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How Much Does It Cost to Start a Business in Dubai?

Feb 10, 2024 | Business Setup, Entrepreneurship

Understanding how much it costs to start a business in Dubai is crucial for entrepreneurs aiming to tap into this vibrant economic landscape. The city is renowned for its strategic location and favourable business conditions, attracting diverse international investments and commercial ventures. The initial capital outlay depends on various factors, such as the chosen business structure, location within Dubai’s unique economic zones, and the nature of the intended business activities.

Whether opting for a mainland company or a free zone enterprise, the costs encompass trade license fees, office space, and local sponsorship arrangements. We will guide prospective business owners through the financial prerequisites of setting up a venture in Dubai, highlighting both the initial and recurring expenses involved in establishing and maintaining a successful business in this dynamic metropolis.

Starting a Business in Dubai

Dubai’s reputation as a business hub is well-earned, with its strategic location and business-friendly environment drawing entrepreneurs from around the globe. The Emirates’ Department of Economic Development (DED) has reported a significant increase in new startups. This indicates a thriving economy with lucrative opportunities, especially in services, finance, trade, and real estate.

Business Types and Structures in Dubai

When you’re considering starting a business in Dubai, it’s important to understand the various business structures available. These include sole proprietorships, which have no minimum capital requirement. Limited liability companies (LLCs) that can engage in industrial or commercial activities are also an option.

LLCs require a UAE-accredited auditor and can have between 2 and 50 shareholders. A UAE national must own at least 51% of the shares of trading companies. Private shareholding companies also require a majority of UAE national ownership.

Public shareholding companies need at least five founding members who are UAE nationals. They must hold between 30% and 70% of the capital shares. Civil companies allow partners of any nationality to start a business as long as foreign partners invest in the same type of business activity.

Branch offices of foreign companies can be established with the help of a local service agent. They need approval from the Ministry of Economy and a registration process with the local Economic Department.

Economic Zones: Mainland vs. Free Zone

Dubai offers two distinct economic zones for businesses: mainland and free zones. Mainland companies are onshore entities regulated by Dubai’s Department of Economy and Trade. They allow businesses to operate within and outside the UAE without restrictions on business activities or the number of visas.

However, mainland companies must have a physical office location. They’re required to have 51% local ownership, although you can still maintain full control over the offshore business. Free zones, on the other hand, are designed to cater to specific industries.

“Free zone authority: zones offer tax exemptions for over 50 years and favourable import and export rules. There’s no requirement for a local sponsor, allowing for 100% foreign ownership. Free zone companies can have either a virtual or physical business location.

Free zone businesses aren’t restricted in their trade volume. They can operate with other free zone businesses and internationally. However, they face limitations on the number of visas they can apply for and must operate within the free zone area.

The cost of setting up a business varies between these zones. Mainland business setup costs start from $5,446 to $6,807, depending on the company’s type of offshore business maintenance fee and the services offered. Free zones have their own specific criteria and associated costs.

The Role of Local Sponsors

In the UAE, local sponsors play a crucial role in establishing and operating businesses, particularly for mainland companies. A local sponsor can be an individual Emirati or a corporate entity owned entirely by UAE or GCC nationals. For a mainland LLC, a local sponsor must hold at least 51% of the shares, although profit distribution can be negotiated.

Certain professional and civil companies can be wholly owned by expatriates. In these cases, the local sponsor acts merely as a Local Service Agent (LSA). The responsibilities of a local sponsor extend beyond shareholding in a limited liability company.

They might assist with various administrative tasks such as visa cancellations, bank account closures, and license renewals. The average fee for a local sponsor in Dubai is around $1,364 per year.

Aerial View Of Dubai City

Initial Costs for Business Setup

Embarking on a business venture in Dubai requires understanding the financial obligations involved. These expenses can fluctuate based on the nature of your enterprise, its location, and the scale of operations. For instance, initiating a general trading company in Dubai could incur costs of up to $9,350, encompassing a range of fees.

Trade License Fees

Obtaining the appropriate trade license is essential for the commencement of your business operations in Dubai. The specific license required—Commercial, Professional, Industrial, or Tourism—will be determined by your business activities. The fees for these licences can span from $2,723 to $13,615 per year.

