Top 5 mistakes when starting a business in the UAE

The UAE, despite the introduction of corporate tax, remains an attractive jurisdiction for many investors and entrepreneurs due to its favorable conditions for doing business. You can find a lot of advice and information on how to open a business in the UAE on the Internet, but we, as specialists of an international legal consulting company, often encounter the fact that clients come to us with incorrect ideas or having already made certain mistakes. In this article, we will analyze the most common misconceptions and tell you how to avoid such situations.

1. Wrong choice of free zone

There are more than 40 free economic zones (free zones) in the UAE, and each of them has its own characteristics, advantages and specifics: IT, manufacturing, media, trade or others. One of the most common mistakes is choosing a free zone without careful analysis: many entrepreneurs focus on the first options that come to mind or are “on everyone’s lips”, without taking into account the specifics of their own business. The wrong choice of zone can limit your activities, as well as increase the costs of subsequent business reorganization.

2. Incorrect Company Structure

Choosing the wrong legal business structure is another common mistake. There are several forms of doing business in the UAE, including Free Zone Company, Mainland Company, and Offshore Company. Each of these types has its pros and cons. For example, registering a company on the mainland allows you to work with government customers, but requires a local sponsor. While in a free zone, there is no such requirement, but there may be restrictions on working with the local market.

Often, entrepreneurs choose a structure that does not suit their goals, which leads to legal and financial problems in the future. For example, choosing a partnership instead of a limited liability company can increase the risks for the owners, and the wrong choice of shares in the authorized capital can complicate the process of attracting investors.

3. Lack of a tax and financial plan

Many entrepreneurs, attracted by the absence of income tax in the UAE, underestimate the importance of tax planning. They forget about the need to develop a long-term financial strategy and assess the costs of doing business, which can lead to unexpected expenses and liquidity problems. In addition, tax obligations abroad and the need to comply with international regulations such as BEPS and CRS require attention even in the UAE.

While the UAE offers very attractive tax conditions, there are costs of doing business, including licensing fees, office rent and registration fees, which can be significant. Without a clear financial plan, an entrepreneur risks facing unexpected expenses that can significantly affect profitability.

4. Underestimating licensing requirements

Each type of activity in the UAE requires an appropriate license: trade, service, production, etc., which in turn also require compliance with certain conditions. Sometimes entrepreneurs underestimate the need to obtain certain permits, for example, for some activities, such as education or medicine, additional certificates may be required, or they believe that a general license covers all aspects of their business. However, this is far from true and errors in obtaining a license can lead to fines, delay the process of starting a business, and also create serious legal risks up to and including closing the business.

5. Failure to update data: following friends and online advisers

Following the advice of friends or information from the Internet without checking its relevance is also common among us. Business conditions and rules in the UAE can change, and advice that was relevant several years ago can lead to erroneous decisions today, and many begin to act according to outdated schemes, which ultimately leads to ineffective company management or financial losses.

For example, in recent years, the UAE has significantly tightened tax reporting and compliance requirements, introduced a corporate tax and other innovations that can significantly affect the budget for starting your business. We will help you take these changes into account and competently plan all stages to avoid unexpected costs and problems in the future.

Successfully opening a business in the UAE requires careful planning and detailed analysis of all aspects - from choosing the right free zone to developing a tax strategy and obtaining licenses. At the international law firm Antwort Law, we help our clients avoid common mistakes and build an effective business in the UAE. We will provide comprehensive support at every stage of starting a business and help you choose the best solutions that will meet your goals and market requirements.

Lidia Ivanova

International lawyer
Antwort Law

Diana Gulevskaya

Partner
Antwort Law