Setting up in Dubai
At the last count over 250 nationalities were represented in Dubai; an indication of the draw that it has for people and companies all over the world. Sheikh Rashid had the wisdom and vision to know that Dubai could become a world leader. Sheikh Mohammed and his brothers have translated that vision into a reality, creating a city that continues to exceed expectations and predictions.
There is little doubt that Dubai is a land of opportunity and diversity for the bold entrepreneur and the progressive businessperson. The development and expansion of free zones (FZs) has provided a gateway for foreign nationals to a business hub that is truly exhilarating. Jebel Ali was the first to be opened in 1985, some 35 kilometres south west of Dubai Creek. Dubai Airport FZ started operations in 1996 and was followed in the opening years of the millennium by Dubai International Finance Centre (DIFC), Media City, Internet City and Knowledge Village. The list continues to grow. But what are the incentives for buying into a free zone?
‘No tax,’ says Benjamin Monié, Managing Director of JBM FZ LLC (Limited Liability Company) based in Media City.
There are no corporate taxes or personal taxes and imports/exports are 100 per cent tax exempt. There are no trade barriers or foreign exchange controls and the local currency, the dirham (AED) is pegged to the US dollar and fully convertible. And foreign nationals have 100 per cent ownership and control.
Monié and his brother saw a niche market in audio-visual production.
‘The traditional way is that separate organisations deal with video and audio. We do both,’ says Monié. ‘It’s a concept team that takes care of the job from inception to realisation; build an audio-visual presentation, film or radio ad from the beginning to the end.’
As the name denotes, Media City’s client base ranges from broadcasting and news services to publishing and consultancy. It was the perfect environment.
‘Strategically speaking, we knew that the place was ideal for what we do,’ says Monié. ‘It’s a superb hub for turnkey media solutions. You can collaborate with all kinds of people and companies; it makes everything possible. The legal aspects, paperwork and licenses were handled through one channel. The procedure is much simpler than it would be outside the free zone. You may pay a bit more but it’s worth it.’
The downside for JBM was the lack of available office space which caused delays.
‘There’s not enough space for all the companies that apply so there’s a waiting list. We were fortunate to find the right people who could push our application forward quickly in terms of getting office space. It can take four to six months to get the right office; it depends on the size you need.’
Business is good and the brothers prosperous. Although Monié makes light of the paperwork, there are quite a few forms to fill out and plans to frame as well as deciding on the format of the business.
Choosing the most suitable FZ may depend on the nature of your business, location, logistics or other factors. Most FZs indicate the main area of interest in their name and all have websites that can be checked for subcategories. If the company is financially biased, DIFC is likely to be the logical choice; if you intend to develop software solutions or telecoms, then it might be Silicon Oasis (DSO). But it’s highly likely that there’ll be more than one option. Checking individual websites should be a priority in the decision making process. The Dubai Chamber of Commerce and Industry site (www.dcci.ae) provides links to all the main FZs under the tab marked – Investors Information.
Each site provides details of services, facilities and the hoops through which to jump before opening your business. The sites usually give download options for forms and templates and sometimes list fees. As an example, the basic setup fees in DSO are currently: AED180,000 for 100 sq m of office space plus a 10 per cent service charge; AED10,000 for registering the LLC; and AED15,000 for the trading licence which is renewable annually.
A company can be established in Dubai as a LLC with 2 or more individual shareholders; a LLC with a corporate entity as the shareholders; or as a branch office of a company based outside the UAE. For many of the 1000s of foreign companies in Dubai, the first option tends to be most preferable. Simon Morris, joint managing partner of what will be GME FZ LLC based in Knowledge Village, explains why and describes some of the processes involved in starting the business.
‘We’re a management consultancy and training organisation operating under a franchise agreement with UK based Glendinning Management Consultants,’ explains Morris. ‘Predominantly we’ll be working with clients in retail and FMCG to build capability; a major opportunity in this part of the world.
‘The process starts with preparing a business plan that has to be submitted to Tecom.’ [A separate company dealing with applications within several FZs.] ‘That’s the first hurdle. The next stage is to get the trading licence and for the company to be incorporated as a LLC but they won’t do that until there’s office space. Obviously you have to fill in all the forms yourself and do your own business plan but Knowledge Village have all the standard forms. There’s no necessity for corporate lawyers or legal assistance as I’m opening an individual company. It would be quite different if I were to open a branch office of an overseas company.
‘Fortunately the business plan sailed through smoothly but they can be rejected. I made the relationship with Glendinnings fairly distant otherwise they would have said that the business was really a branch office. And that would have meant a lot more work and information, production of UK accounts and using a lawyer.’
