Dubai Business Advisor

Business Information Series

2009 | Vol. I | No. 4

Starting a Business

in Dubai:

A Practical Guide

Table of Contents

Introduction 4

DecidingonActivitiesandaCorporateStructure 4

ObtainInitialApprovalfromtheDED 5

RegisteraTradeName 6

OtherApprovals 7

SecureaLocation 7

MemorandumofAssociation 8

GetaPOBox 8

GetaPhoneLine 9

Final Approval and Company Registration Certificate 9

BecomeaMemberofDubaiChamber 10

HiringWorkers 11

NextSteps 12

References 13

Acknowledgements 14

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Introduction

ThisguideisintendedtoassistpeoplewhoareconsideringopeningabusinessinDubai.Itscontentsshouldbeusefulintwostages.Forthoseintheplanningphase, it contains information on the time and financial commitments required to open a business, which are key to conducting a feasibility study and financial planning.Forthosewhohavealreadydecidedtoopenabusiness,itservesasaroadmap,guidingtheentrepreneurthroughthevariousphasesoftheprocessand explaining what is required to complete each step.

It should be noted that the procedures described in this guide can and dochangewithtime.Whileeveryefforthasbeenmadetoensurethatthedetailsprovidedaretimelyandaccurate,readersareencouragedtospeakwiththeresponsible entities to confirm the latest information. In addition, given the limitlesscombinationsofbusinessactivities,corporateentities,andownershipstructures, each new business will inevitably be unique in some fashion. As such,nosingleguidecancovertheproceduralimplicationsofallpermutationsofthesefactors.Tothisend,entrepreneursmayneedtoseekfurtheradvicefromtheconcernedauthoritiesorlegalcounselshouldtheybecontemplatingan‘unusual’ideawithrespecttotheabovefactors.

Asageneral note, entrepreneurs shouldexercisecommon-sensediscretionwhen engaging people or firms with whom they plan to transact business. In thispartof theworld,personal relationshipsareespecially importantandplayacrucialroleinthebusinessrelationship.Itwouldbehovetheaspiringentrepreneurtotakethetimetogettoknowpeoplebeforeconductingbusiness– whether they are potential partners, agents, employees, or professionalservicesproviders.

Deciding on Activities and Corporate Structure

The first step in opening a business is determining the activities of the proposed business.Aspartoftheapplicationprocess,theentrepreneurmustchooseabusinesscategory;withineachcategoryisalistofactivities.Eachlicensemayhaveuptotenrelatedactivities(subjecttothediscretionoftheDepartmentofEconomicDevelopment–DED).TheDEDandDubaiChamberjointlypublishaguidebook of the Standard Classification of Economic Activities, which is used bytherelevantauthoritiestocategoriseactivitiesforlicensingandstatisticalpurposes.

Oncetheactivitiestobepractisedhavebeendecided,theentrepreneurshoulddetermine the appropriate corporate structure for the business. There areseveral issues important to thisprocess, including thescopeof liabilitiesoftheownersandthedegreeofforeignownershippermittedineachstructure.Interested readers should refer to Al Tamimi (2006) or another resource for

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a detaileddiscussionof the merits and featuresof each structure. For thepurposesof thisguide,wewill focusontwoof themostpopularstructures–thesoleproprietorshipandlimitedliabilitycompany(LLC).

Asoleproprietorshipis,asitsnamesuggests,anestablishmentwithasingleowner.Thereisnotastrict legalseparationbetweentheestablishmentanditsowner.Asaresult,theproprietorispersonallyliablefortheliabilitiesofthebusiness.

ForeignnationalsarepermittedtoestablishandconductbusinessintheUAEthroughasoleproprietorshipstructure.TherearecertainrestrictionsonthetypesofactivitieswhichmaybepractisediftheownerisnotaUAEnationalor GCC national, as the case may be. Non-GCC nationals are generallyrestricted to fields involving non-trading, professional services. Generally, a foreignerlookingtoestablishasoleproprietorshipengagedinaprofessionalservice will need to check with the DED as to whether it is required for him to have qualifications in respect of the activities he is applying for. Additionally, foreigners forming a sole proprietorship are required to appoint a national serviceagent,whowillperformcertainservicesrelatedtoadministrativetasks,generally in exchange for a flat annual fee.

