For any entrepreneur, that perfect business idea might come easily, but there are many things to consider before diving in head first. Visa options, customs laws, and corporate taxation are all necessary considerations if you want to get that business in the UAE on the right track from the outset.
“The UAE, commonly known as the Land of Expats, attracts multicultural expertise and experience in the field of business,” says Steven Charles Wilson, Business Consultant, Axiom Mark.
“The recent changes in company formation have knock-on-effects, namely 100 per cent ownership; remote licence set-up that allows entrepreneurs to obtain a licence in the UAE without being physically present, and remote bank account opening; and an instant licence wherein entrepreneurs can obtain their business licence without any physical space. In our view, the shift to 100 per cent ownership has the most impact as it widens the options for businesses.”
The fact that expatriates can now own 100 per cent of their business has undoubtedly attracted entrepreneurs in their droves. However, with so many lucrative UAE opportunities, knowing which options to choose can be challenging.
In fact, Mohammad Sheikh Azharuddin, Co-founder and CFO at Black Swan Business Setup Services, says that the most common challenge entrepreneurs face is too many options.
Get help from a business consultant
“They are bombarded with information, offers, and packages. They get overwhelmed and sometimes confused. As business consultants, we play a vital role here by breaking down their requirements, filtering options as per their budgets, and choosing options considering their expansion plans in the future and mode of operations or business model. As different free zones have different strengths, it needs the experience to identify that and match it up with the client’s requirements and vision.”
While business consultants can help entrepreneurs navigate any necessary complexities regarding legislation and jurisdiction, a foolproof business plan is another good place to start to ensure a firm footing in the marketplace.
Varoon Sinha, Founder of Smart Zone, advises on creating the often frustrating business plan.
“Start with knowing your industry, competitors, and customers. Define your mission and vision, purpose, problem, solution, and benefits. Describe your business model, sales and marketing strategy, and management team. Be conservative with financial projections and realistic with expenses, time and resources. Lastly, keep it presentable and well-documented,” he says.
This is all highly positive, but planning for the worst is also something to consider from the business plan stage.
“Planning your exit strategy is as important as running your company — because it’s the end goal. A robust exit strategy helps entrepreneurs maximise personal profit or minimise losses. Regardless of the exit type, it’s always advisable to follow these three tips: Get a business valuation, consider your options, and plan for the best and worst-case scenarios,” Sinha adds.
With a firm business plan in place, entrepreneurs can then arrange the company’s registration.
“Like anywhere else, potential business owners have to go through the basics – selecting the business activity, jurisdiction, obtaining licensing, company registration, and obtaining approvals,” says Harisankar S., Group Business Head, Capital International Group.
“Some aspects to keep in mind when setting up a business in the UAE are that the location for setting up a business has to be chosen wisely. For example, free zones are beneficial in terms of tax and customs duty exemptions, but the licence has to be renewed annually. Choosing the right corporate PRO agent is important as the paperwork involved in company formation can be slightly overwhelming, especially for new entrepreneurs.”
Although there can be a lot to think about, the fact remains that it is an exciting time to set up business in the UAE right now, particularly since the launch of several new visas recently.
Now is the best time to start a business
“With ongoing efforts to attract high-quality talent and bring in promising business ideas and start-ups to the country, the UAE government has recently announced the issuance of long-term visas to retain this potential that would act as the country’s growth catalyst,” says Neha Thomas, Head of Marketing, Creative Zone.
“The new system explains a non-exhaustive list of visas, including entry, green, golden, employment, remote working, retirement, visas through investment, company formation, educational, and more. The requirements for attaining each visa type would vary depending on multiple factors including area of specialisation, salary bracket, investment portfolio, employment type, nationality, etc.”
Another of the newer announcements that has been hard to miss is the launch of the federal corporate tax on business profits from 2023. Thomas explains what this will mean for business owners.
“Another breakthrough announced by the UAE government is the introduction of corporate tax starting June 1, 2023. This recent announcement has caused mixed reactions from business owners. However, the tax rates are still well below the global average corporate tax rate of 23.5 per cent, making it attractive to global investors to expand their businesses to the region.”
By being armed with this information, entrepreneurs with the right product are in good stead for a successful venture. However, it is essential to remember that setting up in business is a big commitment, and the right choices are paramount.
Ga Nui Park, a lawyer from Always Improving Business Set-up, concludes, “We recommend that all our clients pay close attention to the commitments they make and the activities they choose. If at IFZA, most activities can be exercised freely. Some require additional authorisations to which you must pay particular attention. What is notable between the free zones and the mainland is the advantages offered by the free zones in hiring new employees. IFZA allows up to four resident visas without the obligation of offices, allowing a start-up to commence without facing high costs.” ●
Know the laws
Before launching any business, you must be aware of various business laws, such as VAT and corporate tax.
Steven Charles Wilson, Business Consultant, Axiom Mark, says, “Before launching operations in the UAE, it is imperative for entrepreneurs to be aware of the advantages of each jurisdiction, namely mainland, free zone and offshore, considering their scope of business, and its impact on VAT regulations and proposed corporate tax which will be implemented in 2023.”
Indeed, corporate tax rates are something new for business owners to consider and are dependent on whether the business is in the mainland or a free zone.
Neha Thomas, Head of Marketing, Creative Zone, explains, “The tax rates are fixed at 9 per cent for businesses operating on the mainland generating a taxable income above Dh375,000. There are certain exemptions to corporate tax payment for free zone entities, provided they continue to comply with all regulatory requirements within the respective jurisdiction and do not carry out business with the mainland.”
There are certainly many laws to be aware of, depending on the framework of a company. Syam P Prabhu, Founder and Managing Director, Aurion, says that along with corporate tax, there is VAT legislation in the UAE, which states that a 5 per cent value added tax shall be imposed on every taxable supply and deemed supply made by the taxable person. In addition, there are laws such as free zone regulations, with each free zone having its own rules and regulations developed within the general framework of federal laws of the land. There could also be Economic Substance Regulations (ESR).
Prabhu says, “The companies within the scope of the ESR regulations must submit the notification and ESR report to the regulatory authority. ESR applies to all licensees and exempted licensees doing any of the ‘related activities’ mentioned in the law.”
This is not an exhaustive list, as there are also labour, customs and other laws to consider. For precise details, it is important to discuss with a business consultant.
Bankruptcy law for free zone companies
Bankruptcy is not what any business owner wishes for, but it pays to know the laws and what help is available.
Syam P Prabhu, Founder and Managing Director, Aurion, says, “The law of bankruptcy provides a legal framework to address distressed companies in the UAE while helping them avoid bankruptcy and liquidation through various mechanisms like financial restructuring.”
Jovana Petrovic (in picture), Chief Operating Officer, Decisive Zone, says that free-zone companies can declare bankruptcy under Federal Law No. 8 of 2004 on financial free zones.
“However, companies have the following options when declaring bankruptcy: consensual out-of-court financial restructuring, composition procedure, financial restructuring, the potential to secure new loans under terms set by the law or conversion to the declaration of bankruptcy and liquidation of the debtor’s assets.”