Dubai, known for its thriving business environment and global appeal, has become a magnet for entrepreneurs and companies from all over the world. However, while the UAE offers a favorable business climate, there are legal challenges that business owners need to navigate when setting up their operations in the region. Understanding these challenges is crucial to avoid delays, additional costs, and potential legal issues in the future.

At Consulttous, we specialize in guiding entrepreneurs through the intricacies of business setup in Dubai. In this blog, we’ll take a closer look at some of the key legal challenges that you may face when setting up a business in Dubai and how to overcome them.

1. Understanding Local Sponsorship Requirements

One of the most significant legal challenges for foreign entrepreneurs looking to set up a business in Dubai is the local sponsorship requirement for Mainland businesses.

What’s the Issue?

For many Mainland business structures in Dubai, a local sponsor (UAE national) must own 51% of the company, leaving the foreign entrepreneur with 49% ownership. This can be a barrier for some foreign investors who prefer to maintain full ownership of their businesses. However, new regulations have allowed certain types of businesses to qualify for 100% foreign ownership, depending on the activity and location.

How to Overcome This:

•       Research the Latest Regulations: There are specific business activities and locations that now allow 100% foreign ownership in Mainland companies. It’s essential to stay updated with the latest regulations, as the UAE government frequently introduces changes to improve the ease of doing business.
•       Consult a Business Setup Expert: A professional service provider like Consulttous can guide you in selecting the right business structure and help you negotiate the terms of your sponsorship agreement, ensuring that it aligns with your business goals.

2. Choosing the Right Business Structure

Another challenge is selecting the appropriate company structure for your business. Dubai offers several options, including Mainland, Free Zones, and Offshore entities, each with its own legal framework, ownership rules, and operational restrictions.

What’s the Issue?

Selecting the wrong business structure can result in legal issues related to ownership rights, the ability to operate in certain markets, and compliance with local laws. For instance, Free Zone companies can offer 100% foreign ownership but are limited in their ability to do business within the local Dubai market without a local distributor or partner.

How to Overcome This:

•       Assess Your Business Needs: Before choosing a structure, it’s essential to assess your business objectives, target market, and industry regulations. A Mainland setup might be ideal if you want to access the local market, while a Free Zone setup may be a better choice for businesses focused on international trade or specific sectors like technology or media.
•       Work with an Expert: With the help of Consulttous, you can evaluate your business requirements and navigate the legalities of selecting the appropriate setup, ensuring that you choose the best structure for your goals.

3. Navigating the Licensing and Registration Process

The process of obtaining the appropriate business license in Dubai can be challenging, especially for businesses with specialized needs or those in regulated sectors.

What’s the Issue?

The licensing process in Dubai is governed by different authorities depending on the type of business. There are commercial, professional, and industrial licenses, each with its own set of requirements. Additionally, some sectors—such as healthcare, legal services, and education—have strict regulatory standards, which require additional approvals and permits.

How to Overcome This:

•       Identify the Right License: Determining the type of license you need is the first step. Whether you’re setting up a trading, service, or industrial business, it’s crucial to choose the correct license to avoid complications down the line.
•       Ensure Compliance: If you are in a regulated sector, research the specific requirements and ensure your business complies with all local regulations. Consulttous can assist you with this process, helping you navigate the complexities of obtaining the necessary licenses and permits.

4. Securing a Local Office Space

In Dubai, all businesses must have a physical office to be registered. This requirement applies to Mainland businesses, which must have a commercial office space to complete the registration process.

What’s the Issue?

Finding a suitable office space can be a challenge, especially in popular areas like Dubai Marina or Business Bay, where commercial rental rates can be high. Additionally, the office space must meet the legal criteria set by the authorities, which can vary depending on the type of business you’re setting up.

How to Overcome This:

•       Choose the Right Location: Consider your budget and business needs when choosing an office location. For startups, Jumeirah Lake Towers (JLT) offers affordable office options, while larger corporations may prefer the prestigious Downtown Dubai area.
•       Check Compliance: Make sure the office space meets the requirements of the licensing authority. This includes having the right type of office and facilities (e.g., meeting rooms, a reception area, etc.).
•       Get Expert Help: Consulttous can help you identify office spaces that meet the legal requirements and align with your business strategy.

5. Understanding Employment Laws

Dubai has a set of strict employment laws that business owners must comply with, including regulations surrounding labor contracts, employee benefits, and dispute resolution.

What’s the Issue?

Businesses in Dubai are required to adhere to the UAE’s Labour Law, which governs everything from employee contracts to termination procedures. Non-compliance with these regulations can result in legal disputes, fines, or penalties.

How to Overcome This:

•       Familiarize Yourself with the Law: It’s essential to understand the basics of UAE’s employment law, including the types of contracts required, employee rights, and termination procedures.
•       Use Legal Resources: Consider consulting with a legal expert or human resources specialist who can help you navigate the complexities of hiring employees and creating labor contracts that comply with local regulations.

6. VAT and Tax Compliance

In 2018, the UAE introduced a Value-Added Tax (VAT) of 5% on most goods and services. While the tax system in the UAE is relatively simple, businesses still need to ensure they comply with VAT regulations, including proper invoicing and filing returns.

What’s the Issue?

Failure to comply with VAT laws can lead to penalties, fines, or even legal action. This is particularly important for businesses engaged in retail, import/export, and other taxable services.

How to Overcome This

•       Register for VAT: If your business exceeds the VAT threshold, you must register with the Federal Tax Authority (FTA). Ensure that you maintain proper records and file VAT returns on time.
•       Consult with Tax Experts: For businesses unsure about VAT regulations, consulting a tax advisor can help avoid mistakes and ensure compliance.

Conclusion

Setting up a business in Dubai offers numerous opportunities, but it also comes with legal challenges that require careful planning and attention to detail. From understanding local sponsorship requirements to navigating the licensing process and compliance with labor laws, there are several hurdles to overcome. However, with the right guidance and expert support, these challenges can be easily managed.

At Consulttous, we specialize in helping entrepreneurs successfully navigate the legal complexities of setting up businesses in Dubai. Our team of experts can assist you in ensuring full legal compliance, minimizing risks, and helping you make informed decisions every step of the way.