Dubai: In a country that promotes itself as a business hub, setting up shop can be more expensive than you think, not only in terms of money but time as well.
When Yvonne Rowell, founder of Busykidz, a company that provides portable children entertainment, decided to move from the UK to the UAE to set up her business she opted for a freezone. She paid Dh33,200 for the registration, licence fee, a commercial flexi office, legal documents and administrative services.
"I met the representatives from [the free zone] in the UK and felt comfortable with their account of costs and the process seemed acceptable," Rowell said.
Other initial costs included a residence visa for her and her children — Dh14,247 for her and Dh8,400 for the children.
"I faced a lot of problems as I am a widow and had to ‘prove this' and then prove the children were mine," Rowell said. However once in the UAE she found there was a lot more to it than just paying the fees.
The whole process took three months, and the visas took much longer.
Carl de Villiers, co-founder of Surf Shop Dubai, also found his experience of setting up shop in Dubai complicated.
His initial trade licence for retail and watersports was in a freezone, but locating to a new store meant he needed to transfer it to his local partner's name to allow the company into the area. Initial start-up costs were around Dh27,000 with an annual licence renewal fee of around Dh7,500.
Other costs included a Dh150,000 bank deposit and rental on the shop. Visas for staff were also around Dh7,000 per person. Insurance was another cost, plus stock and equipment costs.
Complications
According to de Villiers, the whole process was completed in around three months, but due to a few loose ends it took almost the entire year to wrap up.
"There are a lot of hidden costs and there is also no one who explains anything upfront. It's very difficult for entrepreneurs to prosper in such conditions," de Villiers said.
Mark Allen, co-founder of Wet Fish trading based in Dubai Investment Park, on the other hand found having Links, a company which specialises in the establishment of foreign companies in the UAE as their sponsor made their setting-up process a lot smoother.
"The beauty of working with a company is that they work on a level of transparency, they provide a lot of facilities, information and advice. They were able to organise my visa transaction with competitive rates," said Allen. When he first set up six years ago, the cost of his trade licence was around Dh20,000 and the sponsorship fee was Dh50,000. They also had to put up a Dh300,000 bond.
"Over the years rates rose, rents rose, prices increased and trade licences increased. I was lucky enough to be able to renegotiate my position to a satisfactory level. We are lucky to have a sponsor who in less fruitful times is prepared to do their bit for the costs," Allen said.
Making a choice
The main choice companies face is deciding whether to opt for a licence in a freezone or on the mainland.
"Freezone visas are more compatible with entrepreneurs who are new to the country, do not want to have a UAE partner, and for those looking at dealing with businesses internationally, not locally, such as export and import. Those applying for mainland visas are companies based in shopping malls, outlets, etc who conduct business within the UAE," said Ashraf Rahman, director at ADAM SME consultants.
The incentives for a licence in the free zone include 100 per cent foreign ownership; exemption from all import duties and 100 per cent repatriation of capital and profits. However, freezone companies are also expected to have a minimum capital sum which has to be physically paid into a UAE bank account. Other emirates have started to scrap share capital requirements for new businesses to facilitate set-ups.
"The cost of setting up in a Dubai free zone can get complicated. They ask for a business plan and the initial capital needed is very high: between Dh300,000 and Dh1 million. Obtaining a licence on the mainland does not require this. Setting up in a freezone in Sharjah or Ajman can also be cheaper," Rahman said.
Obtaining a licence on the mainland means the investor can only own up to 49 cent of their company while the rest is held by an Emirati sponsor which can add between Dh20,000 and Dh2 million a year.
The cost of a licence also depends on the type applied for. The three categories are commercial, professional and industrial. "Depending on the activity, the price varies when purchasing a licence on the mainland. With a freezone the visa, the business activity and number of people matter," Rahman said.
Other costs include business and liability insurance and professional fees, such as legal and accounting.
"After opening you'll also come across a lot of miscellaneous costs, for example paying to open a file in immigration and with the Ministry of Labour," Rahman said.
