Ever dreamt of owning a business in Dubai? With its promising economic climate and many opportunities, Dubai could be the perfect place for you. And you might be wondering the cost of setting up a business in Dubai. But before you take the leap, getting a handle on the costs and procedures involved in setting up a business, there is important.
In this comprehensive guide, you’ll get the lowdown on everything financial, from initial, low-cost business setup and costs to operational expenses. Curious? Discover if Dubai is the correct city for your business expansion journey in 2023.
Understanding Business in Dubai
Economic Climate in Dubai
Dubai, the second wealthiest emirate in the UAE, is a significant trade and tourist destination. Its economy isn’t primarily oil-based. Tourism contributes to 20% of the GDP.
You’ll find that the city has also established itself as an international tech hub. Sectors like finance and IT play a significant role.
The growth rate of Dubai’s economy has been promising, with a 6.1% increase in 2014. This makes it one of the fastest-growing economies in the Middle East.
The city welcomed 15.93 million visitors in 2018, retaining its ranking as the fourth most popular destination globally.
Business Opportunities in Dubai
Dubai offers a plethora of business opportunities across various sectors. The city is known for its real estate market, which is investor-friendly. It adopts open economic policies that facilitate foreign direct investments. Other sectors like logistics, oil and gas, construction, beauty salons, and healthcare are also in demand.
The city’s favourable tax environment, educated workforce, access to financial and natural resources, and trading opportunities make it an ideal place to expand your business. Dubai’s strategic location and proximity to countries in the Middle East, Asia, Eastern Europe, and Africa allow businesses to reach more than 1 billion potential customers.
The city has also formalised its goal to be a smart city that embraces technology and the future. This makes it the top smart city in the MENA region.
Legal Framework for Businesses in Dubai
The legal framework in Dubai is designed to encourage local and international businesses. The city’s legal system is based on civil law principles and Islamic Sharia law. Dubai has its own independent courts, which aren’t part of the UAE Federal Judicial Authority.
The city has also created many free zones with varying laws and regulations compared to non-free zone areas. These include Dubai Academic City, Dubai International Financial Centre, Dubai Media City, Dubai Internet City, Dubai Outsource Zone, Dubai Design District, Technopark Dubai, and International City Dubai. Starting a business in Dubai is relatively easy in terms of process and paperwork.
A foreign company can establish its presence in the UAE by setting up a branch, representative office, or a limited liability company (LLC). Operations within a free zone can be 100% foreign-owned, and no UAE national agent, UAE partner, or shareholder is required.
Impact of Culture on Business in Dubai
The UAE has a diverse and multicultural society, with 80% of the population being expatriates.
This diversity has made the UAE relatively liberal within the region. It provides schools, cultural centres, and restaurants catering for international cultures. The local business culture is very stratified. Most companies have a very solid vertical hierarchy. Arabic is the most spoken language, followed by English, French, Russian, Hindi and more.
Almost all official documents, forms, laws, and decrees are in Arabic. Therefore, it’s helpful to have a working knowledge of the language. People in the UAE prefer to do business in person. Relationships and mutual trust are paramount for any successful business interaction. These can only be fully developed through face-to-face meetings.
With changing times, women are getting more involved in business in the UAE. This is also because many women are highly educated and choose to follow careers rather than an early married life. The government is paving the way by opening opportunities for foreign investment. This includes lifting restrictions on foreign ownership and offering long-term visas for investors.
Dubai Cityscape Where People Go For Setting Up A Business
Procedures for Business Setup in Dubai
Choosing a Business Activity
The initial step in establishing a business in Dubai is to select an appropriate business activity.
With over 2,000 business activities available, aligning your choice with your passion and motivation is crucial.
Conducting market research will assist you in determining if your selected activity will appeal to your target market.
Choosing a Trade Name
Subsequently, you’ll need to select a trade name for your enterprise. This task requires careful consideration due to legal restrictions, cultural considerations, and the challenge of finding a name that resonates across multiple languages and jurisdictions. Dubai enforces stringent guidelines regarding company names, particularly in relation to specific social and religious aspects.
Drafting the Memorandum and Articles of Association
The Memorandum of Association (MOA) is a vital document that delineates your own company registration’s operational scope. It defines the boundaries for your own company registration and details the rights and powers of the company.
The MOA should encompass the company name, registered office and address, object, liability, capital, and association clauses. It’s crucial to note that a minor cannot sign a MOA.
If the minor has a guardian, the guardian can subscribe to an MOA on the minor’s behalf, with the subscription being deemed in the minor’s personal capacity.
Business Licensing Procedures in Dubai
Securing the necessary approvals to operate a business is crucial. For a mainland company, you’ll need to apply for a licence from the Dubai Department of Economy and Tourism (DET), previously known as the Department of Economic Development (DED).
