Service Agreement if your business falls under the 100% ownership rule.
  • Approvals from the different governing agencies in case your business activity requires it.

You get 30 days to pay for your new business license. If you are unable to pay the fees on time, your application is cancelled. There is also a chance you may not get approval again to setup the business. You may need to provide a letter of explanation to the governing body before you start the process again.

Leave a Reply

Your email address will not be published.