Risks and limitations when registering companies in the UAE

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Risks and limitations when registering companies in the UAE

The United Arab Emirates is characterized by an attractive investment climate and a developed business environment with high economic growth rates, so there are few risks when registering companies in the UAE. The vast opportunities for entrepreneurship attract many investors from Russia and other countries.

However, not everything is entirely smooth - foreigners in the UAE face certain limitations. Sometimes, the few risks associated with registering companies in the UAE, often relate to the entrepreneur's unwillingness to understand the specifics of local regulations or mentality.

Limitations when registering companies in the UAE

The favorable and incredibly diverse business environment, along with consistently high rankings in ease of doing business, attract investors and entrepreneurs from around the world to the UAE. To enter this global market, it is not necessary to have a multimillion-dollar capital. You can start quickly and without huge budgets, but some limitations still exist.

Requirements for minimum capital

The size of the authorized capital is determined by the regulatory authorities of the free economic zone where the entrepreneur plans to register the activity. For example, in DMCC (Dubai Multi Commodities Center), it must be 50,000 dirhams. And for offshore companies, there are no requirements for the size of the authorized capital at all.

Requirements for the owner and directors of the company

The business founder and members of the board of directors must be reliable individuals with a positive business reputation. Be prepared to provide CVs reflecting real experience relevant to the company's profile, extracts from personal bank accounts, and recommendation letters to various authorities.

Industry-specific restrictions

In the UAE, certain industries are prohibited. For example, it is not allowed to produce, sell, or advertise pork and alcohol, although these goods are available in stores. In addition, the following are prohibited:

  • gambling business;
  • betting shops;
  • bookmakers;
  • production of pornography;
  • escort services, etc.

It is impossible to open a company engaged in the extraction and processing of oil, gas, and precious metals. Oil and gas sector companies in the UAE are state-owned.

There are many restrictions for offshore companies. They are prohibited from conducting commercial activities on the main territory of the UAE and in free zones, hiring local contractors, lawyers, accountants, and working with suppliers from the UAE.

Restrictions Based on Owner's Nationality

Restrictions when registering a company in Dubai do not concern the nationality of the entrepreneur. Any foreign businessman can open a business and earn in the UAE. Commercial activity in the country serves as a basis for obtaining a resident visa.

Restrictions Based on Company Location

In the UAE, there are many free economic zones (FEZ) with autonomous regulation. Until 2021, foreigners could register a business solely in a free zone (without involving a UAE citizen partner who owns 51% of the company). Even now, when this requirement is abolished, many entrepreneurs still prefer to operate in FEZs.

Businesses that correspond to the specialization of a free zone enjoy privileges. For example, in FEZs with access to ports, entrepreneurs can receive and store cargo in warehouses without undergoing customs control. The absence of corporate and other taxes for companies in FEZs is also significant for business. These benefits are not available when registering in the mainland UAE.

The main difference between local companies and those operating in free zones is that they can sell products and provide services not only within the free zones but also throughout the UAE and abroad. Additionally, such businesses have access to renting commercial premises anywhere in the emirate and participating in government tenders.

Restrictions on Opening Bank Accounts

Opening a corporate account is a complex procedure, so it is better to seek assistance from lawyers who are aware of all the intricacies. UAE banks carefully scrutinize private and corporate clients, examining bank statements from their country of residence, resumes, business plans, etc.

It is possible to open an account in dirhams, which is simpler, or in dollars. Some financial institutions do not require maintaining any minimum balance, but it is often necessary. The account setup process, card delivery, and checkbook issuance (which remain quite common payment methods in the UAE) take about a month.

Risks When Registering Companies in the UAE

Entering the UAE market, entrepreneurs often encounter difficulties. The main mistakes of foreign investors leading to them are excessive caution, reluctance to understand the legal peculiarities of doing business in the UAE, and non-compliance with regulatory requirements.

Risks for Foreign Investors

Foreign investors invest in real estate and businesses. When investing in real estate, there is a risk of choosing an illiquid property or an apartment in an area with low rental yield. Investing in an existing business allows profit generation from the first day, obtaining a residency visa, and a tax resident certificate to reduce tax burdens. However, there is a risk of choosing an unprofitable business model.

Risks for Long-Term Business

The least optimistic investors have been saying for several years that the "bubble" will burst soon, and the UAE's economy will stabilize, cease growth, or decline. The real estate market and the business environment of the United Arab Emirates largely depend on external factors. New laws may appear in the UAE, Arab countries, or Russia that could change the situation. It is impossible to make an accurate forecast for several decades ahead.

Risks for Local Companies

The risks of registering a company in Dubai, not in FEZs, are practically absent. Local business is a reliable tool that provides maximum opportunities for scaling. Difficulties may arise only when legislation changes.

How to Deal with Restrictions and Risks When Registering a Company in the UAE

Most risks and restrictions can be avoided by carefully planning a business strategy considering local peculiarities and seeking assistance from professionals such as lawyers, accountants, and business analysts who are aware of all the nuances of operating in the UAE.

Studying Requirements and Restrictions Before Registration

Entrepreneurship regulation operates in accordance with the federal law of 2015 with amendments effective from July 1, 2020. There are also other laws at the local level in the emirates. It is essential to carefully review the requirements and restrictions when registering companies in the UAE. It is better to register a company in the UAE turnkey or at least consult lawyers beforehand - this will save you time and effort.

Compliance with Local Laws and Rules

The UAE is a country with a soft regulatory environment, but federal and local legislative acts, as well as Sharia laws, sometimes overlap, creating difficulties. The mixing of a large number of different cultures in the UAE can also cause problems. National peculiarities, religious traditions, and secular laws must be taken into account simultaneously. However, multiculturalism does not always create barriers. Cultural diversity is a unique environment for establishing business connections, finding suppliers, partners, and clients.

Checking the Reputation of Potential Partners or Investors

Reliability checks are carried out to ensure that partners or investors do not evade tax payments and other obligations, are not on sanction lists, are not associated with crime, terrorism, and other illegal activities. This is a standard check conducted in the EU, the USA, and other countries worldwide for business transactions, real estate purchases, and deposit openings. Dealing only with verified counterparts ensures the security of your capital.

Establishing Appropriate Management and Financial Control Structures

For a company to be profitable, proper management, the right structure, organization, and constant control are necessary. If you do not plan to move to the UAE to personally control the business, it is necessary to hire a qualified manager.

Seeking Qualified Assistance and Consultations

Consultants from The Level Consulting agency will advise on all matters related to the company registration process in the UAE. We provide administrative and legal services necessary to launch your business. Qualified assistance will help overcome restrictions with minimal costs and anticipate most risks when registering companies in the UAE.

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