Member Article

Dubai: Afridi & Angell - Stuart Walker, Partner quoted in this article:

There are still a number of challenges which start-ups should be well aware of. These include, but are not restricted to, getting the financing through, the relatively high operational costs and labour considerations. Image

 A belief of sorts exists that only those with a long and direct exposure to the local marketplace can set up and successfully run a business here. But as is the case with firm beliefs, this one too might be misplaced.

Until the recession intervened, there were quite a few entrepreneurs who had made the one-way trip to Dubai to enter businesses as far apart as running a restaurant to launching a real estate brokerage firm.

Some made the cut, others didn't, but that had more to do with the individual businesses rather than the fact they were owned by those who had limited exposure to the local market.

Going forward, this should in no way be a deterrent to others seeking to take a similar route and set up shop in Dubai when the time is deemed more opportune. But they better get their due diligence done right.

Without knowing the basics, a start-up's prospects are severely circumscribed, even before the actual launch of operations. More so if the business happens to be in a new environment.

"Trying to set up a company in Dubai can be a laborious process — it can be expensive and quite time-intensive," said Sameer Huda, a partner at Hadef Partners, a law firm.

Well-developed plan

"Entrepreneurs and small businesses seeking to enter the market should ensure they understand their industry, what they need, who they are going to be serving and, also, have a well-developed business plan before they set up a company here.

"So, in some ways, the rigorous procedures imposed can actually assist people by ensuring they become more focused on their objectives before incurring expenditure."

As an emerging market, there are many advantages to starting a business here. Beyond the obvious advantage of there being no tax on personal income tax or capital gains, there are still a number of challenges which start-ups should be well aware of. These include, but are not restricted to, getting the financing through, the relatively high operational costs and labour considerations.

The very first hurdle would be to face the 51 per cent ownership in favour of UAE nationals, and a close second would be obtaining a commercial licence and using a incorporation agency to set up a company.

The third would be having to lease an office space (although it is less of an issue now with lowering rent costs) and the consequent cost of having to sponsor employees.

Legal sources stress the importance of businesses getting their corporate structure and licensing form the outset.

"Within the context of their commercial objectives, is very important for start-ups in the UAE," said Huda.

"They need to really understand what it is they'll be doing in the short- and medium-term and be flexible enough to cope with changes to their business later."

But that's once the business is launched. The time leading up to the actual launching can seem mired in tortuous procedures for the promoters.

According to Stuart Walker, a partner at the law firm of Afridi & Angell, it generally takes longer to set up a business here than in some other jurisdictions. "A large part is the requirement that various documents have to be translated into Arabic," he said.

"Some free zones are making the process easier and don't require documents to be translated and authenticated. However, this is a Middle Eastern country and Arabic is the official language."

Another factor which can extend the processing time is that the UAE has yet to make full use of the advances in electronic filing.

"In the UK, you can file documents electronically and set up a company within hours," said Walker. "Here, there is very little electronic filing and the process does take a lot longer."

The cost of setting up a business is also significantly higher. In the Western markets, a shell company can be set up at practically no cost, which can be used for trading purposes.

However in Dubai, a company cannot operate without showing proof of having leased office space. This is because the Department of Economic Development charges five per cent of the annual rent for the commercial licence.

Acquiring a trade licence, obtaining a visa and other fees can cost as much as Dh100,000, which looking at it from a different perspective represents a sizable chunk of capital that is not channelled into the actual running of the business.

"This is increased by extra fees such as the Economic Department fees, free zone fees, etc," said Walker.

So much so, getting a business set up might be a tad more difficult than actually running one. Now, no one said it was going to be easy.