Some Costly but Often-made Mistakes in Business Setup in Dubai+ 查看更多
Some Costly but Often-made Mistakes in Business Setup in Dubai
Investing and doing business in an unfamiliar country can be challenging, and it requires a good understanding of the local legal and business environment. With the increase in foreign investment in the UAE these years, the number of company registrations has considerably increased. However, after setting up their business, many people have encountered some unexpected issues which they did not anticipate when forming their company.
Given that company registration in the UAE, for good reasons, is advertised as "very easy", “hassle-free” or “taking only 1 day”, some investors decide to form a company by themselves or choose a "lowest price" agent to handle it. As a result, it happens quite often to make some legal mistakes and ultimately pay a high price. Below, based on our experience with our clients, Polaris would like to analyzes the most common legal mistakes in foreign investment and company formation in the UAE, hoping to help you avoid related losses:
1. Legal Form
Due to the large number of company types provided in the UAE, non-professional agents in the market lack a systematic and comprehensive understanding of the legal forms and company types that can be used, and they often give customers a wrong legal structure. For example, an offshore company in the UAE is treated as a foreign company by law. Hence, although it can open an account with a UAE bank, it cannot carry out "any substantial business activities" in the territory of the UAE; in addition, each Emirate in the UAE is relatively independent and has its own business licensing procedure. Your license granted in a certain Emirate is not valid across the whole UAE. If you want to engage in a business in Abu Dhabi but register your company in Dubai, you are obviously short of a basic understanding of the place of registration; many investors think that companies registered in Ras Al Khaimah can operate in Dubai, which is one of the most typical legal misunderstandings about company formation in the UAE. In addition, investors often make mistakes in the choice between a branch, a subsidiary or a sole establishment. Choosing a wrong legal form can be disastrous for company formation, and this is especially the case for multi-national companies. Generally speaking, big companies have very complicated internal procedures when setting up a UAE entity, the notarization and attestation of the required documents is expensive, and the time required is very long. If they mistakenly choose a branch rather than a subsidiary or vice versa, the whole procedure will be overturned, and it is difficult to calculate the actual loss and opportunity cost in caused by such mistakes.
2. Operations outside Licensed Activities
Surprisingly, many investors do not the importance of the business activities in their licenses and think that they can start any business as long as they have a license. This may be attributable to the relatively friendly business environment in the UAE, and many companies believe that it is legally permissible to conduce activities outside the license or at least that there are no serious consequences. However, "the biggest risk is not knowing the existence of the risk", if your actual business activities cannot correspond to the economic activities on the license, it's just a matter of time and how much to lose. To fully understand what you are licensed to practice, you not only need to check the names, you have to know what is behind the names as well, and it is always a good idea to check with some professional consultants to see what options you may have and what you are legally permitted to do with the license you are going to get.
3. License is the end of Company Formation
Now, you get your license, congratulations. But this is not the end of your company formation process. Generally speaking, the additional steps you need to take after getting your license can arise out of two reasons. First, for some activities, you need to get additional approval from related governmental agencies before you really can start your business. For example, for every mobile phone trading company, you need to get the permit from the TRA, Telecom Regulatory Authority, after you get your license; Second, this scenario applies to every company set up in Dubai: you need to finish the procedure with customs, Emirates Post, and Immigration Authority etc. If you don’t register your company with related authorities, you may come across some unexpected barriers when doing business in the future, and it is quite often that you will be forced to deal with them in an urgent situation.
The problems mentioned above are based on many cases where investors suffered heavy losses, and they happened to small companies and big companies as well. Sometimes, it is quite a pity. The root cause is that the complexity of registering in the UAE is underestimated, the publicity in the market that "registering a company in the UAE is easy", simply pursuing low prices, ignoring the value of professional knowledge, and "don't know what you don't know" is precisely the main reason for these problems.
Should you have any questions, feel free to let us know.