The Dubai government offers different types of business models to be chosen from by foreign investors, such as direct sale, commercial agency arrangements, branch or representative office, limited liability company and special free zone investment.
Here are the three things you must know before starting a business in Dubai:
- You must have a good knowledge of the region. Be prepared to undertake extensive research into the business sector you aim to operate within. You must have a viable business plan, which includes a study of the market conditions, the competition and your forecast results. You must be prepared to find the necessary investment from your own resources or through your bank and preferably by other means than applying locally, particularly if you’re new to the region and without a track record. A credible plan might attract local support, possibly government support.
- The law requires that you have a local partner who holds the majority interest and can therefore control the business, which includes closing it if necessary. The partner will own 51% of the company, therefore being able to call all the shots regarding it. Be it a company or an individual, the local partner doesn’t need to contribute to the start-up investment or participate financially at all. As with self-employment, there are various ways that a partner can be remunerated. The local partner requirement is currently under review in some states, however, in order to encourage foreign investment.
- When the business is registered, you must show the Ministry of Commerce that you have a substantial sum of money to invest. The required sum varies between the states (it’s between $10,000/£6,500 and $50,000/£33,500 in most cases) and is regarded as a guarantee against liabilities, although you may withdraw the money shortly afterwards!
Take into account that if you want to own 100% of your company and do not want to have a local partner, the only possibility is to start a business in the Free Zone. However, if your business requires to be near the city, it will probably go bankrupt quickly in the Free Zone as it is a far away place. Additionally, rental costs in the Free Zone are most likely to be higher than regular rental prices within the city.
In order to start you business, you must be aware that the process is complex and financially risky, meaning that local knowledge is crucial. You must also consult a good lawyer from the outset. An experienced lawyer will guide you through the registration complexities and his help will be vital in protecting your interests. This applies whether you’re opening a modest shop or a major enterprise. As is the case all over the world, there are unofficial businesses operating in the region, but if anything goes wrong or you’re ripped off, you have no legal recourse whatsoever.
Don’t let these warnings put you off. All isn’t doom and gloom, and many people have developed successful, highly profitable businesses in Dubai. New operations are encouraged by the authorities and your local partner might be enthusiastically supportive (or he might be a severe liability, so make sure you do your research and choose wisely). Export and manufacturing industries are especially strongly supported by government, particularly as regards the acquisition of land on which to construct a factory. If you set up such a business in a free trade zone, of which there are several in the region, it’s granted exemptions from import and export duties, commercial taxes, building and property licence fees, land tax and restrictions on the transfer of capital invested in the zone.
An alternative to starting a new business is to buy a going concern, which is a more straightforward process, as it doesn’t involve lodging capital, obtaining sponsorship or registration; all you have to do is agree a price and transfer the ownership of the business.
Local Chambers of Commerce can advise about start-ups and are adept at cherry-picking potentially profitable newcomers to the region. Winning the confidence and support of a Chamber of Commerce will help your cause. Contact details are as follows:
- Dubai Chamber of Commerce and Industry, PO Box 1457, UAE
- (Tel. 971-4-221 181)
- Federation of UAE Chambers of Commerce and Industry, PO Box 8886, Dubai, UAE (Tel. 971-4-212 977)
When doing business with Arabs, you will probably meet with hard but polite bargaining and find them expert at it. You need to be completely confident about the contents of your contractual agreement. If there are gaps, Arabs are brilliant at finding and exploiting them. Nevertheless, in the vast majority of cases, Arab businessmen meet their obligations fully. The experience of doing business with them is likely to be pleasant and friendly, and the trust built up on both sides will be long-lasting.
Incidentally, Arabs rarely say a direct ‘no’ to a proposition, so you must listen and observe carefully. Look out for signs that tell you that someone is accepting without really wanting to do much, as there’s a good chance that the project will go nowhere.
Before starting your business and looking into everything, make sure you meet your visa eligibility and requirements. You will need a visa that allows you to live and work in Dubai. If you plan on bringing on more foreigners onto the project, you need to work closely with your local partner in order for them to sponsor your employment visas.
The potential gains of starting and running your own business are great, but it isn’t for the faint-hearted. You need to remember that you aren’t a citizen of the country and when the time comes to leave and sell your interests, your partner has time on his side, while you might not.
Company Registration & Legal Obligations
Corporate law in Dubai is similar to that in western countries, in that businesses can be run as limited liability operations, private companies or other types of concern. As discussed, setting up a business or buying a going concern can be complex and you must obtain local legal advice and guidance about registration formalities. As a foreigner, you’re likely to use a western/Arab joint venture law firm. When choosing, seek the advice of the Arab-British Chamber of Commerce, the DTI, Middle East Association and your Embassy’s commercial sections.
Western expatriates are generally well qualified – they don’t find work if they aren’t – and these qualifications are carefully checked with the issuing bodies, irrespective of where they were obtained. Western expatriates therefore tend to occupy senior positions, with commensurate salaries and perks. Workers from south-east Asia and the Indian sub-continent (who are sometimes – politically incorrectly – referred to as ‘Third Country Nationals’ or ‘TCNs’) usually occupy menial, unskilled or semi-skilled jobs and are paid accordingly.
Even those with professional qualifications and experience as good as those of a westerner are unlikely to enjoy similar benefits, as the remuneration of foreign workers is related to what they would expect to earn in their home countries, which is invariably higher for westerners. However, this situation is beginning to change, especially in the field of technology.
A powerful sponsor or employer is a great weapon with officialdom, and observing his skilful negotiating can be an enlightening experience. The authorities, however, are usually helpful and don’t tend to be difficult unless they have good reason. You will find your working life in the region easier if you’re polite and patient. Smile and seek ‘advice’: requesting advice confers respect on the person asked and you will generally find that Arabs are friendly and helpful. Note that the recruitment of foreign staff is an expensive exercise for employers, including recruitment consultant fees, legal expenses and travel costs. As a result, few employers put their investment at risk by treating employees badly, and the great majority of expatriates prosper in Dubai for many years. For specific marketing tips and strategies for your busines (particularly for getting a handle on the expat market) visit ExpatMarketing.com.
This article is an extract from Living and Working in Gulf States & Saudi Arabia. Click here to get a copy now.