Common Challenges of Doing Business in The Emirates

The Emirates is among the fastest-growing economies globally, with Dubai and Abu Dhabi ranking 17th and 32nd in the Z/Yen Group’s global financial centers index. These cities are also two of the biggest hubs for international logistics.

If you’re looking to expand your business abroad or start a new venture, the UAE is a strong choice. It is home to a range of growing industries like construction, agriculture, trading, logistics, tourism, and IT. For entrepreneurs who are willing to work hard and learn about the Emirates’ business environment, success is within reach.

Knowing the specific challenges of establishing a business in the Emirates can help you better plan your venture. Here are some of the challenging aspects you will likely face when opening a UAE company:

Challenges of Doing Business in The Emirates

1. Choosing the right Free Zone

A Free Zone in the Emirates is a special economic area offering tax exemptions, full foreign ownership, and simplified setup processes for businesses. Overall, there are about 50 Free Zones in the UAE.

When selecting a specific Free Zone, consider a few key factors. First, examine the types of licenses available in each zone, along with unique benefits and regulations, including tax exemptions and foreign ownership rules. The nature of your business is also crucial since different Free Zones specialize in various industries.

Additionally, it’s crucial to assess if the available physical space in a Free Zone suits your business needs. Most Free Zones mainly offer office solutions, such as co-working spaces or offices, so determining the necessary facility upfront is essential. For example, if your business requires a warehouse or a land plot, consider Free Zones that provide such facilities.

Other significant aspects to consider are the size of the registration fee, which differs markedly across Free Zones (Dubai, for example, tends to have higher setup costs), the required minimum authorized capital, and the legal framework each Free Zone operates. For example, only two Free Zones (DIFC and (ADGM) operate under English law.

Some of the most popular Free Zones are DMCC, DAFZA, JAFZA, Dubai Internet City, Dubai Media City, Dubai Knowledge Park, Dubai Silicon Oasis, KIZAD, and RAKEZ.

2. Choosing the right type of business license

A business license is essential to establish your company’s legality, and making the right choice isn’t always straightforward.

The UAE offers a choice of over 2,000 different economic activities for your business. Based on your selection, your company will fall under one of six license types: industrial, commercial, crafts, tourism, agricultural, or professional. Furthermore, there are specific subtypes tailored to various business activities.

When deciding on the appropriate business license, it’s crucial to consider not only the nature of your business but also the specific requirements and regulations associated with each license type. For instance, if your business involves manufacturing, obtaining special permissions and approvals from relevant government departments may be necessary. Understanding the nuances of each license type ensures compliance with local laws and regulations.

Official government websites offer information about business licenses in the UAE, but it can vary across different sources, making it challenging to navigate without professional guidance.

3. Opening an account in a local bank

UAE residents can open both a personal and a corporate bank account.

When it comes to opening a personal bank account, it is better to choose one of the local Emirati banks. All of them are mostly focused on working with UAE residents. Therefore, the first order of business is to obtain UAE resident status by becoming an EmiratesID holder — and only then open an account.

Getting a residency might seem daunting, but it’s quite easy. There are several legal and relatively affordable ways to obtain resident status. It involved staying in the country for one or two weeks and paying a visa fee. To preserve your residency status in the UAE, it is essential to avoid residing outside the country for more than 180 days, as exceeding this limit may result in the nullification of your residency visa.

Opening an account without residency is possible, but not recommended. The process might take up to two months, and most banks will require non-residents to deposit a large sum — sometimes the amount can reach millions of US dollars.

The banking system in the UAE provides residents with the opportunity to establish not only personal accounts but also corporate banking accounts. Entrepreneurs have the option to open a corporate account in traditional banks with physical branches, digital banks, and payment systems.

When selecting a bank, considerations shall include the level of service, fees, available currencies, online banking convenience, the bank’s reputation, and other business-relevant conditions. A successful corporate bank account opening relies on a meticulously prepared document package, tailored to the specific requirements of the chosen bank.

4. Unique local mentality

For entrepreneurs who plan to enter the UAE markets, understanding the importance of local business mentality and social norms is crucial. The direct, business-first approach common in the West can come off as aggressive or ignorant here.

As a foreign entrepreneur, you’ll need to adapt by showing patience, respecting local customs, and learning about these social norms. A helpful strategy is to spend at least a month in the country before setting up a business to better understand if the local pace of life suits you. Also, making connections and partnering with UAE organizations can provide much-needed mentorship in local business etiquette, while helping to expand your local connections.

5. Competitive markets

The Emirates has shown impressive economic growth, attracting companies worldwide to expand here. As a result, many markets are becoming oversaturated and very competitive. While there’s ample opportunity for all, having a robust business plan is essential to stay ahead of the competition — this is a reality that holds across all UAE industries.

Success in the UAE’s competitive landscape is achievable, but it requires serious commitment and a long-term strategy for entering the region.

6. Getting help from a dishonest service provider

Unfortunately, there are business service providers who overstate their connections and abilities, and some who are straight-up dishonest. Fortunately, they’re usually easy to identify. A major red flag is the lack of a website or any credible operating history with authentic reviews. Also, be cautious if your contact prefers to meet in a hotel or restaurant instead of their office. This tactic is often used to give a false impression of trustworthiness and reliability.

7. The power of connections

In the Emirates, already having established connections is a huge help when it comes to networking and negotiating deals. For example, while approaching a company directly for partnership is normal and often effective in the West, and many companies even encourage this on their websites, in the East you’re taken more seriously if you’re introduced by someone who is mutually known or holds significant standing.

Building a network of such connections takes time and effort. However, you can bypass some of this process by working with a reputable consulting firm that’s already well-established in the market.

Wrapping up

The UAE market is highly connected, dynamic, and diverse. Despite the challenges mentioned earlier, don’t be discouraged. Establishing a company in the Emirates can be immensely rewarding with the right preparation and smart approach.

Additionally, there are reputable firms specializing in assisting new businesses set up in the Emirates. These companies can immerse you in your specific business context, assist in selecting the right Free Zone and license, provide valuable connections, and help you navigate the business landscape of the UAE.