Gateway to setting up a business in the Middle East
Filed on September 22, 2020 | Last updated on September 22, 2020 at 10.10 am
Apart from how to set up a company in Dubai, foreign investors have to deal with the most important question, 'where to set up the business in Dubai?'. Yes, it is a strategic decision, as entrepreneurs have three options - mainland, free zones, and offshore - that are entirely different in key aspects like regulations, market access, ownership, and restrictions on business activity.
The choice of more options poses a dilemma for investors in deciding where to form a company in Dubai. A wrong decision is likely to set a business in the wrong direction and may derail your entrepreneurial dreams. If your target customers are in the wider UAE's local market, then starting a Limited Liability Company (LLC) on the mainland would be the best option for you. If you are into imports or re-exports then consider forming a company in any of the 40-plus free zones in the UAE. And if you don't need a visa and fully own a business outside the UAE or the sole purpose is to own the freehold property or set up a holding company, then setting up UAE offshore such as JAFZA or RAK or Ajman offshore would be an economical and right decision.
The difference between the free zones, offshore and mainland company formation in Dubai doesn't end here. To decide which business setup in Dubai option is best suited for you, you need proper guidance and knowledge about the local regulations and information about the availability of the various options. Business setup consultants in Dubai offers you full assistance and guidance about the legalities of the mainland, UAE offshore, and free zone company formation. Here is a list of key benchmarks you must consider while deciding whether a free zone or UAE offshore or mainland is better for your company in Dubai.
1.The choice to have control over share capital
The most striking feature of the mainland company formation is the mandatory requirement of a local sponsor/UAE national. A foreign entrepreneur is not allowed 100 per cent ownership in an LLC except in professional licenses. A UAE national has to be appointed as a local sponsor with at least 51 per cent shares in the company. The local sponsor could be an individual or a national company (corporate sponsor).
UAE offshore or Free zones, on the other hand, allow foreigners to have 100 per cent ownership in the companies. A company can be incorporated in the free zones or UAE offshore without the requirement of local sponsorship. The lack of restrictions in ownership is the prime reason why foreigners are flocking to the free zones or UAE offshore to register the companies.
2.Access to multiple markets - local, Middle East including GCC and international
Most investors prefer the LLC company formation in Dubai due to the unlimited market access opportunities it provides. After obtaining a trade licence from the Department of Economic Development (DED) for your desired business activity in any emirate, you can trade in the local market without any restrictions. Free zone companies do not have this advantage as regulations do not allow them to conduct business activities inside the UAE unless they appoint an agent. Free zone companies are most suited for the re-export into the international markets.
For instance, if you are planning to set up an e-commerce company in the mainland, you can store the products in the warehouses and easily deliver it to the customers. If your company is set up within a free zone, for example, the Dubai Multi Commodities Centre (DMCC), you need to associate with a logistics company to deliver the products to the customers in the UAE. The logistics company will deliver the products as your company is not permitted any business activity in the UAE outside the free zone. The UAE offshore companies are not allowed to engage in any business activities in the UAE, however, they can lease the freehold properties or appoint an auditor/lawyer or open the bank accounts.
3.Low-cost business setup opportunities
Cost is perhaps the biggest benchmark that determines whether you should go for the mainland business setup in Dubai or the free zone or offshore. If we take into account the various decisive factors such as the office rents and other administrative fees, the mainland scores a tad below the free zone company formation costs.
Getting a trade licence in a free zone is a much easier and cost-effective way to start a business in Dubai. The free zones offer cost-efficient business setup packages for various activities that are in high demand such as e-commerce, Fintech, and other tech start-ups in Dubai. In contrast with the mainland and free zone, an offshore company is the most affordable business setup option you can have in Dubai. For an offshore company, no office space is required and therefore the administrative charges are minimal hence most suited for holding and investment purposes.
4.Special activities vs normal activities
While incorporating a company in the UAE, you need to check your business activities to see if they are classified as special activities. The free zones don't allow approval for certain activities known as special activities. Also for certain special activities, local licence on the Mainland is a must for opening a branch in the free zone. The requirements regarding the permitted activities put investors in a fix while making a strategic choice between free zone and the mainland. Some of the prominent business activities that are not allowed in free zones include construction, engineering consultancy, recruitment, legal services, hotel, tourism, restaurants, auditing, oil and gas, insurance, banking and finance, security services, and real estate agency services. All activities that are not special are normal activities for which investors have an option whether to set up a free zone company or mainland company. UAE offshore are not allowed to carry out special activities such as banking, insurance, etc. even outside the UAE. However, RAK and Ajman offshore can do some special activities such as construction or engineering or tourism, etc. outside the UAE.
5.Single window vs multiple government clearances
A common reason for the popularity of free zones is the speed with which they clear licence applications. The free zones have a single-window clearance system that grants the licence in a matter of a few days or a few weeks. Not only the licence, but the visas, EHS (environmental-health-security) approvals, office space (Flexi desks), other amenities including the telecommunication facilities will be cleared at lightning speed. Most of the free zones in the UAE have a dedicated customer service to deal with the entrepreneurs' requirements.
The process of business set up on the mainland in Dubai requires clearance from multiple governments, which may consume the time of the investors while applying for a licence. The mainland business setup process requires the entrepreneurs shuttling between multiple government authorities or entities for licensing, visa, telephone and immigration services, and customs, and many more. A company in the mainland may require approvals from many authorities, such as DED, Dubai Municipality, Ministry of Labour, Department of Naturalisation and Residency Affairs, and Ministry of Interior. If you're seeking to obtain a medical licence on the mainland then approval is needed from the Dubai Health Authority (DHA), however, you can set up a direct medical licence in Dubai Healthcare City free zone without approval from DHA. UAE offshore company registration, in contrast, requires very few or no external approvals and in some cases (RAK and Ajman offshore) no physical presence at the time of incorporation.
6.Seek professional assistance before starting business setup process in Dubai
Without professional assistance, setting up a business may not always yield better results in Dubai for foreign entrepreneurs. If they are undertaking the process of company formation by themselves, they need to conduct an in-depth study about the laws, regulations, and all the other legalities. It is a herculean task and the investors are likely to falter in their effort, leading to delays in the registration process.
Jitendra Business Consultants (JBC) take care of the company formation process from obtaining a license to incorporating the business in Dubai. JBC handle the approvals, visa processing, documentation, and even office space requirements.
This content comes from KT Engage, the brand marketing unit of Khaleej Times.