A Guide for Foreigners who aspire to set-up Business in Dubai

Jay Krishnan, Partner

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    The city of Dubai doesn’t require any special introduction as it is one of the most popular places in the world. We all know the position Dubai enjoys as a tourist destination; but its much more than that. A fertile ground for new businesses, Dubai, is any investor’s dream. Establishing your business in Dubai is not just easy, but highly profitable as well.
    There are a couple of things that you should be aware of before you kick-start your business in Dubai.

    Economic zone and ownership

    Once you decide to setup your business in Dubai, the first step is to figure out the business zone that suits your company. One can choose from mainland, free zone or offshore, to establish their entity, all of which offer diverse advantages.

    Free zone
    Free zones are the strongest pillars of UAE’s robust economy. They have been fruitful in attracting remarkable amount of foreign investment, generating thousands of jobs and facilitating technology transfer into the country. The business-accommodating laws, easier labour and immigration procedures and tax structures make these free zones the most sought-after business locations in UAE.

    Dubai alone is home to more than 30 free zones, contributing significantly to the economy of the city. The free zones accounted for 32 per cent of Dubai’s total direct trade in the year 2015, driving about 500 billion AED of commerce. As per 2015 data, there were 20,000 free zone firms operating in Dubai, with 100 ‘Global Fortune 500’ companies having established their base in JAFZA.

    Mainland
    A mainland company is an onshore company licensed by the Department of Economic Development (DED) of the related emirate. The companies registered in the UAE mainland can do business in the local market as well as outside UAE without any restriction.

    Offshore
    An offshore company is a legal business entity that operates outside its registered jurisdiction for the purpose of legally minimizing tax payment.

    Types of License

    To conduct any form of business in the UAE, one must acquire a trade license. Licenses in Dubai can be divided into three;

    • Commercial licenses covering all kinds of trading activity
    • Professional licenses covering professions, services, craftsmen and artisans
    •  Industrial licenses for establishing industrial or manufacturing activity
      Carrying out business without a trade license is illegal in UAE and is subject to penalties. In addition, the license needs to be renewed every year.

    Starting a business in Dubai begins with selecting the category of business. There are more than 2,100 industrial, commercial, professional and tourism activities available in Dubai.

    This is followed by finding the right legal form, which will depend on the business activity, location, the number and the nationality of owners and the ownership options. One will have to check the legal forms that match specific business activities.

    A trade name that matches the kind of services the company offers, must be selected. The next step involves applying for an initial approval certificate, stating that Dubai DED has no objection in you starting a business.

    Depending on the legal form of the company, a Memorandum of Association (MOA) will have to be signed by the partners and owner and in some cases, a Local Service Agent (LSA) / Corporate Agent agreement between the company owner and the UAE national who is in charge of representing your business.

    All businesses in Dubai should have a physical address. For this, tenancy contract must be signed with the landlord and registered with Ejari.
    Certain business activities demand special licensing approvals, apart from the one from DED. If your business activity requires additional approvals, the relevant government departments need to be contacted.

    Non-UAE nationals seeking to establish an entity in Dubai mainland need to team up with a UAE national. The UAE national will own 51 percent of shares and the non-UAE national will own the remaining 49 percent. But of late, the UAE government has announced a new law that will permit complete foreign ownership in certain sectors selected by the government. This will come into force by the end of 2019.

    The new law does not apply to free zones and offshores where 100% foreign ownership is already permitted.

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    UAE and its expat-friendly initiatives

    Six-month Multiple Entry Visa and Permanent Residency

    Jay Krishnan

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    HLB HAMT - Accounting Firm in UAE
    Phone:- +971 4 327 7775
    Mobile:- +971 55 160 1291
    Email:- dubai@hlbhamt.com

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      The UAE government has recently announced a six-month multiple entry visa for certain categories of individuals. Investors, talented individuals and outstanding students will be granted the visa and this gives them the opportunity to prolong their stay in the country.

      The Federal Authority for Identity and Citizenship has activated 3 new services on its portal. All the services grant visa for a period of 6 months, with variations in the number of visits. Investors can make multiple visits to complete residency procedures with the help of a 6-month visa. In the case of entrepreneurs and outstanding students, several trips can be made with their 6-month visa to complete long-term residency procedures. Talented individuals will also be granted a 6-month visa, but the number of visits will be restricted to just one.

      The new visa scheme will help individuals in identifying opportunities of their interest. An Emirates ID card will be issued by the ICA to the six-month visa holders that will help them complete procedures such as opening bank accounts, property registration and other transactions, easily.

      People who fulfil the conditions for long-term residency can apply through e-channels and through their accounts on the system, without a six-month entry visa.

      It’s been just a week since the scheme launched and ICA has already received 6000 applications from investors and entrepreneurs.

      The government has also come up with a permanent resident system named ‘Golden Card’, for investors and for exceptional workers in the fields of health, engineering, science and art.

      According to Sheikh Mohammed bin Rashid, “Gold Card permanent residence will be awarded to exceptional and talented individuals, and to whoever contributes positively to the UAE’s success story. We want those people to be permanent partners in our journey. All of the residents of the UAE are our brothers and part of our large family.”

      The permanent residency scheme will be highly beneficial to the country and its property market. It will change people’s perception about UAE; they will start seeing the country as a home and not just a temporary plan.