If you’re establishing a free zone, you’ll need to obtain your free zone license from the relevant authority in that free zone company first. Depending on the business activity, additional licenses and approvals may be required.
There are four primary types of business licenses: Commercial for general trading businesses, Professional to service-related firms, Industrial for trading companies manufacturing goods, and Tourism for the travel and tours industry.
The appropriateness of the license varies depending on the industry, business activity, company structure, and region where your trade license or business is established.
During the business license application process, a business partner must be present. Required documents include:
- Passport copies of all business partners and managers.
- A No Objection Certificate (NOC) from the company sponsor.
- Residence visa for expat investors or foreign partners.
- Copies of the residency visa for all business partners.
- The reservation for the company license trade name.
- Initial approval from the DED and external approvals as required.
You’ll also need a tenancy contract for the office space and the Ejari to get a business license in Dubai. These licences must be renewed annually, with penalties being charged for late renewals. Documentation is required for the renewal registration process too.
There are various fees attached to the business licensing process in Dubai. These may include:
- A licence registration fee
- Knowledge Dirham fee
- Innovation Dirham Fee
- Trade name advertisements fee
- Service request form fee
- Foreign trade name fees
- General trading activity fees
- Investment activity fees
- Real estate activities license fees
- Business centre fees
- Building contracting activities fees
- DED trade license fee
- Licence fee
- Intelaq licence fee
You may also require a MOA fee/service agent contract fee, a fee of 0.5% of the document value with a maximum if the document value exceeds one hundred thousand Dirhams, a fee for postponing the transaction to the next day as requested by a partner, a fee if partners sign the document in different service centres, and a fee for each partner signing the document electronically.
Types of Business Structures in Dubai
Understanding the various business structures in Dubai is crucial for entrepreneurs. Each various company’s legal structure also has unique regulations and costs associated with it.
Sole Proprietorship Business
A Sole Proprietorship is a business entity owned and operated by a single individual. This structure is suitable for small businesses with minimal capital investment. As the business owner, you bear all business liabilities and financial obligations, as there’s no legal distinction between your personal and business assets.
The process of setting up a Sole Proprietorship is relatively inexpensive and straightforward. You retain all the profits and have total control over the company. It typically takes eight to 10 weeks to establish a Sole Proprietorship.
This business structure can legally provide professional services throughout the UAE, including Free Zones. The cost of setting up a Sole Proprietorship in Dubai starts at approximately AED 18,500, but this can fluctuate depending on the nature of your business.
Partnership Business
A Partnership Business in Dubai can be a prosperous venture. Partners must have business support provided a clear understanding of ownership percentages, roles, responsibilities, and how aspects of business support like salaries, profit and loss allocation, and reinvestment for business expansion will be managed.
A robust contract is necessary to protect trade secrets. The contract should address scenarios such as a partner’s death, retirement, or departure from the business. It should also outline the process for bringing new partners into the business and making changes to the agreement.
Limited Liability Company in Dubai
The Limited Liability Company (LLC) is the most prevalent type of company in the UAE mainland. An LLC offshore company can conduct business throughout the UAE and the GCC with no restrictions on the location of the company formation, its offices or its premises.
There’s no cap on the company formation process and the number of visas that can be obtained, and the company can own real estate and lease or purchase office space anywhere.
However, a UAE/GCC national sponsor must own at least 51% of the company formation cost of shares. The shareholders’ liability is limited to their shares in the company’s capital.
An LLC can engage in any business except for insurance, banking, or investment.
Public and Private Shareholding Company in Dubai
Three or more UAE Nationals or GCC Nationals can establish a Private Joint-Stock Company. Nationals from other countries can form a private shareholding company with at least one UAE National.
If one or more of the partners in an offshore company is from a country outside the GCC, the UAE National partners must own at least 51% of the business shares.
A minimum capital of AED 2 million is required to incorporate a private shareholding company in Dubai.
Foreign companies can establish wholly-owned branches in each of Dubai’s Free Zones. These branches don’t require a local service agent.
These Free Zones operate under their own laws, rules, regulations, and requirements, distinct from the Federal Companies Law.
Financial Aspects of Setting Up a Business in Dubai
Initial Setup Costs
Establishing a business in Dubai can be a significant investment, particularly for budding entrepreneurs. The initial setup costs can reach up to Dh34,340 ($9350). This sum includes various fees, such as a general trading licence and charges to Dubai Municipality, the Ministry of Economy, and the Dubai Chamber of Commerce.
Additional costs such as office space rental, a prerequisite for all free-zone trading licences, and visa fees for staff recruitment can significantly inflate the business idea’s initial costs. Some startups may require as much as $25,000 for business setup and first-year operating expenses.
However, the cost of a small business licence is not fixed. It can fluctuate based on factors like the number of company partners, approvals and sanctions required, and the cost of renting an office space, which can increase the business licence cost by 2.5%.