AnotheroptionforthecorporatestructureofaproposedcompanyistheLLC.Unlikeasoleproprietorship,theLLCisadistinctlegalentity,separatefromitsowners.ThepartnersareliablefortheobligationsofanLLConlytotheextentoftheirinvestedcapital.Also,theremustbeaUAEnationalpartner(s)whoseownershipstake isat least51percentof thecompany’sshares. However,GCCnationalsarepermittedtoown100percentofthesharesinanLLC,aslongastherearenopartnersinthecompanywhoarenon-GCCnationals.Thatis,GCCnationalscannotreplaceUAEnationalsasthe51-percentpartnerofaforeigninvestor,aspertheUAECompaniesLaw.

Onceanentrepreneurhasdeterminedtheactivitiesoftheproposedbusiness,as listed in the Standard Classification of Economic Activities, and decided uponanappropriatecorporatestructure,theyshouldproceedtotheDEDtobegintheapplicationprocess.

Obtain Initial Approval from the DED

The first step is to obtain the initial approval. The initial approval essentially statesthattheactivityhasbeeninitiallyapprovedbytheDEDandallowsthemtoproceedwiththenecessarystepstoobtainabusinesslicense.InordertoapplyforinitialapprovalfromtheDED,oneneedsthefollowing:

Acompletedapplicationform.•

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Passport copies of the owners and managers and their visa pages;if they are also sponsored, a no objection letter in Arabic from theirsponsor.

TheapplicationfeesareAED320.Thisamountcoverstheinitialapplicationfee(AED110)andfeesforthereservationofatradename(AED210).

If an owner of the proposed company is a corporate entity, the followingdocuments will be required from this entity:

Certificate of incorporation or certificate of good standing.

MemorandumofAssociation.

Boardresolutioncallingfortheestablishmentof,ortakingastakein,theproposedcompanyandappointinganauthorisedrepresentativetoexecutethisdecision.

Powerofattorneyauthorisingtherepresentativetoexecutetheaboveresolution.

The documents above must be notarised in the company’s home country,legalisedby thegovernmentof thehomecountry,authenticated in theUAEEmbassyinthehomecountry,authenticatedagainbytheMinistryofForeignAffairsintheUAE,andtranslatedbyanaccreditedtranslator(andthetranslationshouldbestampedbytheMinistryofJustice).

TheDEDaimstoprocessinitialapplicationsandissueinitialapprovalswithinonetotwodaysofreceiptoftheabovedocuments.

Register a Trade Name

Oncetheentrepreneurhasobtainedinitialapproval,thenextstepistoregisteratradename.Thefeementionedintheprevioussectionisfora‘standard’Arabicbusinessname.Thereareadditionalfeesassociatedwithusingforeignnames,usingtrademarks,orusingwordsdescribingthegeographicscopeofthe firm (such as ‘Middle East’ or ‘International’). These fees range from AED 1,000to2,000.Inaddition,thetradenamemustbeconsistentwithArabicandIslamictraditionsandvalues.Namesnotcomplyingwiththisstandardwillberejected.

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Other Approvals

After the DED, the applicant may have to proceed to other GovernmentDepartments to obtain other approvals. As examples, the followingDepartments’ approvals are required for these activities:

MinistryofInformation,foradvertisingandmediarelatedactivities;

MinistryofEconomy,forinsuranceactivities;

DubaiMunicipality,forcontractingandmanufacturingactivities.

