Wherever you are in the world, making the decision to set up your own business can one of those life-defining milestones you look back at as one of the most exciting and challenging times of your life.
In the UAE, would-be entrepreneurs often face a number of obstacles once they have decided to take the leap. Prajit Arora, Managing Director of Sentinel Business Centres, is the expert on guiding entrepreneurs (as well as multinationals) on setting up their business on the UAE, deciding whether to go for free zones or onshore licensing, and navigating all the legal loopholes involved in business licensing.
Here is breaks down the jargon and separates the myths from the facts when it comes to setting up your business.
1. Plan & Research
Many first time entrepreneurs worry about the financial investment, the time they will have to dedicate to the business and doubt their own success. Once those have been dealt with, entrepreneurs reach the next stage where they are full of energy and want to get started straight away, which in many cases results in rushing into things without adequate planning and then having to pay the price when things have to be ‘fixed’ or redone later on. Slow done, do some research and then make a plan.
One thing that often gets rushed and has be fixed later is business licensing. Quite often time and effort will be put into researching the business model, investment requirements, consumer demand and all the other factors necessary, but business licensing seems to drop to the bottom of list and is often considered merely a nuisance and a formality that has to be rushed and got out of the way. Licensing should be prioritised and you must ensure that it is done legally. Choosing the correct option at the start will save you time and money later on. There is nothing to be gained from setting up in one licensing authority or free zone, only to find out later down the line that it doesn’t serve your company’s needs and won’t allow you to carry out specific activities, so you have to apply for a new license elsewhere.
Again this is linked to that all important licensing decision. Location is crucial. Location isn’t simply about where you would like to set up an office, shop, or factory but more about licensing jurisdiction. There are a number options available, from onshore, licensed by the DED (Department of Economic Development) in each emirate, to a growing number of free zones, many of which are themed around particular industries or segments. Some licensing authorities will allow you to set up as a freelancer or professional services provider. Others will limit your scope of activities so if you plan to expand your services or activity areas in the future, make sure you are currently licensed in a zone or authority which will allow you to do so.
4. Onshore Licensing
Onshore licensing means you are licensed in DED (Department of Economic Development). Onshore licensing is best suited to all types of commercial enterprises that would benefit from being set up as a limited liability company (LLC). Examples of this might be a trading company, a logistics company, or a manufacturing company. Local laws require that a minimum of 51% of the shares in such companies must be held by a UAE national. The company must also take up physical office space, and may be subject to further requirements or approvals from various government departments that regulate specific industries. Offshore means you are licensed in a free zone.
5. Free Zones
Free zones are growing in number and can offer a suitable alternative to start-ups within specific sectors. A start-up looking to set up a manufacturing facility and export their products may look at setting up in Jebel Ali Free Zone, although costs can be prohibitive for smaller ventures. Other options include Hamriyah and Ras Al Khaimah free zones. Themed free zones such as Dubai Internet City, Dubai Media City, or Dubai Design District offer a good alternative to start-ups within those sectors where they become part of the business community.
6. Local Partner vs Local Service Agent
If you decide to license onshore, you will hear everyone telling you that you will have to find a local partner. This is not necessarily the case. Onshore professional licenses are available for activities such as consulting and other services, and may be owned 100% by a suitably qualified foreign national, although he or she must appoint a Local Service Agent (LSA). The LSA provides government registration services for a fixed annual fee and has no shareholding or involvement in the business. Such licensing also requires a physical office location, and is ideal for entrepreneurs looking to provide services specifically to the local market including government departments and agencies.
7. Office Space
The requirement for office space means you should research rents in this location and find out if they are affordable for you. For example, sometimes media entrepreneurs who are just starting out don’t realise that if their licensing is in DED they can’t rent an office in Dubai Media City.
They think that because their field is ‘media’ it will automatically allow them to rent an office there, which they cannot do as Media City is a free zone and you must be licensed to operate in that specific free zone in order to rent office space there. This works the other way round too: if you are licensed in the Media City free zone, then you are required by law to rent an office space in Media City, it is illegal for you to rent your office onshore in Dubai.
Make sure you find out what rents are in Media City before you decide to proceed – quite often the waiting list for the smaller more affordable offices is many months or even years, so you will be forced to rent a larger, more expensive office even if you don’t need it! Factor this in to your plan and budget and don’t just assume you can rent that smart office you’ve spotted down the road from you house.
8. Ongoing Overheads
It is important to note that although the initial setup costs may be lower with a free zone, there are often restrictions and higher transactional costs associated with things like visas and permits that require government approval. Although some free zones have options that allow licensing with a flexi-desk or even freelancer options, it is important to note that there will often be limitations on the business activity and number of visas that can be issued. Another consideration is your monthly power bills, rent and human resources cost.
You might not have any staff yet, but you will have to pay someone when your computer breaks down and it may end up being an absolute necessity to hire a receptionist to answer the phone and take messages.
What about an office cleaner? Do you have facilities to make tea and coffee to offer visitors to your office? Add up all of these costs, even the quarterly or incidental ones like IT support, and work out the real monthly cost. It may be that renting a serviced office is more cost –effective in some cases and it’s definitely more convenient as you will have a fixed cost every month that already covers rent, bills, secretarial services and so forth.
It is imperative for the entrepreneur to make sure that their chosen jurisdiction is both cost-effective and future-proof. I have seen a number of entrepreneurs come to me a year or two into their business only to realize that they were incorrectly licensed and unable to grow their business in the authority they are currently licensed in. The costs and procedures associated with closing down in one location, and reincorporating in a different location far outweigh what may have been perceived as a more expensive option in the first instance. The entrepreneur should always seek professional advice from a qualified consultant or lawyer.
If ringing round free zones and researching DED options, then looking for a local service agent or local partner if required all seems like far too much work, and you’re in a rush to just get your business up and running, it might be an option to contact a consultancy such as Sentinel, which will manage the entire process for you.
Whichever option you go for in the end, make sure you research it thoroughly and make the right choice so you can then focus all your time and effort on making your new business successful.SHOW MORE