What are the challenges when doing business in the UAE?
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