Secure a Location

Withtheinitialapprovalinhandandatradenameregistered,theentrepreneurshouldlooktosecuringalocationfortheproposedbusiness.Beforesigninga lease, it is highly recommended to get pre-approval from the PlanningDepartment of Dubai Municipality for the proposed site. Officials from the Planning Department need the parcel ID number associated with the site,whichthelandlordwillbeabletoprovide.TheparcelIDnumberislinkedinthePlanningDepartmentdatabasetoalistofpermissibleactivitycodesfromtheDED’s Standard Classification of Economic Activities. This allows the Planning Department toapproveasite foraproposedbusinessbasedon theparcelID number and the initial approval granted by the DED. After the PlanningDepartmenthasgivenapproval to thesite,CivilDefencemustalsosignoffontheproposal.CivilDefencewilldoanon-siteinspectionofthepremises,although they may waive this requirement for businesses whose activities have minimal safety implications, insteadopting for random inspectionsafter thebusiness is in operation. Some businesses, such as a restaurant, will require anon-siteinspectionfromCivilDefence,aswellasotherapprovals–fromtheHealthDepartmentandSewageDepartment–beforethesitecanbeapprovedforbusiness.

It is also necessary to secure approval for a name board for the proposedbusiness,whichmustbe inEnglishandArabic. Thisapproval comes fromthe DED, who ensure that the name board is consistent with the proposedbusiness and registered name. It is generally required that the entrepreneur obtainano-objectionletterfromthelandlordfortheuseofthepremisesasabusinessandforthenameboard.

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Memorandum of Association

ThenextstepistodrafttheMemorandumofAssociation(inthecaseofanLLC)ortheappointmentcontractwitha localserviceagent(inthecaseofasoleproprietorship).TheDEDprovidesspecimencopiesofthesedocuments,whichentrepreneurscanuse for theirowncompany. It isstrongly recommended,however, that entrepreneurs who wish to make even slight modifications to thesedocumentsconsultlegalcounselforthispurpose.LegalfeesfordraftingaMemorandumoftenruninthethousandsofdirhams,butthisdocumentiscriticaltothenewbusiness,asitlaysouttherightsandresponsibilitiesofthepartnersanddirectorsof thenewcompany. Additionally, theMemorandumsetsoutcertaincorporateproceduresandpractices,suchaswhichpartnersoremployeesofthebusinesshaveaccesstothecorporatebankaccount.

TheMemorandummustbe inArabic, or inbothArabic andEnglish (in thiscase,thedocumentistypicallywritteninparallel,withArabicinonecolumnandEnglishintheother).IftheoriginaldocumentisinEnglish,itwillneedtobetranslatedbyanaccreditedtranslator.ItisimportanttonotethatintheeventofadiscrepancybetweentheEnglishandArabicversionsofthedocument,thecourts will use the Arabic version as the official version of the Memorandum.

ThedocumentmustthenbetakentoanotaryattheDEDoratDubaiCourts.Thenotarywill check toensure that theMemorandumcontains thecorrectinformation and is in compliance with the UAE Companies Law beforenotarisingthedocument.Forhisservices,thenotarywillcharge0.25percentofthepaid-upcapitalmentionedintheMemorandum;thisamountiscappedatAED10,000.

Get a PO Box

It is not required, but is advantageous, for the entrepreneur to open a PO Box. Asthere isnopostaldelivery toresidentialorcommercialaddresses, this istheonlywaytoreceivemail.ThiscanbedoneatanEmiratesPostbranch.EntrepreneurswillneedtobringthefollowingtoopenaPOBox:

Initial approval certificate (or business license). If the PO Box is opened with an initial approval certificate, the business owner must bring in the businesslicensewhentheapplicationprocessiscomplete.

Apassportcopyoftheownerormanager.

Acompletedapplicationform.

TheannualfeeforaPOBoxforabusinessisAED570.Thisincludeskeyandregistrationfees.Therentalagreementisonacalendaryearbasis.IfthePO

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Boxisappliedforlaterintheyear,areducedfeewillbechargedbasedatthetimeoftheapplication.Forthesepurposes,theyearisbrokenintothreefour-month periods. All applicants opening a PO Box in the first period of the year will pay the full fees. Those applying in subsequent periods will pay a lower price,basedontheperiodinwhichtheyapply.

