Expanding to Dubai – the Hong Kong of Arabia

Dubai is to Arabia what Hong Kong is to China – a super-modern, accessible, Western-friendly tax-free economic and tourist hub that bridges the divide to countries all over the region that appear more challenging to business. So it’s hardly surprising that so many companies are interested in setting up there, or in one of the other Emirates.
While Dubai’s economy originally relied on oil, gold and jewellery, there has been huge diversification, much of it driven by foreign direct investment. So, although it imports over $200bn of goods annually, around half of that value is re-exported. The burgeoning services and tourism sectors account for an even greater proportion of the economy.
Setting up a branch or subsidiary is not without hurdles, of course. The first decision, which puts off many, is whether to set up in a Free Trade Zone (FTZ) or on the “mainland”. The original concept of FTZs is to encourage inward foreign investment, typically by offering reduced or zero taxes and government-sponsored facilities. In the case of Dubai, FTZs are promoted on the basis that they allow 100% foreign ownership, whereas “mainland” companies need a minimum of 51% UAE ownership.
Although there are all sorts of restrictions on what business can be carried out, and where and to whom one can sell, B2B businesses shouldn’t be fazed – they just need to pick the right FTZ. B2C businesses that want to sell to consumers in the UAE, however, will need to be on the “mainland”, and will need a local partner. That’s often not as difficult to find as one might expect, and, with the right advice, there are ways of avoiding having to cede much control or a massive share of the profits.
For those going the FTZ route, the next step is picking the right one to set up in. That sounds easier than it is. There are 39 FTZs in Dubai alone, and more domiciled in other Emirates (e.g. Sharjah and Ras Al Khamah) that permit companies to trade in (and sometimes even work from) Dubai. The FTZs vary in terms of the types of company activity permitted or encouraged, facilities, costs and (to a limited extent) bureaucracy.
All FTZs have physical boundaries, but most are simply clusters of office towers and warehouses that one can drive through without being conscious of having crossed any boundary. One of the larger and typical ones is the Dubai Multi Commodities Centre (DMCC), which covers around 200 hectares to the West of Dubai. There are around 12,000 companies set up here, increasing by 150-200 per month.
The location of the FTZ only becomes a concern where the business needs physical premises. Perhaps the majority of the businesses starting up in Dubai are small, with just one or two staff who will work from home, so they can avail of flexible arrangements available from some of the FTZs.
Objective and independent advice on choosing the right FTZ is essential – and yet, perhaps surprisingly, it is not always sought or taken. There are many local agencies offering setup services (and in some cases the FTZ Authority itself might provide those services), but almost all “prefer” one or two FTZs they will steer clients towards and offer headline-grabbing low fees.
Beware, though, of the hidden costs. Simply obtaining, notarising and legalising the necessary paperwork can cost more than the setup services themselves. Different FTZs have very different licence fees and unexplainable differences in bureaucracy – set up times can vary from 4 to 26 weeks. And that’s under pressure – local agents need a lot of chasing, which can be very costly with your time.
Businesses need bankers, accountants and lawyers, and setup agents again steer clients towards their favourites. It’s clear that commission payments are an important consideration. Over the years I’ve made a point of personally visiting every business that our clients will have to rely on, to ensure that they are solid, reliable and meet Best Practice in business probity. That’s a good idea everywhere, but definitely essential in Dubai, where (regrettably) I’ve met quite a few charlatans.
So take good advice, and don’t be put off by apparent barriers. Dubai is a great location for business expansion. It’s easy to work, it’s perfectly situated for trading all over the Middle East, almost everyone speaks English, and it’s got great weather, beaches and things to do, so almost everyone will be happy to visit regularly.