Common Mistakes While Setting up a Company in the UAE

Mistakes while setting company in UAE

Setting up a company in the UAE is not easy, and you should not take it lightly. Converting an idea into action requires commitment, dedication, time, and money. Additionally, the vast multitude of tasks, responsibilities, and formalities to set up a company may be burdensome for an entrepreneur.

However, keeping the flow going leads to success. Being an investor-friendly country as well as providing several business benefits, UAE is an attractive location for entrepreneurs to set up a company.  

The business ecosystem comprising updated technological infrastructure and support, effective logistics, the banking processes, tax benefits, various free zones, and multiple business opportunities excites entrepreneurs and investors.

Despite the thrill and excitement of company setup, many challenges may hinder the process. Below we discuss some of the common mistakes that one should avoid while setting up a business in the UAE: Whether it is setting up a company in UAE’s free zone or mainland areas, there are some mistakes that one should avoid. We will discuss them in this blog. Keep reading for more information.

Free Zone Selection 

mistakes while setting company in UAE: free zone selection

There are several free zones in the UAE, as well as each has a list of available packages providing different sets of benefits. The benefits include the size of the office, costs, availability of visa quotas, company registration support, and other features and benefits.

For example, setting up a business in a UAE-free zone has restrictions, and you need a local agent to conduct business outside the free zone.

Further, the entrepreneur must carefully go through the packages to select the right office size for their start-up. They must check the visa quotas for employees available free of cost and determine the additional cost for additional visa quotas required.
The overall cost of the company registration package, along with the features, must be checked and compared thoroughly to select the right one for your business.

Selection of the right bank 

While setting up a business in the UAE, entrepreneurs must search for the right banking partner for opening an account and handling financial transactions.

Further, before selection, the entrepreneurs must check the initial account opening charges, types of available accounts, limits, any other restrictions, hidden or recurring charges, and any other requirements to be fulfilled.

Moreover, entrepreneurs must choose the right bank based on their transaction frequency and business requirements.

Selection of the right bank

Selection of the correct business license 

mistakes while setting company in UAE: selection of right business license

UAE offers a multitude of business license options. Entrepreneurs must select the one that suits the company’s business model, the products and services to be offered, and the projected growth plan.

Some license categories may have more benefits, but they might not be offering the same features when and if the start-up intends to increase its products.

Therefore, entrepreneurs must review all these factors as well as choose the business structure and license that does not restrict their business strategies. Otherwise, it may lead to penalties, legal actions, or personal liabilities of shareholders.

Selection of the right local sponsor 

In some cases, companies need a local sponsor while setting up a business in the UAE. The sponsor holds 51% of the company shares with such an arrangement.

The entrepreneur must ensure that the agreement is correctly written, read, and signed by the parties involved and appropriately defined the structure.

Moreover it’s in the entrepreneur’s interest to ensure that the partnership, ownership, and management terms and conditions are clarified; the resolution committee in the case of disputes is identified.

Furthermore, the agreement must specify all the company shareholders’ rights, duties, and responsibilities. All of this must be in writing.

mistakes while setting company in UAE: Selection of the right local sponsor

Compliance with employment laws 

The employer must obtain a valid work visa for an employee before starting work. An individual cannot legally work in a UAE-based company unless the employer submits a ‘No objection Certificate.’

Entrepreneurs must be careful that they do not violate any employment laws or agreements in the country. As it may lead to legal actions. Therefore, entrepreneurs must ensure that all foreign employees have an employment visa and a valid work permit.

Above are the common mistakes businesses make when setting up a business in the UAE. We provide some other minor mistakes. These companies must avoid for the survival and growth of their business in the UAE:

  • Merely conducting basic internet research is not enough to set up a company in the UAE. It is best to contact a business consultant or a professional advisor. Such serious matters before thinking of setting up a business in the UAE.
  • Avoid verbal contracts because they are not legally binding in a court of law. Entrepreneurs must enter into legal, written agreements that include all the details and signatures of both parties. Therefore, this systematic approach will help avoid misunderstandings, miscommunication, or legal issues.
  • Implement risk-mitigation measures to account for any business risks that a company may face in worst-case scenarios.
  • Businesses must adapt to the local way of conducting business, which will significantly beneficial to them. It is an indication of the company respecting the local laws & working towards contributing to the economy. Leading to better professional relations as well as higher receptiveness is the objective.
  • Entrepreneurs must stay updated with the laws and regulations for company operations in UAE as they change often. Even the slightest change can affect the company, employees, shareholders, or business.

Entrepreneurs must ensure that they don’t make any of these mistakes while setting up a business in the UAE. The proper guidance, documentation, and a positive outlook will help you capitalize on the endless opportunities in the UAE.

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Company Formation Service

N R Doshi & Partners

NR Doshi & Partners offers company formation services to entrepreneurs in Dubai and other emirates of the UAE. We provide the necessary guidance to form a Mainland Company, Offshore Company, or setting up a company in UAE free zone.

Our guidance in finding a good location, finding a local sponsor, compliance with licensing procedures, opening bank accounts, and arranging work visas will give you the confidence to go ahead.  

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