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 you cannot avoid risks entirely, you can mitigate them if you know what they are.
In this blog, we break down 4 of the most common mistakes of starting a business in Dubai as a foreigner, so you can avoid financial mishaps and increase your chances of success.
1. Choosing The Wrong Company Structure
The first mistake that many make lies in deciding what company structure is the perfect fit for their 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 |
Mainland (Onshore) |
Offshore |
|
Ownership Structure |
100% foreign ownership |
100% foreign ownership |
100% foreign ownership |
|
Business Activity |
You can trade within the Free Zone and internationally. Trade within the UAE is possible through a local agent/distributor. |
You can trade throughout the UAE and internationally. |
You are free to do business outside the emirates, but cannot have a physical setup for doing business within the UAE. |
|
Office Requirements |
Not compulsory to have a physical office space. Many free zones in Dubai allow you to create a business licence by offering virtual/flexible desk solutions. |
Minimum 200 sq ft office. |
Not allowed to have any physical office in Dubai. |
|
Visa Requirements |
Setting up your company in a Dubai free zone automatically makes you eligible for a visa. Visa costs differ per free zone. |
The number of residency visas granted is based on the size of leased office space. Generally, it is calculated as one visa per 80 square feet. |
No residency visa issues as none are required. |
|
Cost of Setup |
Medium-High Setup costs strongly depend on which free zone area you select. |
High |
Low |
There are pros and cons to each company structure, and it ultimately depends on your company's needs.
2. Not Choosing the Right Free Zone
With 45 free zones throughout the UAE, choosing the right one can be 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 in the UAE. Therefore, you have to do your research and make a calculated decision before choosing which free zone for your business.
For more information about choosing the right free zone for your business, download our complimentary '2021 Dubai Free Zone Guide' by clicking the button below. This guide will help you select the correct business entity, the best free zone for your business in Dubai, and more.
3. Unclear Understanding of Dubai’s Labour Laws
When it comes to finding employees for your company, it is essential to know what laws are in place to protect both parties' interests. Not complying with Dubai’s labour laws can incur fines, causing additional expenses to your business.
Ensure that you stay updated with Dubai’s compliance and regulations as policies are often changed. We occasionally host webinars that break down the changes to UAE’s labour laws, keep an eye out on our events page for any updates.
4. Lack of Written Agreements
Don't underestimate the importance of an accurate and valid contract for all businesses alike. Many entrepreneurs fail to anticipate the importance of written agreements and overlook it when it comes to doing business with friends, which can lead to a messy situation. A solid business plan and agreement between peers and business partners is essential to dispute any disagreements or miscommunication.
This provides written evidence that may resolve any misunderstandings, and helps avoid any ‘he said she said’ situations that are very difficult to verify any essential agreements between partners. By maintaining written agreements, every critical detail and responsibility is recorded and can keep your business (and relationship with partners) going strong.
The Bottom Line
Starting a business is a daunting task, let alone starting one abroad. The process of getting your business up and running is complex. It can be tricky for foreign business owners to gain a firm grasp on the rules and regulations when it comes to running a business in Dubai. At DMCC, we can help you through the company 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!