Business Licensing Costs in Dubai
Despite the high initial setup costs, Dubai is still considered one of the most affordable places to start a business. The cost of setting up a company in a Free Zone can start at a mere AED 4000. A Trading, Service, or Industrial licence costs from AED 10,000 to AED 50,000 per year.
However, the high renewal fees for a trade licence, ranging from AED11,000 to AED 13,000 (US$ 3,000-3,500), have drawn some criticism.
Employee and Labour Costs
Regarding employee and labour costs, the average salary in Dubai in 2023 is approximately 21,500 AED (United Arab Emirates Dirham) per month or 5,855 USD per month. The median salary is 19,000 AED per month. The salary range extends from a monthly salary of 4,810 AED (1,310 USD) to 99,000 AED (26,956 USD) per month.
Infrastructure and Operational Costs
Infrastructure and operational costs in Dubai can vary greatly.
The cost of running a small business in a fully serviced 200 square foot office space, with three employees, telephone and internet expenses paid, and a mainland licence registered, ranges from $260,198 to $372,716 (USD).
This includes office rent ($14,400 – $36,612), labour costs ($160,138 – $214,744), employee benefits budget ($49,900 – $65,600), internet and telephone costs ($20,760), and electricity and water costs ($324).
If you’re a tech startup, you’ll need top-quality connectivity, which is abundant but expensive in the UAE.
Mobile broadband costs $22.30 for 500 MB, about triple the price of the same package in Britain and China and four times the price in Ireland and South Korea. Fixed broadband costs are among the highest globally at $55.40.
Despite these costs, the UAE government has made launching a company in Dubai easy and affordable by implementing new policies and laws. The business-friendly taxation policy is a significant selling point, with companies not having to pay federal, state, or local income taxes.
However, some companies may have to pay a 5% VAT depending on the nature of their business operations.
Potential Challenges and Solutions in the Startup Phase
Embarking on a business venture in Dubai can present unique challenges. However, navigating the startup phase can be made significantly smoother with a clear understanding of these hurdles and the right solutions.
Understanding Legal Requirements
Establishing a business in Dubai involves a series of steps that require approval from various government entities. The UAE Government has introduced the Bashr service and the Dubai Virtual Commercial City Programme (VCC) to simplify this process.
Bashr is an integrated eService that enables investors to establish their businesses in the UAE within 15 minutes through a unified online platform. The VCC allows global entrepreneurs and freelancers to start a virtual company in the UAE, even if they do not reside there.
Access to Capital and Financing
Securing capital and financing can be a significant hurdle when setting up a business in Dubai. The cost of starting a company can vary greatly depending on the sector, size, and location of the company. This includes purchasing equipment and stock costs, marketing the business, and obtaining a business licence.
However, financing options are available for entities owned and managed by UAE nationals. These options can provide amounts ranging from AED 300,000 to AED 2 Million, depending on the business’s age, from 6 Months to 3 Years.
Local Market Adaptation
Adapting to the local market is another challenge when setting up in Dubai. This includes understanding government regulations, ownership structures, legal and compliance frameworks, and high business registration and licensing fees.
In the early stages of setting up a business in the UAE, building a reliable infrastructure, setting clear objectives, and leveraging local resources is essential. This includes having access to reliable technology, secure office spaces, a convenient location, skilled labour, and the support of local laws, businesses, and institutions.
Successful Business Management Strategies in Dubai
To successfully manage a business in Dubai, you’ll need to understand and adapt to the local business environment. This includes understanding the UAE’s legal system, which distinguishes between two forms of commercial agency: the registered and unregistered agency. As a foreign investor, you can conduct business through two companies registered as LLCs, which can have between two and fifty shareholders.
However, a UAE national must hold at least 51% of the company’s shares. Although a foreign partner’s equity in the company may not exceed 49%, profit and loss distribution can be arranged to favour the minority shareholder.
Foreign companies can also establish a branch or representative office in the UAE. Registering a branch/representative office doesn’t constitute establishing a new company or separate legal entity.
The UAE’s free trade zones allow foreign investors to develop a business presence in the Middle East region with 100% foreign ownership.
Companies operating in UAE-free zones must obtain a suitable operating licence, renewed annually, from the relevant free zone authority and enter into a lease.
Wrapping Up the Dubai Business Journey
Starting a business in Dubai is both an exciting and challenging endeavour. The city’s positive economic climate, strategic location, and business-friendly policies make it an attractive destination for entrepreneurs worldwide. However, it requires a comprehensive understanding of the region’s legal frameworks, business structures, financial aspects, interconnected business districts, and potential startup phase challenges.
Despite the hurdles and substantial initial costs, the benefits and opportunities of establishing a business in Dubai far outweigh the challenges. As an entrepreneur, you must remain aware of these points, plan your business journey meticulously, and leverage Dubai’s resources and opportunities. With the right approach and guidance, Dubai will open doors to a rewarding and prosperous business journey.