Itispossibletoassignpowerofattorneytoauthoriseanotherperson(typicallytobeanemployeeoftheproposedcompany)tohaveaccesstothePOBox.There is a small fee for this option, and it requires the signature of the original authorisedpersoninthecompany,aswellaspassport/residencyinformation,aphoto,andasignaturespecimenofthepersontobeauthorisedtoaccessthePOBox.

Empostoffersacourierservice,wheretheydelivermaildirectlytoacompany’splaceofbusiness.

AnotherservicethatEmiratesPostoffersbusinessesistoactasaliaisonwiththeMinistryofLabouraspartofapplyingforworkpermitsforemployees.Abusiness can take the appropriate documents to the post office (which accepts themasregisteredmail)andpaythefeesthere.EmiratesPostthendepositsthefeesintoaspecialMinistryaccount.Businessescanthencollectapprovalsand other documents from the Ministry at their local post office.

Get a Phone Line

Businessesshouldobtainaphone lineduringtheapplicationprocess. ThisserviceistypicallyprovidedbyEtisalat.ThereisanEtisalatdeskattheDEDwhereentrepreneurscancompletethisstep.InstallationchargesareAED180,andlinerentalisAED50permonth,inadditiontousagefees.

Final Approval and Company Registration Certificate

Atthispoint,theentrepreneurwilltakethedocumentscollectedfromvariousentities back to the DED to apply for a Company Registration Certificate. At thispoint,theentrepreneurshouldhavethefollowing:

TheinitialapprovalfromtheDED.

The trade name approval certificate.

Approvalforthebuildingandnameboard.

Avalidandoriginalleaseforthebusinesspremises.

AnotarisedcopyoftheMemorandumofAssociationoranappointment

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contractforalocalserviceagent, inthecaseofasoleproprietorshipownedbyaforeigner.

Corporate owner’s documents, officially translated.

Passport copies of the owners – or their representatives – and themanagers.

Noobjectionletters(ifapplicable).

OtherGovernmentDepartments’approvals(ifapplicable).

The fee structure for final approval is complex and depends on a variety of factors.Fortunately,theDEDwebsitehasa‘simulator’thatasksaseriesofquestions about the proposed business to estimate the cost of a trade license. One of the major fees is linked to the annual rent of the business premises; five percentofthisamountispayableasamarketfee.Inanycase,thebestwaytoassessregistrationfeesistovisittheDEDwebsiteandusethesimulator.

Like the initial approvalprocess, theDEDaims toprocessapplicationsandissuethePaymentVoucherforthebusinesswithinonetotwobusinessdays.The license (for sole proprietors and LLCs) and Certificate of Partners and Commercial Registration Certificate for LLCs are issued upon payment.

Become a Member of Dubai Chamber

Just opposite the DED’s main building is Dubai Chamber’s headquarters. Registering with Dubai Chamber is quick, and entrepreneurs leaving the DED withtheirnewtradelicenseshouldhaveallthedocumentstheyneedreadilyathand. The following documents are required to register with Dubai Chamber:

Acopyofthebusinesslicense.

Apassportcopyoftheowner/partners.

AcopyoftheMemorandumofAssociation(forLLCs)oracopyoftheappointmentcontractforalocalserviceagent(forsoleproprietorshipsownedbyforeigners).

A copy of a power of attorney, if an authorised representative isregisteringthecompany.

Anauthorisedsignatoriescard,whichDubaiChamberprovides,withsignaturespecimensofthepartners.

Membershipfeesvarybasedontheactivitiesinwhichthecompanyisengaged,buttheyaretypicallylessthanAED2,000peryear.

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Membership in Dubai Chamber is required for most businesses registered in the Dubaicustomsterritory(i.e.notinthefreezones).Allbusinessesthatexportand require Certificates of Origin from Dubai Chamber (whether in the free zonesornot)willneedtobecomememberstoobtainthem.AllbusinessesareencouragedtobecomemembersofDubaiChamberinordertotakeadvantageof the numerous benefits of membership.

