Common mistakes when
starting a business

The UAE is a very vibrant market where business decisions are often made instantly. If an investor is too slow then the market niche or opportunity will be taken by more proactive, confident and capable participants. Foreign investors are often cautious, trying to find anchor customers or a starting point first, and only then proceeding with launching a business. All business in the Emirates is strictly licensed and, in the eyes of local entrepreneurs, a foreigner who does not already have a local business incorporated and licensed is just a tourist offering dubious deals.

• Company
  incorporation

  Choosing a license and form of legal
  entity, incorporation of local and free
  zone companies

• Opening
  bank accounts

  Cooperating with leading UAE banks
  and understanding their compliance
  procedures

• Proving Economic Substance
  in the UAE

  Confirming that management and
  operations actually take place at the
  registered address

Under UAE legislation, it is possible to incorporate a company in any of approximately 40 free trade zones (FTZ) in different parts of the country or in the local (mainland) territory. You choose the place of incorporation depending on your business strategy and target audience.

Investors often make mistakes when choosing the place to incorporate because they lack sufficient awareness of the rules governing each jurisdiction. Free trade zones are controlled by European management that uses advertising and PR technologies to attract clients. They convince foreign business people that starting a company in a FTZ is much more profitable, easier and cheaper. By contrast, there are no advertising campaigns by the government that promote the local market instead and the bulk of the relevant information is in Arabic.

This is how business people seeking to exploit the domestic UAE market mistakenly incorporate in a FTZ. They don’t realize that these companies are severely restricted and prevented from operating in the local UAE market outside the FTZ.

• Incorporation of
  legal entities in the UAE

  Incorporation of onshore
  companies, building holdings and
  structures for opening accounts in
  Emirati banks

• Allocation in SORP business
  center

  5000 sq. m. (54,000 sq. ft.) of
  various office spaces to rent for any
  duration, with a registered business
  address

• Economic Substance
  in the UAE

  Confirmation that management and
  operations actually take place at the
  registered address.

All business in the UAE must be licensed. Licensing in the UAE is a hidden tax, with governmental control of companies’ activities and authorized signatories (not owners) for counterparties and banks.

A typical mistake made by foreign investors in the UAE is to attempt to disguise one activity by another. Or attempting to save costs by clouding complex activity behind a simple license. Working with the wrong license in the UAE is the same as working without one. That's why supervisory authorities will seriously punish you if they find any inconsistency. In that scenario, a company will be fined a substantial penalty and the owner must get the appropriate license.

Another mistake is attempting to operate in the local market under a license obtained by setting up a company in a FTZ with a similar sounding name. It costs a lot less, of course, but it means also operating without a license and is severely punished.

• Company incorporation and
  licensing

  Choosing a place of incorporation,
  legal form of the company and
  obtaining permits

• Online
  incorporation

  Remotely incorporating in FTZs and
  in the mainland territory without
  leaving home

• License
  renewal

  Mandatory annual renewal at
  the registration and supervisory
  authorities of the UAE

Investors incorporating companies in the UAE make the right decision when engaging managers with local working experience and familiarity with the intricacies of Emirate business practices. Naturally, business owners try to motivate hired managers with various incentives. But they make a huge mistake when making a manager a shareholder also, as a form of deferred remuneration.

This mistake is made due to ignorance of the peculiarities of UAE legislation. The government robustly protects shareholders from unscrupulous managers. When problems arise, the state immediately takes the side of the investor. However, when you hand over a block of shares to the manager, the situation changes dramatically because the manager becomes a minority shareholder. Now you and the manager have similar rights. In a conflict situation in court, it will be difficult to prove that the unscrupulous manager did not invest a cent in the business and the share given to him was motivational only.

• Nominee
  service

  Nominee and technical founders,
  directors for functional roles and tasks

• Legal
  support

  We will draft contracts related to
  new relations within the group
  framework, transfer of assets and
  finance

• Consulting
  business support

  Tax, administrative, legal, PRO and
  accounting support for operations
  in the UAE

According to UAE law, all employees working locally must hold a company resident visa and obtain a Ministry of Labor card. If your employee has a visa from a third-party employer (or sponsor), then the law requires their written consent that this person can work for you. After that, you make a Labor card for your employee.

Hiring workers without registration is a gross violation of UAE legislation, and government bodies will interpret your actions as attracting illegal labor.

In addition, the existing recruitment regulations in the UAE provide for the signing of standard contracts developed by the Ministry of Labor or free trade zones. Entrepreneurs sometimes mistakenly limit themselves only to such agreements.

