Food for Thought for Entrepreneurs: Which licensing options are available to set up your business in the UAE?
Taking that first step and setting up your own business is exciting and challenging at the same time. In the UAE, would-be entrepreneurs often face a number of obstacles before they decide to take the leap. They may worry about the financial investment, the time they will have to dedicate to the business and doubt their own success. Once those have been dealt with, entrepreneurs reach the next stage where they are full of energy and want to get started straight away, which in many cases results in rushing into things without adequate planning and then having to pay the price when things have to be ‘fixed’ or redone later on.
One thing that often gets rushed and has be fixed later is business licensing. Quite often time and effort will be put into researching the business model, investment requirements, consumer demand and all the other factors necessary, but business licensing seems to drop to the bottom of list and is often considered merely a nuisance and a formality that has to be rushed and got out of the way. Whether or not business licensing is seen as important, the simple facts are that a) it has to be done b) it should be done properly and legally c) choosing the correct option at the start will save you time and money later on. The last thing you want to do is set up with one licensing authority, and then find out later that it doesn’t serve your company’s needs and won’t allow you to carry out specific activities.
For entrepreneurs and small businesses looking to set up in the UAE, location is probably the most important factor. Location isn’t simply about where you would like to set up an office, shop, or factory but more about licensing jurisdiction. There are a number options available, from onshore, licensed by the DED (Department of Economic Development) in each emirate, to a growing number of free zones, many of which are themed around particular industries or segments.
Onshore licensing is best suited to all types of commercial enterprises that would benefit from being set up as a limited liability company (LLC). Examples of this might be a trading company, a logistics company, or a manufacturing company. Local laws require that a minimum of 51% of the shares in such companies must be held by a UAE national. The company must also take up physical office space, and may be subject to further requirements or approvals from various government departments that regulate specific industries.
Onshore professional licenses are available for activities such as consulting and other services, and may be owned 100% by a suitably qualified foreign national, although he or she must appoint a Local Service Agent (LSA). The LSA provides government registration services for a fixed annual fee and has no shareholding or involvement in the business. Such licensing also requires a physical office location and is ideal for entrepreneurs looking to provide services specifically to the local market including government departments and agencies.
The requirement for office space means you should research rents in this location and find out if they are affordable for you. For example, sometimes media entrepreneurs who are just starting out don’t realize that if their licensing is in DED they can’t rent an office in Media City. They think that because their field is ‘media’ it will automatically allow them to rent an office there, which they cannot do as Media City is a free zone and you must be licensed to operate in that specific free zone in order to rent office space there. This works the other way around too: if you are licensed in the Media City free zone, then you are required by law to rent an office space in Media City, it is illegal for you to rent your office onshore in Dubai. Make sure you find out what rents are in Media City before you decide to proceed – quite often the waiting list for the smaller more affordable offices is many months or even years, so you will be forced to rent a larger, more expensive office even if you don’t need it!
Free zones are growing in number and can offer a suitable alternative to startups within specific sectors. A startup looking to set up a manufacturing facility and export their products may look at setting up in Jebel Ali Free Zone, although costs can be prohibitive for smaller ventures. Other options include Hamriyah and Ras Al Khaimah free zones. Themed free zones such as Dubai Internet City, Dubai Media City, or Dubai Design District offer a good alternative to startups within those sectors where they become part of the business community.
It is important to note that although the initial setup costs may be lower with a free zone, there are often restrictions and higher transactional costs associated with things like visas and permits that require government approval. Although some free zones have options that allow licensing with a flexi-desk or even freelancer options, it is important to note that there will often be limitations on the business activity and number of visas that can be issued.
It is imperative for the entrepreneur to make sure that their chosen jurisdiction is both cost-effective and future-proof. I have seen a number of entrepreneurs come to me a year or two into their business only to realize that they were incorrectly licensed and unable to grow their business. The costs and procedures associated with closing down in one location, and reincorporating in a different location far outweigh what may have been perceived as a more expensive option in the first instance. The entrepreneur should always seek professional advice from a qualified consultant or lawyer.
If ringing round free zones and researching DED options, then looking for a local service agent or local partner if required all seems like far too much work, and you’re in a rush to just get your business up and running, it might be an option to contact a consultancy such as Sentinel, which will manage the entire process for you. Whichever option you go for in the end, make sure you research it thoroughly and make the right choice so you can then focus all your time and effort on making your new business successful.
For more advice on setting up your business in the UAE, contact: Tel: +9714 305 0600 or Email: [email protected]
(Prajit Arora is the Managing Director at Sentinel Business Centres)