License renewals are necessary, with associated costs typically ranging from $2,995 to $3,540. While some entrepreneurs may find the renewal fees burdensome, licences in free zones can begin at $1,089, which may present a more cost-effective and simpler process.

Registration and Licensing Procedures

The path to registration and licensing begins with selecting a business activity and trade name, followed by drafting a Memorandum of Association (MOA) to define the company’s operational parameters. Mainland entities must submit an application for a licence from the DED, providing documents such as passport copies, a No Objection Certificate (NOC), and residence visa copies.

A tenancy contract and Ejari registration are prerequisites for obtaining a business license—the DED issues initial approvals, which are valid for six months. The registration phase includes additional fees for license registration, Knowledge Dirham, Innovation Dirham, and trade name advertisements.

Renting Office Space or Warehouse Facilities

Securing physical office space is mandatory for mainland entities and constitutes a significant portion of the initial outlay. For example, office rent in the DIFC was notably high, averaging $59 per square foot annually, reflecting a slight decrease from the previous year.

Conversely, free zones provide various options, including cost-effective solutions like the Smart desk, which offers a single desk space. The size of the office influences the number of employment visas a free zone entity is eligible for, which is crucial for staffing considerations.

Government Fees and Initial Approval Charges

Government fees and initial approval charges are substantial components of the startup costs. These include the attestation of an LLC’s MOA, a one-time LLC registration fee with the Ministry of Economy, annual memberships to the Dubai Chamber of Commerce and the Ejari fee for commercial activities. Administrative fees for processing applications and additional charges based on the unique requirements of your business also apply.

Free zones follow distinct regulations, resulting in varying procedures and fees. For example, IFZA licensing costs encompass a provision for one investor visa and differ according to the company structure. Offshore entities provide flexibility for commercial activities and investments but necessitate a local presence and annual registration fees. Navigating government procedures for both free zone and offshore entities typically requires the assistance of a local agent.

Harbour, Buildings And Sunset In Dubai

Recurrent Expenses and Operational Costs

Visa Costs per Employee

For businesses employing foreign nationals, visa expenses are a notable ongoing cost. Each expatriate staff member requires a visa to be employed legally in the UAE, and these expenses must be factored into your financial planning.

Visa fees vary depending on the visa type and the employee’s nationality, and they represent a significant portion of the budget for companies with an international workforce.

Employee Salaries and Benefits

Wages in Dubai are influenced by the role, sector, and level of expertise, with a broad range from approximately $1,188 to $5,326 monthly and certain positions offering up to $24,483.

Employers are also responsible for additional benefits such as health insurance, housing, and transportation allowances. The UAE mandates employer contributions of 12.5% towards social security, further increasing the total cost of employment.

The annual expenditure on employee benefits alone can range from $49,900 to $65,600, illustrating the substantial investment required for a competent team.

Utilities and Telecommunications

Operational costs also include utilities and telecommunications. For a modest office, these expenses are generally affordable.

Monthly water and electricity charges for a small office might be around $3 and $24, totalling $36 for water and $288 for electricity annually. Telecommunications expenses, including internet and phone services, are more significant.

A 40 mbps broadband internet connection could cost about $230 monthly. Based on typical usage patterns, each staff member’s phone services amount to approximately $500 per year.

Marketing and Advertising Expenses

Investing in marketing and advertising is essential for brand visibility in Dubai’s competitive market. The allocation for these activities depends on the scope and chosen platforms, encompassing digital marketing, print media, and promotional events.

While these costs are variable, they are a vital aspect of your operational budget that requires careful planning and execution.

Legal and Consulting Expenses

Legal Consultation Fees

Navigating the legal landscape in Dubai can be complex, necessitating the expertise of legal professionals. These experts typically bill by the hour for tasks such as contract preparation and assistance with business transactions. Rates for legal services average around USD 610 per hour. However, this can fluctuate with the intricacy of the work and the consultant’s level of experience.

Some legal consultants may offer reduced rates for routine clients or extensive tasks that are less demanding. Flat fees for specific services, such as company incorporation in a Free Zone, can be substantial, averaging $6,998.

Establishing an offshore company in the Jebel Ali Free Zone, inclusive of government and registration agency fees, may cost approximately $6,480. Assistance with opening a bank account in Dubai typically costs around $999. These figures do not include the additional 5% VAT.

