How to Start a Small Business in Dubai: Explained Simply
As one of the fastest growing economies in the world, Dubai is the perfect place for expats looking to advance in their careers. The unparalleled opportunity to expand one’s horizons coupled with the potential to earn well is what draws most expats to Dubai in search of greener pastures.
The establishment of small businesses is the key to Dubai’s future growth and although licensing and registration is complex and requires a substantial amount of start-up capital, Dubai offers business people an operating environment that is amongst the most liberal and attractive in the Middle East region.
So how does one go about turning a good business idea into a productive, viable business?
Before jumping in to launch your business, we recommend looking at three major components that will affect the profitability of your startup.
Know your business
The success of a great business venture depends on sound knowledge of the local region, thorough research into the viability and demand for your product or service and a credible business plan that is likely to attract investment partners.
Yes you have a great idea, but is there a demand for what you are offering? What does your competition look like and what puts your business offering a notch above the others?
Initial research including spending some money on advertising to feel out the demand for your product is likely to save you thousands of dollars in the future. Gauge interest in your product by using Google, Twitter and other social media to ask people their opinions. You will be surprised at the response you receive. A little money spent upfront can save you big bucks down the line.
Find a good local partner
Businesses operating outside of the UAE’s many freezones require a local business partner who will hold the majority interest in your company and can therefore, potentially control it. Local partners can be individuals or companies and they are not required to contribute financially to the startup. There are various ways in which a local partner can be remunerated; it is important to set the expectations beforehand.
Once you business is registered, the Ministry of Commerce will require owners to show proof of financial investment. If you are new to the region and have no track record, you must be prepared to find your own financial resources through your bank or by other means rather than relying on local support.
Once you have established the validity of your concept, from a marketability stand point as well as financial viability, you can now look at the steps for turning your idea into a booming business.
UAE Commercial Companies Law and Federal Law define seven basic categories of business organization that can be established in Dubai and the UAE. The requirements for minimum capital levels, shareholders and procedures for incorporation will vary with the type of business structure.
Limited Liability Companies
Of these, the limited liability company is often the most commonly adopted structure for small business set-ups in the region. Limited liability companies (LLCs) can be formed between as few as two or as many as fifty persons whose liability in the company is limited to their share investment in the company. A local sponsor with a controlling 51% interest is required and foreign equity in the company is limited to 49%. In Dubai, a minimum capital investment of AED 300,000 (USD 82,000) is required to be shown for the launch of an LLC. These are the steps that need to be followed for the set-up process:
Select a name for your company that relates to the type of business and have it approved by the Licensing Department of the Economic Development Department.
Draw up a Memorandum of Association which is a document that governs the external activities of the company. The MoA needs to be notarized by a Notary Public in a Dubai court.
Apply for entry into the Commercial register at the Economic Development Department.
Once approval is granted the Economic Development Department will issue a license and the company’s name will be entered into the Commercial Register. The MoA will be published in the Ministry of Economy and Commerce’s Bulletin.
The final step is to register the company with the Dubai Chamber of Commerce and Industry.
If you are looking to set up a professional firm that engages in professional or artisan activities, 100% foreign ownership or sole proprietorship is permitted, but the number of staff that can be employed is limited. A local service agent who is a UAE national is necessary to assist in obtaining employee visas, licenses and labor cards but has no direct involvement in the business.
The Dubai government has set up free zones specifically to encourage investment; companies set up in free zones have a distinct legal structure and are treated as offshore companies for legal purposes. These companies are best suited to businesses looking to use Dubai as a regional base for manufacturing and distribution but with the majority of their turnover outside the UAE.
Freezone companies have several distinct incentives including 100% foreign ownership, the ability to repatriate all of their income and profits, exemption from import duties, no corporate taxation, a simplified and speedy recruitment process and quick, efficient administrative support from the free zone authorities.
Dubai Airport Free Zone and Jebel Ali Free Zone are two of the largest free zones in Dubai; companies operating in these zones may be granted any of four licenses: Industrial, Trading, Service or National Industrial based on the company’s incorporation and its local production. Free zone companies can operate in the free zone areas and outside the UAE, can purchase goods and services within the UAE directly, but require a commercial representative or distributor to do business within the UAE.