KARACHI: Companies thinking of setting up their HQ in Dubai - to take advantage of its low tax environment, business-friendly policies, and access to investors - might wonder where to start.
And who better to shed light on this than H.E. Hamad Buamim, President & CEO of Dubai Chambers.
He told Business Recorder there are two options for companies that want to establish a presence in Dubai – they can do this by opening a mainland company, or setting up in a free zone. Understanding the difference is crucial.
Those who want 100% ownership of their company should consider applying for a licence and location in one of Dubai’s free zones, he said.
“The free zone concept was introduced by the Dubai government to generate foreign interest to set up businesses in the city. Essentially, it’s a special economic area where business owners can enjoy many ownership and taxation benefits,” he explained.
Free zones offer plenty of perks: assistance with visas, opening corporate bank accounts, advice and networking opportunities.
While mainland companies need to seek approvals from government bodies like the Department of Economic Development and the Ministry of Labour, each free zone has its own rules and external approvals are not needed.
It is worth mentioning though that unlike in many free zones, there is no minimum capital requirement for setting up of mainland company. How many visas you can get depends almost entirely on how much office space you have, whereas in the free zones you are usually limited to a maximum of six visas.
A mainland company can also freely operate anywhere in the region but in order to set it up a local sponsor is required, who will hold 51% of the company’s shares, and the company must have at least 200 square feet of office space. The latter doesn’t apply to free zone companies.
But a firm in the free zone can trade only within the zone and outside the UAE. It cannot conduct its operation in a non-free zone in the UAE. A possible way around this is to start a free zone business and later open branch offices in the UAE, which can operate on the mainland.
Currently, there are over 30 free zones in Dubai. Generally, each is designed around an industry category ranging from media to jewellery, health care and manufacturing.
Buamim’s advice for those considering the move: “Location is extremely important”.
He said foreign companies will want to set up in a location where most of their potential customers would be located.
“Dubai’s free zones’ cluster-specific approach groups together similar businesses to create a network of knowledge and expertise in one location, to the advantage of both businesses and users or consumers.”
For instance, the Dubai Design District focuses on fashion, furniture and beauty care and has about 4,600 companies. The Dubai Multi Commodities Centre (DMCC) has over 11,000 companies and is suitable for companies in the commodities and service industry. The Gold and Diamond Park is for firms that deal in precious metals and stones and has roughly 350 firms operating out of it.
Should you choose to head to the mainland, the UAE government has introduced the Basher online platform, connected with federal and local government entities that provide commercial licence services. It attempts to make the process fast and seamless.
If you decide to set up shop in a free zone, there are tools available online to compare different zones, such as if there is easy access to airports and sea ports as well as the kind of infrastructure available, like commercial offices and warehousing facilities.
When you have chosen a free zone that best suits the kind of business you want to set up, you will need to determine the type of legal entity your business is going to be, depending on the number of shareholders and whether the shareholder is a person or an organisation.
Next you must choose a trade name, apply for a business licence, lease or buy an office space if you require it, and obtain certain pre-approvals. For these you will need to submit documents including a completed application form, a business plan, passport copies of the company’s shareholders and a Registry Identification Code Form that is available online.
Many zones offer packages to get started fairly easily. The DMCC, a hub for global commodities trade, has the jump-start package for AED43,780 tailored for start-ups and SMEs.
The cost includes a company licence and other paperwork like an establishment card, plus a standard flexi desk which makes the company eligible for 3 resident visas. They also have a package for medium and large companies and another for individual entrepreneurs.
Capital requirement is something to keep in mind.
In the DMCC, the minimum share capital for forming a free zone company is AED50,000 per company and AED10,000 per shareholder. For a company to be issued a General Trading Licence, it should have a minimum of AED1 million share capital.
Some zones have no minimum requirement and for some it varies depending on the type of business being set up.
Buamim’s recommends startups get in touch with the Dubai Startup Hub, “an ideal platform to access valuable insights, resources and support.” It offers workshops, trainings, and helps with marketing, promotion, and advocacy efforts.
It also offers sector-specific guides on setting up shop in Dubai, and has published a report on Dubai’s economy and business environment for foreign startups and investors, as well as research on key trends shaping the entrepreneurial landscape in the emirate.
“Dubai’s model of integrating free zones, ports and airports has served it well and enabled it to not only survive but thrive during the pandemic,” said Buamim.
“Pakistani companies stand to benefit from Dubai’s attractive free zones, excellent logistics infrastructure and business friendly environment,” he said, adding: “Dubai’s startup ecosystem can play a huge part in expanding economic cooperation between the UAE and Pakistan.”
Copyright Business Recorder, 2022