Benefits of Starting a Business in Dubai
Query (Q1): Why on earth would you want to set up an office in Dubai? Isn't India a perfectly acceptable place for business endeavors?
Answer (A1): Well, Query, Dubai's strategic location is governed by its proximity to major global markets. Dubai has positioned itself as a business gateway between the East and the West, as the conduit between the international markets. Thus, establishing an office in Dubai opens up a myriad of opportunities for global trade.
Query (Q2): Benefits, you say? I'm intrigued. What specific advantages does Dubai offer for someone setting up a business?
Answer (A2): Dubai's benefits include a tax-friendly environment with no corporate or income taxes. The legal framework is defined by Federal Law No. 2 of 2015 concerning Commercial Companies, which allows for various legal structures such as Limited Liability Companies (LLCs) and Free Zone entities. This tax advantage and legal flexibility make it an attractive destination for businesses.
Query (Q3): Setting up a business sounds like a daunting task. What's the process involved in establishing an office in Dubai?
Answer (A3): The process involves several steps, Query. It begins with selecting a business activity and legal structure. The commercial registration and licensing are done through the Department of Economic Development (DED) or the relevant Free Zone Authority. For instance, in the Dubai Multi Commodities Centre (DMCC) Free Zone, the process can be initiated online through their portal, streamlining the registration process.
Query (Q4): What are some of the Free Zones in Dubai?
Answer (A4):There are several Free Zones in Dubai, each catering to specific industries and activities. Please note that new Free Zones may have been established or changes may have occurred since then. Some of the Free Zones are enumerated below:
Dubai CommerCity (DCC) free zone
under Dubai Development Authority
Dubai Internet City
Dubai Media City
Dubai Production City
Dubai Studio City
Dubai Outsource City
Dubai Knowledge Park
Dubai International Academic City
Dubai Science Park
Dubai Design District
Under Dubai Multi Commodities Centre Authority:
Dubai Multi Commodities Centre (DMCC)
Jumeirah Lakes Towers (it is now part of DMCC)
Others:
Jebel Ali Free Zone (Jebel Ali Free Zone Authority)
Dubai Airport Free Zone (Dubai Airport Free Zone Authority)
Dubai Silicon Oasis - (Dubai Silicon Oasis Authority)
Dubai HealthCare City - (Dubai Healthcare City Authority)
International Humanitarian City
Dubai Maritime City - (Dubai Maritime City Authority)
Gold and Diamond Park
Dubai South
Dubai International Financial Centre
Meydan
National Industries Park
Query (Q5): Why is setting up a business in a free zone considered relatively easier?
Answer (A5): Setting up a business in a free zone is streamlined due to minimal paperwork and a quicker process. Free zone authorities facilitate efficient business establishment with reduced administrative requirements.
Query (Q6): What are the key steps involved in setting up a business in a free zone?
Answer (A6):
1. Determine type of legal entity: Choose between a Free Zone Limited Liability Company (FZ LLC), Free Zone Company (FZ Co.), or Free Zone Establishment (FZE) based on shareholder structure and preferences.
2. Choose trade name: The name of the structure should be able to differentiate itself from the others already incorporated, i.e. it should be a unique trade name, but keeping in mind the regulations of the respective free zone authority.
3. Application for business license: Depending on the business activity, you should apply for the business license from the applicable free zone authority.
4. Choose the address / office space: You may outright purchase the office space or you may lease the office space such that it meets the requirements of your business in terms of size and facilities.
5. Apply and get all pre-approvals, register your business, and obtain your license: Fill the application forms and submit all necessary attachments / documents for the initial approval, pay registration and license fees. Complete the registration process to obtain the business license.
Query (Q7): What types of legal entities can be established in a free zone?
Answer (A7): In a free zone, businesses can choose between:
- Free Zone Limited Liability Company (FZ LLC) / Free Zone Company (FZ Co.)
- Free Zone Establishment (FZE)
The choice depends on factors such as the number of shareholders and whether the shareholder is a natural or legal person. Specific regulations may vary among free zones.
Query (Q8): Are there capital requirements for establishing a business in different free zones?
Answer (A8):
- twofour54 Abu Dhabi: No minimum capital requirement.
- KIZAD: Minimum paid-up capital for an LLC is AED 150,000.
- Dubai Airport Free Zone: Minimum share capital for an FZ Co. is AED 1,000 per share.
- DMCC: Minimum share capital varies, ranging from AED 50,000 to AED 1 million based on the type of license.
Query (Q9): How does the process of choosing a trade name work?
Answer (A9): When choosing a trade name:
- The free zone authority or the Department of Economic Development has to approve the name.
- Ensure the name complies with regulations, is not already registered, and does not violate public morals or order.
- Follow specific guidelines provided by each free zone authority.
Query (Q10): What types of business licenses can be obtained in different free zones?
Answer (A10): Business licenses depend on the primary activity of the business:
- twofour54: Various media-related activities.
- DMCC: Over 600 business activities spanning different sectors.
- DIFC: Financial and non-financial businesses.
Query (Q11): How does the office space selection process work in free zones?
Answer (A11): Businesses can buy or lease office spaces based on their requirements. For example, in DMCC, options include flexi desks, flexi offices, or larger offices spanning multiple floors.
Query (Q12): What are the steps and documents needed for approvals in the business registration process?
Answer (A12): The process involves:
1. Initial approval: Submission of an application form, business plan, passport copies, financial reports, and other required documents.
2. Registration: Payment of fees, submission of additional documents including board resolution and memorandum of association.