Now Morris is waiting for office space to become available. Because of the shortage in Knowledge Village the waiting time can be as long as 4 months although theoretically the whole process should only take about 6 weeks. The highest demand is for small compact offices; larger spaces are easier to come by and the waiting time proportionately shorter.
‘The situation in Knowledge Village should be changing as the universities slowly move out to Academic City. So there should be more availability. But to an extent, it’s about ‘who you know’ and it’s important to keep yourself at the top of their minds.’
His advice to people planning to set up in Dubai is fairly succinct and relates directly to his last comment.
‘Talk to people who have been through the process and have successfully written business plans. Websites make it all look fairly straightforward but they don’t tell you everything or mention all the forms.’
Morris’s main reason for taking the FZ avenue was the 100 per cent ownership factor as well as the tax advantages. Foreign companies offering professional or financial services outside the FZs are not required to have a local agent and Morris rumours that this may be extended to other service industries. But unfortunately, this cannot be corroborated and legislative changes in Dubai can take a long time!
Life outside the FZs is a little tougher as Bluesail Directors Greg Boyle and Laura Muir found out when they started. Not only is the company not in an FZ, it’s not even on dry land: the Dubai office is a refurbished airboat terminal moored on the Creek near the British Embassy. When they arrived in Dubai in 2005, they engaged the services of a British business formation company. It took a lot of money and almost 10 months before the paperwork was finalised.
‘Delays and unplanned costs happen here and every business is learning as the UAE develops,’ says Muir. ‘That goes for lawyers too. There are a host of challenges that present themselves. Each government department has its own requirements, policies, charges and processes. Although they’re all connected, it’s up to the client to liaise, reconcile the different policies and procedures and try to understand the system. Forms often have to be completed in Arabic and you wait in busy departments, often without queuing systems! It’s all part of the process of the orientation to life in the Middle East. Dubai is full of huge property investment opportunities and there’s little interest in the small business from the venture capital financiers and investors. One private investor advised, “Go big or go home”. It is expensive for a small or medium sized company to set up and survive relative to the similar costs incurred by the larger corporates who set up as branches or new investor-backed companies in the free-zones or retail outlets.’
To set up an LLC outside an FZ a company requires a local sponsor who, in principle, owns 51 per cent and can cost anywhere between AED50-100,000 per annum. Commonly there is a side agreement under which the sponsor has no rights to the profits generated nor does he/she have an executive role. Every company needs a full time or consultancy based public relations officer (PRO); an Arabic-speaking local who eases the way and deals with the various government departments.
‘We have worked with two different PROs who have been our local saviours,’ says Muir with feeling. ‘They sorted out the paperwork with charm, humour, speed and integrity. Trusted recommendations are far better than newspaper adverts. And when you find them, keep them close!’
The process of forming a business outside a FZ is different; the costs are higher and the tax benefits lower. But the peripheral costs and problem areas are the same for any company.
‘All businesses are required to pay ‘refundable’ deposits for telephones, visas and business licences. Almost everything you require comes with a large (high ‘tax’ at source) cost,’ warns Muir. ‘One major issue is the cost of commercial premises. It’s breathtakingly expensive and not showing any signs of easing even as further premises come on the market. And you must have a registered commercial office listed on your commercial licence.
‘Employee visas are also very expensive. They costs around AED14,000 each and are required at the point of employment. Accommodation in Dubai costs about AED6,000 per month for an en-suite bedroom in a shared villa and AED8,500 per month for an average flat. Landlords request two cheques to cover the annual rent plus a 10 per cent security deposit.’
And a few other little details that should be included. Foreign nationals who plan to stay in Dubai are required to obtain a residence visa. As part of the process, individuals undergo a blood test for HIV/AIDs and an x-ray for tuberculosis. Each element has a price to which must be added the cost of the forms being typed in Arabic. And it all takes time. Lack of residency acts as a bar to many transactions. The inability to open a bank account, lease an apartment or buy a car can prove both expensive and restrictive.
But Muir and Boyle have risen to the challenges of Dubai. Bluesail LLC has become the UAE’s premier yachting company with a secondary operation in Abu Dhabi. In 2006 Bluesail won the Lloyds TSB Small Business Award for Corporate Social Responsibility. There are no regrets.
‘The experience of living and working here continues to be amazing,’ enthuses Muir. ‘Dubai is run by one of the world’s most charismatic leaders and we feel privileged and fascinated to be part of one of the most amazing modern demonstrations of vision, focus and informed investment.’
And Muir has a few words of advice.
‘Research your market and ensure you have a USP within Dubai. Expect to need twice the capital that you expected and twice as much time. Budget well for marketing and consider unique forms of promoting your brand.
‘Networking is vital,’ she continues. ‘Get out and meet people who have already set up a similar business in the recent past. Talk, listen, question and learn.’