The strategic location, absence of foreign exchange controls, and no limits on foreign investors’ repatriating profits have made the UAE one of the most preferred commercial hubs in the past few years. It has even ranked amongst the 20 least complex jurisdictions globally for the accounting and tax compliance challenges companies face in various jurisdictions.
Even though entities carrying out operations in the UAE may face initial hiccups, it is still a great place to do business considering it has been ranked 16th out of 190 economies for ease of doing business.
Here are the top 10 challenges you may encounter while doing business in the UAE
1- Getting office space
The list of documents for incorporating a legal entity and obtaining a business license includes a lease agreement for the office premises. So companies must operate out of physical office space. This can be challenging for small businesses who are trying to enter the market. While the UAE Free Zones make it easier for foreign companies to explore affordable real estate options, the size of the office spaces determines the number of visas allocated to an entity, and it varies based on the jurisdiction where you are setting up.
2- Setting up the business
You need to decide if you want to set up the business onshore or in a Free Trade Zone.
As a foreign company, you can establish your business onshore through a representative office, branch office, or a Limited Liability Company with UAE nationals holding the majority ownership. This allows you to carry business across UAE. If you wish to be wholly foreign-owned, you can consider Free Trade Zone and carry out business within such a zone only.
3 – Obtaining work visas and permits
A non-UAE national must obtain a work permit and residence visa to reside and work in UAE legally. Consequently, the entity must comply with the regulations set out by the General Directorate of Residence and Foreigners Affairs and the Ministry of Human Resources & Emiratisation (MHRE). The entity must also submit relevant education certificates of the non-UAE national, attested by the Ministry of Foreign Affairs in the UAE, to MHRE or the relevant free zone authority to process the employee’s visa and residence permit.
4 – Understanding the VAT implications
Since January 2018, a unified value-added tax (VAT) at the rate of 5 percent has been implemented. It is applicable to all goods and services with certain exemptions such as:
- Preventive healthcare services
- Crude oil and natural gas
- Educational services
- Specified financial services
Even though the tax rate is significantly lower than other jurisdictions, it can take a while for businesses to get accustomed to the VAT regime. Moreover, entities that are mandatorily required to obtain VAT registration but fail to do so are liable for paying hefty penalties. Currently, the penalty for delayed VAT registration is Dh 20,000 (approximately USD 5000).
5 – Hiring UAE nationals
As per the Emiratisation policy, private-sector employers are bound by a quota system that mandates companies with more than 100 employees must hire a specified number of UAE nationals. New onshore employers may need to plan to ensure that skilled local employees join their workforce.
6 – Being well-versed in the local language
Even though English is used for official correspondence, Arabic is the national language of the UAE. Therefore, the employment records, contracts, training manuals, etc., need to be translated into Arabic by a qualified translator or a lawyer. In case of any inconsistency between documents, the Arabic documents prevail.
Entities set up in free zones can be 100 percent foreign-owned and do not require any participation from the UAE nationals. However, UAE nationals should have at least 51 percent ownership in an entity incorporated as a company onshore, and finding such investors can be challenging. In exceptional cases, the local licensing authorities such as the Dubai Department of Economic Development can permit companies with majority foreign ownership.
8 – Different social and cultural norms
It is essential to understand the business etiquette and customs to avoid any faux pas. For instance, the working days are from Sunday to Thursday and the weekend is on Friday and Saturday. You may find it challenging to schedule business meetings with clients or customers staying outside the UAE.
9 – Managing employees
Managing the local workforce can seem challenging due to the differences in cultural and social norms. Additionally, every foreign company must comply with the Wage Protection System, end of service gratuity payments, a minimum requirement on working hours, vacation and safety standards, etc.
10 – Managing International Relations
Since 2017, dealings with Qatar are also restricted. Any violation of these conditions can result in hefty fines or even imprisonment.
Don’t struggle with these challenges alone — talk to us
It can be quite overwhelming to maneuver through these issues on your own, especially if you are doing this for the first time. Without a proper strategy in place, it can be difficult to carry out business operations in the UAE. That’s why onboarding an experienced local partner who understands the unique issues posed by the UAE market can be useful.
Centurion Consulting LLC., offers end to end business consulting services in the UAE. The team of qualified business and finance experts guide, mentor, and empower you to launch your business successfully in the UAE and make it profitable. They offer various services, including market research, entry strategy, corporate structuring, regulatory compliances, business plans, feasibility studies and a lot more.
If you are looking for guidance to navigate the challenges of doing business in the UAE, schedule a free online or offline consultation session right away with Centurion Consulting LLC. During this 45 min session, you can learn how to start a business in the UAE and take it to the next level.
