There is no doubt that in the past two decades, the country of UAE has emerged as one of the most important economic destinations in the world. Being positioned strategically in the region, a progressive government, and relaxed tax norms have made it an attractive destination for businesses and investors.
With a growing emphasis on moving away from oil, hydrocarbons, and energy resources, the country, along with its Emirates, is trying to move way to new sectors. Real estate, technology, sustainable energy, entertainment, leisure, etc., are all up-and-coming areas that draw heavy investments, subsidies, and attention.
While there are many positives, there is no discounting the fact that there are several barriers to entry. In other words, starting a new business, setting up a base, or shifting to UAE is quite challenging for a corporation. In this article, we are going to look at seven major challenges of doing business in the UAE.
List of 7 Challenges of Doing Business in the UAE
1. The Kind of Business Set-Up that Businesses can go for-
All the seven Emirates in UAE have established Free Economic Zones where foreign companies can own 100% ownership. However, outside these regions, a foreign company requires a National Sponsor that would own 51% of the total ownership. While the incorporation is easy, you would need to work with local business law firms. To understand this better, read more.
2. Different Culture and Customs-
UAE is governed by the Islamic Shariah Law. However, in recent decades, the government has worked hard to evolve a secular code of conduct in the region. There is no denying the fact that you will see the influence of Shariah in the banking and insurance industries. The UAE also does not have a Bankruptcy Law as of now, although the same is in the works.
3. Registration Linked to Physical Office Space-
When it comes to setting up a new business in the UAE, you need to understand that having a physical office space is a must. In other words, a business is a combination of three things in the UAE- license/permits/certifications, legal incorporation (LLC, JV), and physical office. With the UAE’s real estate markets being expensive, this can be a challenge for some.
4. Understanding the Arabic Language for Business Use-
Let us clear some inconsistencies around the point. English is used most widely and extensively by businesses in the UAE. However, you need Arabic for maintaining all records, official documents, and employee identities. If there are any problems in the understanding of English in terms of contracts and agreements, then the Arabic version or interpretation stands.
5. Timings and Dates are according to Local Customs and Norms-
Many business organizations allow for mandatory prayer timings for their employees. Apart from this, the weekly off is a Friday, as opposed to a Sunday. The holy month of Ramzan accords to lax working rules and norms for the employees. For a business with a different working style, this might be a challenge that can lead to several problems.
6. Complying with the Tax Environment of the UAE-
Most businesses migrate to the UAE as it has one of the world’s best tax structures. While you do not have income or commercial taxes, businesses had to start paying 5% Value Added Tax or VAT on their products and services from 2018 onwards. This has not made much of a difference, but the government is strict in compliance and imposes fines in case of failure.
7. Workers, Professionals, and Expats from Other Countries-
Studies show that over 200 nationalities are residing in the UAE. To work, you need a Work Permit or a Resident Status. Foreign businesses must make sure that they comply with Visa and other requirements. They can ease the process by asking their legal experts or law firms to manage paperwork, make applications, and submit necessary records to the GDRFA.
The Bottom Line
While the UE has had a lot going for it in the last decade, businesses also need to be mindful of the prevailing challenges. In this article, we have tried to list down seven challenges or barriers to business entry in the UAE. If you would like us to assist you by providing expert legal solutions to your problem, do let us know in the comments below.