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      Business Setup In UAE: What makes UAE the best location for your business

      Lavin T K

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      HLB HAMT - Accounting Firm in UAE
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        Investing your time and money in something worthwhile, that can promise you higher ROI is really crucial. When it comes to investing for your dream business, the risk level increases. There are quite a few points that you must consider before you go ahead with establishing your business.

        And, yes, location is a primary concern.

        So, where do you plan to set up your company?  If you are looking for a place that is progressive, has excellent infrastructure and favorable business regulations, then, UAE is the place for you.

        We all are aware of the country’s evolution from an impoverished desert village to a sustainable city with excellent standards of living. The strategic location, world-class infrastructure, political and economic stability are some of the factors that attract people to UAE.

        All these years UAE enjoyed a tax-free living and its only a year back that VAT got implemented. But, the rate of VAT is on one of the lowest in the world and it doesn’t affect normal life and businesses to greater extend.

        So, after the initial confusion regarding in which country to establish your business, now it’s time to select the type of business structure. You are at the liberty to select from various structures like free zone, mainland and offshore.

        While all these business forms offer numerous advantages, the one that best suits your nature of work, should be taken into consideration. If you like to reach out to local market without the help of any distributor, then I/we would suggest Mainland.

        UAE mainland opens door to a wider market by letting you trade with other mainland companies. Unlike free zones, you don’t have to go through the task of finding a local distribution agent and pay customs duty.

        A mainland business license lets you work on government projects that are extremely profitable. Competition will also be less, as free zone companies are not provided with the opportunity to work for government entities.

        Moreover, mainland companies don’t demand for a minimum capital requirement, which makes the establishment even easier and affordable.

        Selecting the type of license is the first step in starting a business in UAE. You can choose from commercial, professional and industrial license.

        Companies engaged in buying or selling of goods can opt for a commercial license. Entities involved in industrial and manufacturing activities, should apply for industrial license. And, professional license will be granted to service providers, professionals, artisans, and craftsmen.

        Mainland Companies are of various types and their activities differ.

        LLCs can conduct any industrial, commercial, professional and tourism business. In the case of public joint stock companies, any industrial, commercial or professional business activities can be practiced. But, a Private joint stock company can perform only commercial and industrial activities.

        A branch of a local or GCC company can conduct activities included on the main company license and a branch of a foreign company can conduct only selected commercial and professional activities. When it comes to branches of free zone companies, commercial, industrial and professional businesses are permitted as long as the activity of the main company is authorized on the mainland.

        The UAE government is on a constant lookout to ease the process of doing business in UAE. The recent amendments in policies prove the same

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        Implications of VAT on New Entities in UAE

        VAT challenges new entities in UAE face

        Jay krishnan

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        HLB HAMT - Accounting Firm in UAE
        Phone:- +971 4 327 7775
        Mobile:- +971 50 677 5860
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          VAT is a relatively new concept in UAE and hence it is imposing numerous challenges on entities. Organizations that have been functioning in UAE for quite a long time, have gradually got accustomed to the new implementation. But, that’s not the case with new entities.

          A company should be able to identify whether they are eligible to register as per the mandatory threshold limit. The UAE VAT registration threshold is AED 375,000 per annum and for voluntary registration, the turnover should be about AED 187,500 per annum. In certain cases, new entities are not sure whether they should register from day one or do they need to wait for the threshold limit.

          A major challenge that companies face is that customers, bankers and free zone authorities ask for TRN number even before these entities get into the registration process. Even when it comes to importing products, businesses registered under VAT will have to provide TRN to the customs department. If TRN is found valid in the system of customs department, you do not have to pay VAT. But if you are not able to provide TRN, 5% VAT will be charged.

          Once you get TRN , the next step is to equip your business with correct accounting software, which is FTA accredited. The system should have the ability to automatically generate FTA Audit File, VAT return file and VAT compliant tax invoices and credit/debit notes. Identifying proper software and customizing in terms of VAT accounting will help you sort out complexities at a later stage.

          If the software is FTA accredited and if it is able to produce reports as per the guidelines by the authority, then clients won’t face any issues in return filing and it will be error-free. Maintenance of proper records for a minimum period stated by FTA is equally important.

          The pre-VAT era in UAE was simple in terms of banking transactions, as in there wasn’t too much scrutiny. But now, authorities such as FTA might check transaction details. If there has been a deposit or withdrawal, you should keep records of the same.

          Another area that needs proper planning is VAT grouping. There will be 2 or 3 or even more companies that work as one, may be under the same owner. They can opt for VAT grouping, which will allow them to be treated as a single person for tax purposes. The benefit is that transactions between these entities will be ignored and will be tax-free. On the other hand, if you register as different entities for VAT, one company will have to pay VAT and the other one will have to claim for it. This leads to confusion and complications. Registering as one will benefit the companies in terms of cash flow and it will be easy to comply with.

          If you do not meet the threshold limit, and if you stop making taxable supplies,  then you will have to apply for de-registration within 20 days. Failure to submit a deregistration application within the timeframe specified by the tax law, will result in a penalty.

          Businesses will have to pay penalties if they violate any of the tax laws.

          Hence, we would recommend you comply with the VAT laws and if you face any problem, it is always recommended to seek the help of a tax agent, who can take you through the entire process.

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