If you are in the process of a company setup in the UAE, it is crucial that you know the ins and outs of the regulatory framework in the country, as well as your options. To help aid you with the knowledge that you need, here are four essential things you need to know before setting up a company in the UAE.
1. You can opt to open an “offshore company.”
One of the reasons why the UAE is such an attractive destination for many business owners is because the country has free zones that permit the creation of offshore companies. These legal business entities provide great flexibility and are created to operate outside their registered jurisdiction or the location of ownership.
Some of the main benefits of setting up your company in this way include 100% foreign ownership, a speedier incorporation process, lawsuit protection, protected assets, privacy, and no income or corporate tax. Plus, you don’t have to be an international conglomerate to take advantage of these benefits. Start-ups and small businesses can also be set up as offshore firms, giving them an opportunity to enter the international market from the get-go.
If this is something you are interested in and that makes sense for your business, there are three principal jurisdictions that you can choose from: Ras Al Khaimah (RAK), Ajman Free Zone and the Jebel Ali Free Zone (JAFZA).
- RAK: Located an hour from Dubai, this is one of the fastest-growing Emirates. RAK has the highest level of industrialization in the country and is known for having a business-friendly investment environment and competitive costs.
- AJMAN: Situated at the entrance of the Arabian Gulf with easy accessibility to both Sharjah and Dubai, this is the ideal area if you are looking to do business with both the eastern and western markets.
- JAFZA: Formed near Jebel Ali Port, one of the world’s biggest shipping ports, this zone is surrounded by a highly industrial area. In addition to tax exemption, businesses located here benefit from no import or export duties, no currency constraint, and a large labor population.
2. The UAE has a new VAT law.
In 2018, a new Value Added Tax (VAT) law was introduced in the UAE on taxable goods and services. Prior to the implementation of this law, products and services in the UAE were not subjected to VAT. For this reason, many companies in the UAE have found significant challenges when it comes to VAT compliance. However, errors in VAT-related recording can result in negative consequences for your business.
For this reason, it is highly recommended that you opt to work with registered tax agents to ensure that you comply with the Federal Tax Authority (FTA). By working with professional tax agents, you will not only be assured that your taxes are under control, but you can also work with them to achieve your business goals. Through this partnership, they will aid you in identifying and mitigating high-risk areas. Additionally, if your company is audited, they will operate as your legal representative.
As a business owner, the last thing you want is to be dealing with tax burdens. Therefore, outsourcing this work to registered tax agents is the most effective way to ensure that you are always compliant.
3. Plan for the risk involved.
No matter what kind of company you are looking to set up in the UAE, there is inherently a significant amount of risk. Therefore, to fully understand what is at stake and how best to mitigate these risks, it is advised that you work with a corporate consultancy firm that offers risk assessment and management services.
By working with these experts, you will be in a better position to realize your company’s full potential and maximize value. Additionally, they will work with you to ensure that the risks you are taking are calculated and that your stakeholders’ interests are protected.
Unfortunately, too many companies neglect this element of business creation even though a thorough risk management strategy significantly aids your company in meeting customer demands, enduring market fluctuations, and remaining in-line with authorities and regulatory bodies.
Some common risk advisory services include Internal Audits, Standard Operating Procedures (SOP), Fraud Investigation and Forensic Audits, Internal Control Over Financial Reporting (ICFR), Consolidation and Reporting, Enterprise Risk Management, Anti-Money Laundering, Anti-Bribery Compliance, Business Continuity Planning (BCP), and Account Reconciliation.
Make sure you have a risk advisory team with you as you start and grow your business to ensure that all disruptions are turned into opportunities and that you are able to adjust effectively whenever new challenges or obstacles arise.
4. Your business may benefit from an ICV certificate.
A couple of years ago, the UAE implemented the Unified In-Country Value (ICV) program with the aim of increasing employment opportunities for Emiratis, diversifying Gross Domestic Product (GDP) and localizing essential aspects of the supply chain.
Due to the success of the program, in 2020, the Abu Dhabi Department of Economic Development (ADDED) implemented a centralized ICV certification process for primary and secondary suppliers in the UAE who plan to be involved in the procurement process of the Participating Entities.
Currently, the Participating Entities include Aldar Properties, Abu Dhabi Ports, Adnoc, and ADDED. Agreements have also been made with Mubadala Investment Company and Emirates Nuclear Energy Corporation (ENEC), with more organizations expected to join soon.
Procuring an ICV certificate in UAE is based on your company’s audited financial statements, which cannot be older than two years. If your business consists of multiple entities, then each license within a group is deemed an independent legal entity. Once granted, the ICV certificate is valid for 14 months from the date of issue of audited financial statement.
By obtaining an ICV certificate, your company will have the opportunity for the first right of refusal in the tender process, and your high ICV score will give you advantages over others that don’t have the certificate and therefore have a score of zero. Consequently, it is to your benefit to work with the appropriate corporate services to obtain your ICV certificate as soon as possible.
Are you considering setting up a company in the UAE? What do you think are the benefits? What do you foresee are the challenges? Which aspects of the process do you need help with? Let us know your thoughts and any additional questions in the comments below!
Naresh Manchanda is a Partner at MBG Corporate Services, an international organization supporting clients across Asia, Europe and the Middle East and providing sustainable solutions and strategies that drive business transformation. Established in 2002 and headquartered in Singapore, MBG is a 450-strong member team that operates out of Europe, the Middle East and Asia, providing Legal, Risk, M&A, Tax, Strategy, Technology and Audit Services.
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