If you are planning to capitalize on the opportunities and potentials of the UAE market, you must also consider the numerous challenges when doing business in the UAE. Because of the revolutionary advances and economic schemes, company formation in Dubai or business setup in the UAE is a welcoming platform for investors. Nonetheless, as with any major commercial destination, there are certain stumbling blocks to overcome.
In this article, you will learn everything about what the challenges when doing business in the UAE. Let us explore the following:
1. Overview
Before talking about the challenges when doing business in the UAE, we will go through an overview of what doing business here is like.
1.1. Regulations for the DMCC company
The Dubai Multi Commodities Centre (DMCC) recently issued new company regulations that apply to entities (companies or branches of foreign corporations) incorporated/established in DMCC. The DMCC Company Regulations 2020, which replaced the previous DMCC Company Regulations 2003, went into effect on January 2, 2020. Hence, a DMCC corporation can now:
- Adopt its own set of articles of incorporation.
- Create various share classes.
- Transfer its incorporation domicile/jurisdiction from and into DMCC.
A non-DMCC foreign company can now transfer its domicile/jurisdiction of incorporation into DMCC. The DMCC Company Regulations 2020 include detailed provisions on corporate governance and DMCC company winding-up.
1.2. Direct foreign investment
On September 23, 2018, the Federal Law by Decree No. 19 of 2018 (FDI Law) was enacted, introducing the possibility of majority foreign ownership of shares/interest in the UAE Mainland companies.
The FDI Law established a “negative list” of 13 industries (including insurance, water and electricity, land and airport services, and retail medicine) in which existing foreign ownership restrictions would remain in place.
It also outlined a “positive list” that the UAE Cabinet would issue to identify economic sectors and activities that would allow up to 100 percent foreign ownership.
1.2.1. More details
On July 2, 2019, the Cabinet approved a positive list of 122 economic activities spanning agriculture, manufacturing, transportation, construction, and entertainment. On March 17, 2020, the Cabinet issued its decision about activities that are eligible for foreign investment.
The Cabinet’s decision must be published in the Official Gazette and will take effect the day after it is published. There are 51 industrial activities, 52 service activities, and 19 agricultural activities on the list of 122 economic activities. The positive list permits up to 100 percent foreign ownership, but it imposes additional conditions such as:
- Some activities have minimum capital requirements.
- Obligations to use advanced technology for other purposes.
- Some others are required to contribute to the Emiratisation of the workforce. (Emiratisation is an initiative by the UAE Government to employ its citizens in the public and private sectors).
The Dubai Department of Economic Development (the local licensing authority) has recently demonstrated that, in exceptional cases, majority foreign investment in certain businesses is permissible in Dubai. There are no written rules or guidelines in place. A DDED committee, on the other hand, reviews applications and grants approvals at its discretion.
An application can be submitted to the DDED along with a comprehensive business plan that includes the following:
- Business plan.
- The nature and type of commercial investments.
- The way in which the business will benefit the country.
There are no deadlines for the DDED to respond to an application, and it can take anywhere between one and two months. The DDED may require approval from other authorities, depending on the nature of the activities.
2. Challenges when doing business in the UAE
These are some of the most important challenges you must keep in mind:
2.1. Corporate ownership
If the foreign entity wishes to establish operations in the UAE, it must share ownership of the company. Entering the market through local distributors, partnering with local businesses, franchising, or opening a representative office are all options. A local partner is also required for the foreign entity to establish a Limited Liability Company in the UAE.
2.2. Difficulty locating a local sponsor or partner
A local sponsor, partner, or advisor is required when a foreign company plans to establish a business in the UAE! Finding the right sponsor or partner who is both suitable for the company and trustworthy can be a difficult task. In addition, the local partner must be knowledgeable about the market, understand the law, and manage local operations. However, with our corporate sponsorship services, this process will be absolutely easy.
2.3. VAT applicability
The UAE adheres to the value-added tax (VAT) system, which the Gulf Cooperation Council implemented in January 2018. VAT is an indirect tax that applies to all goods and services, except basic food items, education, and healthcare. The tax is levied at a 5% rate and is said to have simplified taxation for businesses.
However, one of the most difficult aspects of doing business in the UAE is becoming acquainted with VAT. Furthermore, companies that fail to comply with the tax system or postpone their registration may face significant fines.
2.4. Funding for operations in the UAE
Any foreign entity wishing to establish a business in the UAE must also have sufficient funds to run its operations smoothly. It can be difficult to find a local investor, and the foreign company must have a detailed funds management plan in place for its long-term services.
2.5. The social and cultural difficulties of doing business in the UAE
The Middle East market is diverse and complex. Thus, understanding social norms and cultures are critical for running a successful business. The foreign company must enter the UAE market with a thorough understanding of Islam. It includes employee social norms, local holidays, cultural norms, post-working hours, and so on.