Hiring Workers

The first step in hiring workers is to obtain an establishment card from the DepartmentofNaturalisationandResidency–Dubai(DNRD).ThispermitsthecompanytoengagetheDNRDfortransactionsrelatedtosecuringresidencyfor expat workers. The following documents are required for this application:

Acompletedapplicationform.

Acopyofthecommerciallicense.

AcopyofthelistofpartnersissuedbytheDED(ifanLLC).

Copies of the e-gate cards of the partners who are authorisedsignatories.

Notarisedsignatureauthorisationsforauthorisedsignatories.

A map of the establishment’s location and office phone numbers.

Acopyoftheleaseforthebusiness’spremises.

Passportcopiesofthesignatories/manager.

The fees for the immigrationestablishmentcardvarybasedon the typesofvisas the business plans to acquire, but they are typically around AED 1,160.

AfterreceivinganestablishmentcardfromtheDNRD,businessesmustgetanestablishmentcardwiththeMinistryofLabourandSocialAffairs.Thiscardissimilartotheabovecard,butitallowsthebusinesstoconductbusinesswiththeMinistry,whohavetoapproveallapplicationstohireanexpatriateworker.The following documents are required for the labour establishment card:

Acopyofthetradelicense.

Copiesofthepartners’passportsandvisas(ifapplicable).

Acompletedapplication.

Powerofattorneyforanynon-localauthorisedsignatory.

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AcopyoftheMemorandumofAssociation.

AcopyoftheestablishmentcardfromtheDNRD.

Amapoftheestablishment’slocation.

Acopyoftheleaseforthebusiness’spremises.

One passport-size photograph each of the local/sponsor or thesignatoriesandthemanagerorthepersononthelicense.

PIN (Personal Identification Number) of the local/sponsor.

Acopyoftheworkpermitofthemanager/othersignatories.

ThefeesfortheaboveapplicationareAED2,250.Ittypicallytakesaroundtwoweekstocompletetheapplication.

After a business has the above establishment cards, they can secureemploymentandresidencyvisasforthestaff theyrecruit. Theproceduresfor this process are complicated and vary based on the type of positionbeing filled, the qualifications of the prospective employee, and other factors. SeveralbusinessesreportthatthetotalcosttorecruitanemployeeisaroundAED 10,000, including all fees and bank guarantees / deposits required.

Next Steps

Thenextstepforabusinessistocommenceitsoperations.Whetherabusinessis taking its first steps after just having set up, is looking to grow and reach out to new markets, or is facing internal or external difficulties, Dubai Chamber is theretohelpitsmembers.Aspartofitseffortstoassistbusinessesandfosteran environment conducive to their growth, Dubai Chamber offers BusinessAdvisoryServicestocompanies lookingtoembraceopportunitiesandmeetnewchallenges.ContactDubaiChambertolearnhowyoucanavailoftheseservicesforyourbusiness.

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References

AlTamimi,E.(2006).SettingupinDubai(4thEd.).Dubai:Excelencia.

For Further Reference:

DEDwebsite:

www.dubaided.gov.ae

DNRDwebsite:

www.dnrd.gov.ae

EmiratesPostwebsite:

www.emiratespost.co.ae

Etisalatwebsite:

www.etisalat.ae

MinistryofLabourwebsite:

www.mol.gov.ae

DubaiChamberwebsite:

www.dubaichamber.ae

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Acknowledgements

Thefollowingprofessionalswereoftremendousassistancetothepreparationofthisguidebysharingtheiradvice,knowledgeandexperiences.Ofcourseanyerrorsoromissionsarethesoleresponsibilityoftheauthor.

FromTrench&Associates,MsCynthiaTrenchandMsKeeleyFoley.FromCapitalAdvantage,MsSharonDitchburn.From the DED, Messrs Jassim Alqallaf, Juma Al Suwaidi, and Rauf Mammadov.FromDubaiMunicipality,MrAbdullaAlMulla.FromEmiratesPost,MrAliAbdulrahmanAli.

FromNationalBankofDubai,MsShomitaBoseandMrShujaKamili.

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