FreelancersFreelancing

6 Common Mistakes Made When Setting Up A Company In The UAE

5 Mins read

Dubai remains one of the most lucrative business hubs in the world, no doubt, with significant opportunities for a freelancer in the UAE to engage. Business is at the heart of the city. It has led to the rise of infrastructure and architecture next to none in the globe. Dubai is one of the most frequented cities, with visitors from all corners thronging the streets, which provide a ready market for goods and services. As a result, many companies have set base and are reaping the profits in the ever-busy economy. The reputation makes Dubai a preferred destination for startups and is eyed by many ready to venture into the world of business.

Like any other country around the world, the process of setting up a company is more of a legality. You should be familiar with the laws in Dubai. However, with the rapid, significant amendments going on in the judicial system, laws can appear ambiguous and opaque.  It might be a challenge to many, especially those residing outside the United Arab Emirates, to read and interpret the provisions as stipulated in the law. It is, therefore, advisable to seek the consultancy services of a business development firm based in Dubai. Consider also going into a joint partnership venture to overrule the burden of capital and the sharp fall that is usually associated with losses just in case it occurs. For the same reason, it is good to plan and launch your investment in phases. The time taken between will enable you to get more control and grip of your business to avoid undesirable incidents that may lead to mispricing of products or services. There are several things to consider before setting up and operationalizing a firm in Dubai. Below are the things to avoid.

6 Mistakes That Commonly Occur When Setting Up Business In The United Arabs Emirates

Ranked among the first world economies, the UAE offers a big market for trade. Local and foreign traders engage in the businesses of freelancing across the Emirates. To register a company, you have to comply with the set regulations. However, there are requirements that you need not ignore so that you can avoid errors along the process. Highlighted below are some to consider before establishing your business.

1. Relying On Published Information

There are many sources of information available. Overlying on one cause may prove futile. You run a risk of the information not being authentic. Often than not, people tend to write their opinions and not facts.  Some are even not experts in the field you intend to venture in. It is prudent to confirm every piece of information you come across if it is valid before making concrete plans. Free zones have regulations that continuously shift, and so does the local department of economic development for business registration. Therefore, before setting out to execute, inquire with a business consultant, or engage relevant authority. It will help prevent potential loss and time wasted while moving around amending errors that may have occurred. 

2. Lack Of Necessary Documents For Opening a Bank Account

The business registration process in the UAE takes a few days to conclude as compared to an application for opening a company’s bank account, which takes about 30 working days. Therefore, if you plan in haste and miss out some documents, the 30-day window may lapse, pushing forward the set date to go fully operational. These events will slow down the business and might translate to losses.

Highlighted below are the documents required from a company registered in the UAE to facilitate opening a bank account.

  • Company Trade Licence;
  • Certificate of Registration;
  • Share Certificate(s);
  • Company Memorandum & Articles of Association;
  • Minutes from a board resolution meeting empowering a Company Officer to open the account;
  • Passport copies for shareholders and authorized signatories.

However, there may be other documents required in addition to going by the bank and composition of the company structure. In case there are citizens from known high-risk countries like Ukraine, then the banks in Dubai will be extra cautious when validating the documents.  

3. Engaging In Business Activity Not Permitted by The Licence

With each business activity, you need to get a corresponding license. Conducting business that does not match the description stipulated in the permit may warrant an arrest and prosecution. So it is necessary to amend if in case you might have chosen the wrong license. The fee varies depending on the economic zone a company is registered. Choose a license category that will not limit your business. A permit must provide room for diversification of more goods and services, thereby giving an enabling environment for progression to a freelancer in Dubai. There are three basic required Licensed categories for all business activities in Dubai. For a business to run effectively, you need to have one of the below permits:

  • Commercial licenses are covering all kinds of trading activity.
  •  The professional licenses are covering professions, services, craftsmen, and artisans.
  • Industrial licenses are for establishing industrial or manufacturing activity.

These permits are issued by the Dubai Economic Development Department, except for hotels and other tourism-related businesses that are granted by the Department of Tourism and Commerce Marketing. For specific business categories, approval from line ministries and authority must be provided: for example, banking and financial institutions from the Central Bank of the UAE; insurance companies and related agencies are issued by the Ministry of Economy and Commerce; manufacturing companies from the Ministry of Finance and Industry; and pharmaceutical and medical products from the Ministry of Health.  For companies trading in oil and gas exploration, more procedures may apply. Basically, all commercial and industrial businesses in Dubai should seek registration with the Dubai Chamber of Commerce and Industry.

4. Wrong Business Jurisdiction 

A company can either be formed in the Free zone, mainland or offshore, as set out by the United Arab Emirates corporate law. For companies in the free area, the mandate to license has solely rested with the relevant free zone authorities, unlike for mainland firms where the Department of Economic Development issues the permits.  Offshore companies are acquiring licenses from respective maritime authorities. There are more than fifty independent jurisdictions in the United Arab Emirates. Each has specific set features to synchronize with an individual line of business. Therefore, the wrong choice of operation area may result in not being able to operate and deliver as expected. The mistake of choosing a free economic zone entails difficulties, especially when it comes to the implementation of business strategies and goals. The cost of such an error results in the total cost of registration and the formation of the firm.

5. Implementing A Sponsorship Arrangement Without A Written Notarized Legal Contract

Setting up a business in Dubai may, at times, require a sponsor who may as well be a partner like in joint ventures set up. Having a local sponsor is an advantage due to his knowledge of the regional overall business topography and the laws which regulate businesses. The Government might also give you waivers or charge slightly lower on certain services. However, there is a need to agree and come up with a shared understanding of the ways of work. The agreement has to be put in writing and signed by both parties. Oral pronouncements are not binding in Dubai and do not qualify as a petition to be heard in court in case of a disagreement. A legal contract will, therefore, protect your investment in the venture.

6. Registering A Company In A Free Zone Without Viewing Office Space And Requirements

There is a broad range of offices offered in free zones. Occasioned by growing demand, the availability of those offices is continually changing. For startups, it is advisable to consider the cheapest available options. You may finish the process of registering a company then only to find out that the open offices are way above your budget projections. At that moment, it may be impossible also to change your free zone. Another hindering factor is that the available working space may only allow one visa, thereby locking out some of your employees. It is, therefore, crucial to visit, see, and confirm everything about the office before you register with a Free zone.

Conclusion

To establish a company in Dubai requires several steps. Having a local with knowledge of the procedure is an added advantage. However, a freelancer in the UAE is not limited to publications only. You can verify and validate the information through various means available at your disposal, including visiting the local authority. To register a company takes fewer days than registering a bank account in the name of the company. It is because of the delicate yet detailed vetting process set out by banks and financial institutions adhering to government policy.

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