The seven emirates that make up the UAE each have their own rules and regulations, which means doing business can sometimes be a challenge.
The United Arab Emirates (UAE) is a federation of seven emirates – Dubai, Abu Dhabi, Sharjah, Fujairah, Ras Al-Khaimah, Umm Al-Quwain and Ajman. They all have their own rules and regulations, which means that doing business can sometimes be challenging. That said, it's an increasingly attractive jurisdiction in which to set up a business. The UAE's economic performance is predicted to improve in 2018 through firming oil prices, an improvement in global trade, and the expected easing pace of fiscal adjustment. The Free Trade Zones, of which there are now more than 40, are also driving foreign investment by offering 100% foreign ownership.
In TMF Group's Financial Complexity Index 2018, the UAE is amongst the 20 least complex jurisdictions in the world for accounting and tax compliance. It has this year risen to 74th out of 94 jurisdictions globally for financial complexity, following its inaugural ranking of 92 in 2017. The rise is largely driven by the introduction of the UAE's first VAT in January 2018.
The UAE is full of potential for businesses looking to set up or expand, but of course, it's important that you do your research before getting started. Here are 10 key challenges of doing business in the UAE that you're likely to encounter.
1. Getting set up
Companies looking to operate in or from the UAE, or have employees based there, are required to register a legal entity. Every company active in the country requires a company license, which is linked to the registered activity of the entity. In general, there are two options when setting up an operational entity:
- Free Trade Zone – free zone entities are not required to have any UAE national shareholder or split ownership, a foreign entity or individual can have 100% business ownership. There are at least two free zones in each emirate, with Dubai offering more than 20. Each zone has its own laws and regulations. There are also some Common Law Free Zone jurisdictions with their own regulators and court systems. Free Zone companies are limited to doing business within their Free Zone, with other Free Zones or internationally, they are limited in what they can do within the UAE mainland.
- Onshore jurisdiction – the onshore jurisdictions refer to any areas not within a specific Free Zone, they are subject to federal laws and regulations with regulating and authority bodies under the Ministry of Economy in each Emirate. The most common types of companies within the onshore jurisdiction are representative office, branch office and Limited Liability Company (LLC). An LLC requires a 51% local UAE shareholder. A branch or representative office requires a local service agent to be their point of contact with local authorities. Being based onshore allows you to do business anywhere in the UAE.
Need help getting set up in the UAE? Make an enquiry with us today.
2. Finding the office space
An entity set-up in the UAE is always a combination of license, legal entity and facility. The UAE is a real estate-driven economy and it is law that a company license is always linked to physical office space.
Many of the free zones offer flexible desk solutions or business centres to provide companies with affordable options for office space. The conditions of minimum office space differ from one jurisdiction to another, and size of the office space will be linked to the visa quota / visa allowance for the company.
3. Speaking the language
Arabic is the official language, but English is widely used in business meetings and transactions in the UAE. However, all employment records, including contracts, and other documents, such as instructions sent to employees, should be in Arabic. It is the prevailing language in the event of inconsistency in terms contained in English documents.
4. Adhering to the culture
The local culture is tied to Islamic traditions. Business communication follows a very formal approach, and courtesy is highly prized. The UAE population is generally warm and friendly, and it is a society rated as one of the safest in the world. Foreigners are free to practice their own religion but are expected to show the same level of respect for their hosts.
5. Watching the time
Timekeeping is approached with a more relaxed attitude. Meetings will often start late, finish late or be cancelled at the last minute without any warning. The working week is also different to that of most countries, running from Sunday to Thursday, with the 'weekend' covering the Friday Prayer in Islam 'congregational prayer.' Some service companies and banks also operate on a Saturday.
6. Getting credit
As with any jurisdiction, managing cashflow is critical. In the UAE there are many banks and financial institutions that may approach you offering various loans or financing products. The key is to work with a local partner to appropriately manage set up costs and ongoing capital requirements.
7. Understanding the tax environment
The UAE is known as a largely tax-free country, but it introduced VAT for the first time in January 2018. The VAT rate is low at only 5% and has not impacted the cost in doing business in the country significantly. The Federal Tax Authority (FTA) has stated that it will get tough on companies that are obliged to register for VAT but don't do so. Penalties include Dh20,000 for late registration, and other fines for late payment and conducting business without a VAT registration.
8. Work permits and visas
The UAE is a relatively young country with a diverse population. All foreign workers require a work permit or resident permit to live and work in the UAE. This means it is important to pay special attention to ensure you are compliant with all regulations set by the General Directorate of Residence and Foreigners Affairs and Ministry of Human Resources & Emiratisation.
9. Paying employees
The payroll process in an almost tax-free economy is not as simple as one may think. The diverse expatriate nationalities and ever-changing local regulations make local payroll a complex beast.
A proper documented payroll process has become imperative for all companies operating in the UAE, following the implementation of the Wage Protection System (WPS), mandated by the Ministry of Human Resources & Emiratisation. End of service gratuity payments in lieu of pension schemes require specialist calculations and careful processing.
10. International relations
In June 2017, the UAE along with Saudi Arabia, Egypt and Bahrain severed diplomatic, economic and commercial ties with Qatar. According to the Public Prosecutor, showing sympathy for Qatar is strictly prohibited and those doing so could be subject to fines - and even a custodial sentence. Travelling between the countries or trading is also prohibited at the time of publishing this article.
Talk to us
TMF UAE, with offices in Dubai and Abu Dhabi, provides a one-stop shop for all your compliance needs in the Emirates. From recommending the most appropriate type of entity and jurisdictions for your setup, to ongoing management accounting, corporate governance and even your payroll.
Whether you want to set up a new venture in the UAE, or streamline your existing operations. Get in touch with us today.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.