Given Dubai’s robust business environment and vast business opportunities, it comes as no surprise that so many foreign businesses choose to set up their business in Dubai. But with the numerous benefits comes a set of risks, which can lead to expensive mistakes made by foreign investors. While risks cannot be avoided fully, they can be mitigated if one knows how to.
We’ve highlighted 5 of the most common mistakes when starting a business in Dubai so you can avoid huge monetary mishaps and increase your chances of success.
1. Choosing The Wrong Company Structure
The first mistake that many make lies in the decision on what company structure is the perfect fit for your business model. Choosing a company structure comes with trade-offs in benefits. We’ve structured the main differences between free zone, onshore and offshore entities.
|
Free zone Entity |
Onshore Entity |
Offshore entity |
|
|
Foreign Ownership |
100% Foreign ownership |
100% Foreign ownership |
100% Foreign ownership |
|
Repatriation of Profits |
100% of repatriations of profits |
10% of profits have to be transferred to statutory reserves |
100% of repatriations of profits |
|
Import Duty |
No import and export duties |
5% import duties on most goods (excluding food, beverage, alcohol, and tobacco) |
No import and export duties |
|
Need of Office Space/Visa |
Yes |
Yes |
No |
|
Right to do Business |
Yes |
Yes |
No |
|
Right to do Business throughout the UAE |
No (only within the free zone) |
Yes |
No |
The decision is based on what your business is looking for, there are pros and cons to each of the company structures, but it ultimately depends on your company's needs.
2. Unclear Understanding of Dubai’s Labour Laws
When it comes to finding employees for your company, it is important to know what laws are in place to protect the interest of both parties involved. Not complying with Dubai’s labour laws can incur additional expenses to your business.
Most recently, we published a blog highlighting the recently updated DMCC Guidelines No.1 of 2020 which seeks to protect the interests of both employers and employees in the free zone during the COVID-19 Pandemic. Most recent changes to employment regulation such as remote working guidelines, paid and unpaid leave, are highlighted in this blog.
3. Not Choosing the Right Free Zone
With over 50 different free zones throughout the UAE, choosing the right one can be quite overwhelming. Due to the enormous influx of information available when looking at the choices, it can be challenging to hone down one free zone that is optimal for your business. Keep in mind that once you’ve signed with a free zone, your business can only operate within the agreed-upon free zone whilst in the UAE. Therefore, you really have to do your research and make a calculated decision before choosing which free zone for your business.
When choosing a free zone, it is crucial to keep in mind the industry you are specialising in. Certain free zones have their own set of activities which are allowed to be performed within that jurisdiction, as well as favourable infrastructure in place to support such activities. DMCC is favourable for many different industries and with strong specialization in each, has allowed many clients to gain an advantage in efficiency and cost due to the extensive infrastructure already in place. On top of that, keep in mind the availability of seaports and airports in each free zone. This depends on whether or not your industry is dependent on physical imports/exports. One other thing to look out for is the minimum capital required as well as the differing costs for licenses.
4. Lack of Written Agreements
The importance of an accurate and valid contract cannot be underestimated for all businesses alike. Many entrepreneurs fail to anticipate the importance of written agreements and overlook the case of a messy situation when it comes to business with friends. Having a solid business plan and agreement between peers and business partners is essential to dispute any disagreements or miscommunication.
This provides written evidence which may resolve any misunderstandings; it helps avoid any ‘he said she said’ situations that are very difficult to verify any essential agreements between partners. By staying on top of written agreements, every important detail is kept accountable and can keep your business (and relationship with partners) going strong.
For a deeper understanding of some of the key elements of UAE contact law, click here.
Final Thoughts
Starting a business is a daunting task. Let alone starting a business abroad. The process of getting your business up and running is complex and it is quite difficult for foreign business owners to gain a firm grasp on the rules and regulations when it comes to running your business in Dubai. At DMCC, we can help you through the business set up process and ensure that you are on the right track to success. Reach out to us today to see how we can help you!