Before entering the market, the company must also assess the impact of its products or services.
2.6. Real estate issues
The UAE is well-known for its real estate, and a company’s business license is also linked to its registered address. This rule necessitates a physical office for an entity, making it difficult for small businesses to enter the market. Furthermore, the office’s location is critical to its smooth operations.
The UAE’s free zones provide foreign companies with cost-effective real estate options, like a variety of offices for rent. However, local knowledge is required to determine the location and size of the space.
2.7. Linguistic challenges when doing business in the UAE
The official language of the UAE is Arabic, but English is widely used in business. Nonetheless, when hiring local workers, a foreign company must ensure that all employment contracts, records, training manuals, and other documents are in Arabic.
A company may need to hire a local translator or legal expert to draft the documents in Arabic and English.
2.8. Calm approach to time
In comparison to the Western, European, and APAC countries, the UAE takes a more relaxed approach to time. People in the UAE are more accepting of meeting delays and cancellations. Also, the UAE, in comparison to other countries, has a different working week.
As a result, any foreign company planning to establish a business must lower its expectations for punctuality and a long working week.
2.9. Difficulties obtaining work visas and permits
To live and work in the country, a foreign employee must obtain a work or residence permit. The foreign entity bringing its overseas employees to the UAE, in particular, must adhere to the visa requirements. However, working with us, you will not need to worry about the visa obtention process. Check out our visa services.
The company must also follow the rules and regulations established by the General Directorate of Residency and Foreigners Affairs and the Ministry of Human Resources and Emiratization.
2.10. Obtaining local talent
Establishing a business in the UAE requires a foreign company to hire local talent to run its operations. The country has specific guidelines that an international company must follow in this regard. Hiring local employees can be difficult for a small business that is unfamiliar with these regulations and practices.
2.11. Management of employees
Another challenge of doing business in the UAE is efficiently managing the local workforce to local laws and compliance. Employee management can be challenging due to cultural, linguistic, and administrative differences. Payroll management and employee taxation under UAE law may also appear complicated.
A foreign company must also follow the Wage Protection System (WPS), as well as end-of-service gratuity payments and other benefits. Nevertheless, managing your HR department becomes easier with our outstanding Human Resources solutions.
3. Doing business in the UAE: The benefits
You are aware of the challenges that may arise when doing business in the UAE. However, there are also numerous advantages. Here are a few of the most notable:
3.1. Access to an endless growth spurt
As a result of its advantageous geographical location, the UAE provides businesses based there with robustly diverse investment and economic partnership opportunities with the rest of Europe and Asia. It serves as a link that keeps the world’s west and east in touch. This is a huge benefit for businesses that want to expand and serve global customers.
Indeed, one of the best features that distinguish the UAE from the rest of the business world is its distinct geographical location.
3.2. An advantage in information technology
The UAE has been at the forefront of leveraging real-time advances in information technology to forge greater resilience in its business environment. This emphasis on innovation has resulted in increased trust and belief in the country’s financial fundamentals, allowing it to gain a favorable business position in the global community.
3.3. Minimal tax liability
The UAE offers almost negligible lowest tax bases for investors, fueled by the positive environment blueprint for a prosperous future. Authorities have a single-minded focus on improving the profitability and efficacy of their business operations because they believe in allowing businesses to grow both personally and as a community.
3.4. One-stop shopping for approvals
Through a dedicated single-window facility operated by C-UAE‘s professionals, timely and effective interventions throughout the initiation process ensure guaranteed approvals.
3.5. Strategies for expanding business in Asia and Europe pivot
Because of its strategic geographical location, the UAE also provides the most convenient access for new and established businesses to capitalize on greater opportunities for trade with Asian and European countries.
4. How can Connect Services Middle East help you?
The UAE’s market is hyper-connected and mobile, with a sophisticated supply and demand chain. Despite the challenges when doing business in the UAE, an increasing number of entrepreneurs believe that the country provides a rewarding experience. As a result, it is crucial to plan your business agenda ahead of time – and the best way to do so is with specialized guidance.
Finding the right local partner can take time, relying on an unknown business partner can be difficult, and managing your finances can be frightening. Furthermore, many times the business requirements you encounter are misleading or incomplete. Nevertheless, we are experts in solving these issues; hence, we can guide you in the right direction! On Connect Services Middle East, we have everything your company needs.
Would you like to learn more about doing business in the UAE? You just need to contact our company’s representatives, and your case will be carefully taken care of. Write down all of your concerns and send it to us via email at contact@c-uae.com. On the other hand, you can call us at +971 43 316 688. You may encounter certain challenges when doing business in the UAE. However, with the right guidance, there will be nothing to worry about.
