Common Challenges of Doing Business in the Emirates

Article by Vitaliy Chiriasov, Founder of UPPERCASE GROUP

The Emirates rank among the fastest-growing economies in the world: Dubai and Abu Dhabi hold the 17th and 32nd spots in the Z/Yen Group's Global Financial Centres Index. These cities are also two of the largest international logistics hubs.

If you want to expand your business abroad or start a new venture, the UAE is a good choice. The UAE is home to several emerging industries, such as construction, agriculture, trade, logistics, tourism, and information technology. For entrepreneurs willing to work hard and learn about the Emirates business environment, success is quite achievable.

Knowing the specific challenges of starting a business in the Emirates can help you better plan your venture. Here are some of the complex aspects you are likely to encounter when opening a company in the UAE:

Choosing the Right Free Zone

A free zone in the Emirates is a special economic zone offering tax benefits, full foreign ownership, and simplified business registration processes. There are about 50 free zones in the UAE.

When choosing a specific free zone, consider several key factors. First, research the types of licenses available in each zone, as well as the unique benefits and regulations, including tax incentives and foreign ownership rules. The nature of your business is also crucial, as different free zones specialize in various industries.

Additionally, it is essential to assess whether the available physical space in the free zone meets your business needs. Most free zones primarily offer office solutions, such as coworking spaces or offices, so it is important to determine the necessary facility in advance. For example, if your business requires a warehouse or land, consider free zones that provide such options.

Other important aspects to consider include the registration fee, which varies significantly across different free zones (for instance, Dubai typically has higher setup costs), the required minimum share capital, and the legal framework in which each free zone operates. For example, only two free zones (DIFC and ADGM) operate under English law.

Some of the most popular free zones are DMCC, DAFZA, JAFZA, Dubai Internet City, Dubai Media City, Dubai Knowledge Park, Dubai Silicon Oasis, KIZAD, and RAKEZ.

Choosing the Right Type of Business License

A business license is necessary to establish the legality of your company, and making the right choice is not always straightforward.

The UAE offers over 2,000 different types of economic activities for your business. Depending on your choice, your company will fall under one of six types of licenses: industrial, commercial, craft, tourism, agricultural, or professional. Additionally, there are specific subtypes tailored to different activities.

When choosing the right business license, it is crucial to consider not only the nature of your business but also the specific requirements and regulations associated with each type of license. For example, if your business involves manufacturing, you may need to obtain special permits and approvals from relevant government departments. Understanding the nuances of each type of license ensures compliance with local laws and regulations.

Official government websites offer information on business licenses in the UAE, but it can vary across different sources, making navigation difficult without professional guidance.

Opening a Local Bank Account

UAE residents can open both personal and corporate bank accounts.

When it comes to opening a personal bank account, it is better to choose one of the local banks in the Emirates. They mainly focus on working with UAE residents. Therefore, the first step is to obtain UAE residency status by becoming an EmiratesID holder, and only then open an account.

Obtaining a residence permit may seem daunting, but it is relatively easy. There are several legal and relatively affordable ways to obtain residency status, requiring a stay in the country for one or two weeks and payment of the visa fee. To maintain your UAE residency status, it is important to avoid staying outside the country for more than 180 days, as exceeding this limit can lead to the cancellation of your residence visa.

Opening an account without residency is possible but not recommended. The process can take up to two months, and most banks will require non-residents to deposit a large sum — sometimes reaching millions of US dollars.

The UAE banking system allows residents to open not only personal accounts but also corporate bank accounts. Entrepreneurs can open corporate accounts in traditional banks with physical branches, digital banks, and payment systems.

When choosing a bank, consider service levels, fees, available currencies, online banking convenience, bank reputation, and other conditions important for business. Successful opening of a corporate bank account depends on a well-prepared document package tailored to the specific requirements of the chosen bank.

Unique Local Mentality

For entrepreneurs planning to enter the UAE markets, understanding the importance of local business mentality and social norms is crucial. A direct business-oriented approach, common in the West, may seem aggressive or ignorant here.

As a foreign entrepreneur, you will need to adapt by showing patience, respecting local customs, and learning these social norms. A useful strategy is to spend at least a month in the country before starting a business to better understand if the local pace of life suits you. Additionally, building connections and partnering with UAE organizations can provide much-needed mentorship in local business etiquette and help expand your local network.

Competitive Markets

The Emirates have demonstrated impressive economic growth, attracting companies from around the world to expand here. As a result, many markets are becoming oversaturated and highly competitive. While there are ample opportunities for everyone, having a solid business plan is essential to stay ahead of competitors — a reality applicable to all UAE industries.

Success in the UAE's competitive environment is achievable, but it requires serious commitment and a long-term strategy to enter the region.

Getting Assistance from Unreliable Service Providers

Unfortunately, there are business service providers who exaggerate their connections and capabilities, and some are outright dishonest. Fortunately, they are usually easy to identify. A major red flag is the lack of a website or any credible work history with verifiable reviews. Additionally, be cautious if your contact prefers to meet in a hotel or restaurant instead of an office. This tactic is often used to create a false impression of reliability and trustworthiness.

The Power of Connections

In the Emirates, having established connections is a significant advantage when it comes to networking and deal-making. For instance, while directly approaching a company for a partnership is normal and often effective in the West, and many companies even encourage it on their websites, in the East, you are taken more seriously if you are introduced by someone mutually known or in a significant position.

Building a network of such connections takes time and effort. However, you can bypass part of this process by working with a reputable consulting firm that is already well-established in the market.

Conclusion

The UAE market is highly connected, dynamic, and diverse. Despite the challenges mentioned earlier, do not be discouraged. Establishing a company in the Emirates can be very rewarding with proper preparation and a sensible approach.

Moreover, there are reputable firms specializing in facilitating the setup of new businesses in the Emirates. These companies can immerse you in your specific business context, help you choose the right free zone and license, provide valuable connections, and assist you in navigating the UAE business environment.