3. Licensing and visa process: Finalizing lease agreements, obtaining trade license, and initiating the visa processing.
Query (Q13): Are there specific requirements for setting up branches in free zones?
Answer (A13): Yes, existing local and foreign companies may set up branches in free zones. The requirements may vary, and businesses should adhere to the rules of the respective free zone authority.
Query (Q14): Are there any restrictions on trade names in free zones?
Answer (A14): Yes, trade names must adhere to specific guidelines, including not using certain terms like 'Abu Dhabi' or 'United Arab Emirates' in the name. Each free zone authority has its own regulations regarding permissible trade names.
Query (Q15): Surely, there must be a mountain of paperwork. What documents are required to set up shop in Dubai?
Answer (A15): The documentation includes a passport copy, visa copy, proof of address, and a detailed business plan. The specific documents may vary depending on the business activity and the chosen legal structure. For example, setting up an LLC requires drafting a Memorandum of Association (MOA) and Articles of Association (AOA).
Query (Q16): What are the different kinds of legal structures available for businesses?
Answer (A16): In Dubai, there are several legal structures available for businesses, each with its own set of regulations and implications. Here are some of the main legal structures:
1. Limited Liability Company (LLC):
- Description: An LLC is the most common structures for businesses in Dubai. Across the world a limited liability company is the most common entity structure. In India, its equivalent is a private limited company. It allows for the separation of personal and business assets, limiting the liability of individual shareholders.
- Key Features: An LLC will require a minimum of two and is allowed a maximum of 50 shareholders. 51% at the minimum, shares must be owned by a UAE national(s) (or a company wholly owned by UAE nationals), while the remaining 49% can be owned by foreign investors.
- Regulatory Authority: Governed by the UAE Federal Law No. 2 of 2015 concerning Commercial Companies.
2. Free Zone Company:
- Description: Free Zones are specific areas where foreign investors can establish their businesses with certain benefits, including tax exemptions and full repatriation of profits.
- Key Features: Depending on the Free Zone, a business can be a Free Zone Establishment (FZE) with one shareholder or a Free Zone Company (FZCO) with multiple shareholders. Shareholding restrictions may apply.
- Regulatory Authority: Regulations vary by Free Zone, and each Free Zone has its own authority overseeing business activities.
3. Branch of a Foreign Company:
- Description: A foreign company can establish a branch in Dubai to conduct business. The branch operates as an extension of the parent company.
- Key Features: The branch is not a separate legal entity, and the parent company is fully responsible for its operations. Requires a UAE national as a local service agent, who does not have ownership in the branch.
- Regulatory Authority: Governed by the UAE Federal Law No. 2 of 2015 concerning Commercial Companies.
4. Joint Venture:
- Description: Two or more parties, including foreign and UAE nationals, come together to form a joint venture. The partnership can take various legal forms, such as an LLC or a public joint-stock company.
- Key Features: Shareholding and profit distribution are defined in the joint venture agreement. Specific regulations may apply based on the chosen legal form.
- Regulatory Authority: Governed by the UAE Federal Law No. 2 of 2015 concerning Commercial Companies.
5. Public Joint-Stock Company (PJSC):
- Description: A PJSC is a publicly traded company where ownership is through shares traded on a stock exchange.
- Key Features: Requires a minimum of 10 founding shareholders (individuals or corporations). At least 51% of the shares must be owned by UAE nationals.
- Regulatory Authority: Governed by the UAE Federal Law No. 2 of 2015 concerning Commercial Companies.
6. Sole Establishment:
- Description: A business owned by a single individual, who is fully responsible for its operations and financial obligations. The equivalent in India is a sole proprietorship or a One Person Company.
- Key Features: The owner has unlimited liability, and there is no legal distinction between the individual and the business.In case of an Indian OPC, the liability is limited, but in case of sole proprietorship, it is the same as in Dubai- unlimited.
- Regulatory Authority: Governed by the Department of Economic Development (DED).
Query (Q17): Laws, rules, regulations – it's a legal labyrinth. What laws are applicable to businesses in Dubai?
Answer (A17): Dubai operates under a civil law system influenced by Sharia principles. The Commercial Companies Law (Federal Law No. 2 of 2015) governs businesses. Additionally, each Free Zone has its own set of regulations. For instance, the DMCC has specific regulations for company formation and operation within its jurisdiction.
Query (Q18): Taxes, my dear Answer. I can't forget about taxes. What taxes will you be required to pay when running a business in Dubai?
Answer (A18): While there is no corporate or income tax, Dubai does have a Value Added Tax (VAT) system introduced in 2018. It is governed by Federal Decree-Law No. 8 of 2017 and is applicable at a standard rate of 5% on most goods and services. Understanding the VAT regulations and ensuring compliance is crucial for financial management.
Query (Q19): Last but not least, how do you plan to bring in the capital for this venture? Are there any restrictions?
Answer (A19): Dubai has an open capital market, Query. Funds can be brought in through various channels like bank transfers. The legal framework for foreign investment is governed by Federal Law No. 19 of 2018 on Foreign Direct Investment. This law allows for 100% foreign ownership in certain economic sectors, easing the capital inflow process.
Conclusion
So, to sum it up, Dubai offers tax benefits under specific federal laws, a streamlined process for business setup through entities like LLCs and Free Zone companies, requires documents such as MOA and AOA for registration, operates under civil and Free Zone regulations, has a VAT system, and allows for relatively easy capital inflow under the Foreign Direct Investment law.