• Outsourcing
  services

  SORP services include legal, tax,
  immigration, accounting and PRO
  support

• Review
  methodologies

  Drafting a policy and methodology
  for tax reporting and recruiting
  personnel in the UAE

• Immigration
  procedures

  A complete package of documents
  for onboarding employees and
  obtaining work visas

International standards and UAE legislation regarding local companies require them to have an office - a physical center of management and control, at which the business is registered and the staff are located.

However, many Free Trade Zones, chasing a competitive advantage, allow companies to be incorporated without registered offices, which attracts entrepreneurs looking for cheap solutions. Business people wishing to operate in the local market make mistakes by renting cheap low-quality offices in non-prestigious areas, or even signing a fictitious lease agreement which is totally unacceptable.

Such false savings threaten the investor with serious trouble. Without the advantage of a credible and established office for managing the business, an investor may find it difficult to open a bank account (or it can lead to the closure of existing accounts), or when interacting with the Immigration service and Ministry of Labor to resolve visa issues.

• Accommodation in
  SORP business center

  5000 sq.m. (54,000 sq.ft.) variable
  size offices in SORP business center
  for any lease duration

• Registered
  business address

  Physical or virtual office with a
  registered address that confirms
  economic presence in the UAE

• Virtual office
  in the UAE

  Reduce costs, simplify business
  processes and generate revenues
  from anywhere in the world

Emirati banks take the Know Your Customer (KYC) procedure very seriously when opening accounts and providing settlement and cash services. Therefore, be ready to provide the bank with detailed information about your business, financial results, foreign assets and counterparties.

Investors often make the mistake of hiding information or providing false information. They are motivated by unfounded fears about possible leakage of confidential data to third parties, or about the transfer of information by banks due to the procedure for automatic exchange of information (CRS) now in place globally. These fears are groundless because UAE credit institutions provide specific guarantees to preserve bank secrecy from third parties, and the automatic exchange of information can be avoided by obtaining tax residency status.

Be careful when sharing information about counterparties with banks. It will impact you negatively if one or more is found to have a dishonest reputation (which you might not even know about), is on the sanctions lists or does business in jurisdictions that are undesirable for the UAE.

• Comprehensive audit

  Required to prepare consolidated
  financial statements and confirm
  transactions

• Opening bank accounts

  Cooperation with leading UAE banks
  and understanding their compliance
  procedures

• Banking support

  Establishing lines of communication
  with a bank representative to
  facilitate interaction

Since January 1, 2018, 5% VAT has been introduced in the UAE. Enterprises are now obliged to submit VAT reports but the legislation does not require businesses to maintain full-fledged bookkeeping and financial accounting.

Because business people often do not have wide experience of doing business in the UAE and naturally tend to focus on their narrow areas of business, they overlook engaging outsourcing companies of which there are many in all sectors of the economy.

Accounting, tax reporting, and initial incorporation are important components of starting a company's key business processes. These can be outsourced to market professionals, reducing overheads and saving time.

• Outsourcing
  services

  We will help reduce payroll overheads compared
  with hiring highly paid staff.

• Business
  consulting services

  Solutions for successful operations
  in the Emirates and internationally.

• Business
  support

  Accounting, secretarial, PRO, legal
  and preparation of tax returns

The global trend towards increased control over business leaves fewer legal methods to reduce the tax burden, optimize cash flows and allocate funds to accounts. To minimize the risks of your international business activity being considered illegitimate or suspicious, we recommend that you comply with all legislative requirements regarding confirming Economic Presence (ESR) in the UAE.

The modern reality is a discernible policy tightening by local banks and increased constraints of international tax planning schemes. These oblige entrepreneurs to take the measures necessary for confirming Economic Substance requirements and the location of the UAE decision-making center for your business.

Some investors mistakenly believe that non-compliance with these legal requirements will not affect doing business in the UAE. That is simply untrue. If you evade confirming ESR obligations, you risk being subject to serious penalties, even having your business license revoked. That would mean you could not confirm details of your operations and you would be unable to pass KYC checks to open a UAE bank account. In addition, your data would be shared with your country of residence in accordance with CRS procedures.

• International
  tax planning

  Minimization of international taxes,
  freedom of settlements with the
  protection of tax information

• Obtaining
  tax domicile

  Confirmation of belonging to the
  UAE taxation system and ensuring
  the provisions of the DTT. are met

• Evaluation and business
  analysis

  Activities of all your business units
  to reduce the risks of non-
  compliance with the law