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General Manager, UAE
06 September 2021
Read time
6 minutes

Top 10 challenges of doing business in the United Arab Emirates

The seven emirates that make up the UAE each have their own rules and regulations, which means doing business can sometimes be a challenge.

The United Arab Emirates (UAE) is a federation of seven emirates – Dubai, Abu Dhabi, Sharjah, Fujairah, Ras Al-Khaimah, Umm Al-Quwain and Ajman. They all have their own rules and regulations, which means that doing business can sometimes be challenging. That said, it’s an increasingly attractive jurisdiction in which to set up a business. 

The UAE’s economic performance is predicted to rebound strongly throughout 2021, as the post-Covid situation is expected to normalise, following a period of contraction in 2020 when the UAE economy declined in line with the global economy. The performance of oil prices throughout 2021 will also be key to the UAE’s recovery. The Free Trade Zones, of which there are now more than 40, are driving foreign investment by offering 100% foreign ownership. Recent regulation changes in 2021 also allow for some business activities on the UAE mainland to have 100% foreign ownership.

The UAE has a well-established infrastructure, stable political system, and one of the most liberal trade regimes in the Gulf region. The UAE market has a strategic geographical location (Dubai is regarded as a regional hub and commercial capital for the Middle East, North Africa and beyond), large expatriate population, and a liberal trade regime which attracts capital from across the region.

In TMF Group’s Global Business Complexity Index 2021, the UAE is among the 20 least complex jurisdictions globally in which to do business. It is ranked 60th this year, out of the 77 jurisdictions surveyed, compared to its higher ranking in 53rd position in GBCI 2020. This change represents a relative decrease in complexity over the course of the past 12 months. 

The UAE is full of potential for businesses looking to set up or expand but, of course, it’s important that you do your research before getting started. Here are ten key challenges of doing business in the UAE that you’re likely to encounter.

1. Getting set up

Companies looking to operate in or from the UAE, or have employees based there, are required to register a legal entity. Every company active in the country requires a company licence, which is linked to the registered activity of the entity. In general, there are two options when setting up an operational entity:

  • Free Trade Zone – free zone entities are not required to have any UAE national shareholder or split ownership, meaning a foreign entity or individual can have 100% business ownership. There are at least two free zones in each emirate, with Dubai offering more than 20. Each zone has its own laws and regulations. There are also some Common Law Free Zone jurisdictions with their own regulators and court systems. Free Zone companies are limited to doing business within their Free Zone, with other Free Zones or internationally, and they are limited in what they can do within the UAE mainland.
  • Onshore jurisdiction – the onshore jurisdictions refer to any areas not within a specific Free Zone; they are subject to federal laws and regulations, with regulatory bodies under the Ministry of Economy in each Emirate. The most common types of companies within the onshore jurisdiction are representative office, branch office and Limited Liability Company (LLC). Depending on the business activity the company or branch could be 100% foreign owned. Beyond the approved activities, an LLC requires a 51% local UAE shareholder. A branch or representative office requires a local service agent to be their point of contact with local authorities. Being based onshore allows you to do business anywhere in the UAE.

Need help getting set up in the UAE? Make an enquiry with us today.

2. Finding office space

An entity set-up in the UAE is always a combination of licence, legal entity and facility. The UAE is a real estate-driven economy and it is law that a company licence must always be linked to a physical office space.

Many of the free zones offer flexible desk solutions, or business centres to provide companies with affordable options for office space. The conditions of minimum office space differ from one jurisdiction to another, and the size of the office space will be linked to the visa quota/visa allowance for the company.

3. Speaking the language

Arabic is the official language, but English is widely used in business meetings and transactions in the UAE. However, all employment records, including contracts and other documents, such as instructions sent to employees, should be in Arabic. It is the prevailing language in the event of inconsistency in terms contained in English documents.

4. Adhering to the culture

The local culture is tied to Islamic traditions. Business communication follows a very formal approach, and courtesy is highly prized. The UAE population is generally warm and friendly, and it is a society rated as one of the safest in the world. Foreigners are free to practice their own religion but are expected to show the same level of respect for their hosts.

5. Watching the time

Timekeeping is approached with a more relaxed attitude. Meetings will often start late, finish late or be cancelled at the last minute without any warning. The working week is also different to that of most countries, running from Sunday to Thursday, with the ‘weekend’ covering the Friday prayer in Islam ‘congregational prayer.’ Some service companies and banks also operate on a Saturday.

6. Getting credit

As with any jurisdiction, managing cashflow is critical. In the UAE there are many banks and financial institutions that may approach you offering various loans or financing products. The key is to work with a local partner to appropriately manage set-up costs and ongoing capital requirements. 

7. Understanding the tax environment

The UAE is known as a largely tax-free country, but it introduced VAT for the first time in January 2018. The VAT rate is low at only 5% and has not impacted the cost of doing business in the country significantly. The Federal Tax Authority (FTA) has stated that it will get tough on companies that are obliged to register for VAT but don’t do so. Penalties include Dh20,000 for late registration, and other fines for late payment and conducting business without a VAT registration. TMF Group can complete the VAT registration and quarterly returns for any company in the UAE and wider region.

8. Work permits and visas

The UAE is a relatively young country with a diverse population. All foreign workers require a work permit or resident permit to live and work in the UAE. This means it is important to pay particular attention to ensure you are compliant with all regulations set by the General Directorate of Residence and Foreigners Affairs and also the Ministry of Human Resources & Emiratisation. TMF Group can process all visas and work permits while also ensuring that renewals are made in good time.

9. Paying employees

The payroll process in an almost tax-free economy is not as simple as you may think. The diverse expatriate nationalities and ever-changing local regulations make local payroll a complex matter. A properly documented payroll process has become imperative for all companies operating in the UAE, following the implementation of the Wage Protection System (WPS), mandated by the Ministry of Human Resources & Emiratisation. End of service gratuity payments in lieu of pension schemes require specialist calculations and careful processing.

10. International relations

In June 2017, the UAE along with Saudi Arabia, Egypt and Bahrain severed diplomatic, economic and commercial ties with Qatar. However, on 5 January 2021, the UAE signed the AlUla Agreement, paving the way for the re-establishment of diplomatic relations and ending the dispute with the region.

The UAE also has over 100 double taxation treaties in place which enable companies to optimise trade between certain countries.

Talk to us

TMF UAE, with offices in Dubai and Abu Dhabi, provides a one-stop shop for all your compliance needs in the Emirates. From recommending the most appropriate type of entity and jurisdictions for your set-up, to ongoing management accounting, corporate governance and even your payroll.

Whether you want to set up a new venture in the UAE, or streamline your existing operations, get in touch with us today.

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