Other potential expenses not covered in these estimates include court fees, notarisation charges, and miscellaneous disbursements. Some firms may provide a complimentary initial consultation, which can be beneficial for understanding potential costs. It’s advisable to discuss fee structures with your legal consultant, as professional fees can often be negotiated.

Accounting and Auditing Services

Accounting and auditing are critical for maintaining financial integrity and compliance with local regulations. Costs for these services range from $327 to $1,362, varying with the complexity and volume of transactions. Accountants ensure compliance with IFRS, as mandated by the UAE’s Central Bank.

Though not legally required for all businesses, submitting Annual Financial Statements is prudent. Accounting professionals in Dubai, often holding Chartered Institute credentials, ensure the precision of financial reporting. Freelance accountants may offer competitive rates and discounts for long-term engagements.

The timeframe for completing accounting tasks can differ, with urgent requests taking 3-5 working days and standard ones 10-15 days. Fees typically cover the preparation of balance sheets, income statements, and general ledgers. Having all relevant documentation organised can expedite the accounting process.

Business Insurance Costs

Securing business insurance is essential for mitigating risks and ensuring continuity. The cost of insurance in the UAE is tailored to your business’s specific needs and risks, with options ranging from comprehensive policies to targeted coverage for various aspects of operations.

Insurance safeguards your business and enhances its reputation, aiding in employee retention and operational stability. The precise cost of insurance will depend on your business activities and desired coverage level. Consulting with an insurance broker can clarify the available policies and their costs.

Consultancy fees in Dubai are highly variable. Newcomers to the field may offer services at around $68 per hour. Established firms with a strategic focus may charge between $327 and $545 per hour. Consultants may also work on a project basis or through monthly retainers. With a growing market and the demand for bilingual consultants experienced in public sector work, selecting the right consultancy services can provide valuable insights and strategic advantages.

City Of Dubai Sunset

Additional Financial Considerations

Bank Account Opening and Minimum Deposits

Opening a corporate bank account is a critical step in establishing your business. The application process involves submitting company documentation and may require the attendance of a significant stakeholder. Based on the chosen account type, financial institutions such as Emirates NBD have varying minimum balance requirements, from $13,615 to $81,688.

Other banks present diverse options. Abu Dhabi Commercial Bank’s minimum balances range from $6,807 to $272,294 across five account types. Mashreq Bank and United Arab Bank set their thresholds at $6,807 and $2,723, respectively, with the letter offering multi-currency accounts and complementary transactions.

First Gulf Bank mandates a minimum balance of $5,446 for its business checking account. It’s crucial to be aware of the fees associated with banking services, including international transfer costs, which vary among banks. For instance, Mashreq Bank imposes a fee of $16 for each international transfer, in contrast to Dubai Islamic Bank’s $6.80 fee. Wise provides an alternative to traditional banking with competitive rates for currency conversion and local bank transfers.

Potential Tax Obligations

Understanding the tax environment is crucial. While income tax has not been historically enforced for most businesses, the introduction of the Federal UAE Corporate Tax Law for financial years which started on or after 1 June 2023 will change this. The new law stipulates a 0% tax rate for taxable income up to $102,110 and a 9% rate for income exceeding this amount.

Entities in the extractive industries may be exempt from this tax under certain conditions. VAT, administered by the Federal Tax Authority, is a separate consideration. Service fees to the Federal or relevant Emirate Government are also applicable.

Most business-related fees and charges are expected to be deductible for Corporate Tax purposes. Keeping abreast of updates from the Ministry of Finance and the Federal Tax Authority is advisable for the latest tax-related information.

Estimating Import/Export Tariffs (If Applicable)

For businesses engaged in international trade, import/export tariffs are a critical financial factor. These tariffs influence the cost of goods and subsequently affect pricing and profitability. It’s essential to research industry-specific tariffs and incorporate these figures into your financial projections.

Preparation for Unforeseen Expenses

Unanticipated costs, such as extended certification processes or regulatory amendments, can arise unexpectedly. For instance, document certification at the UAE Ministry of Foreign Affairs can incur significant expenses and delays. Allocating a contingency fund for such eventualities is prudent to maintain operational fluidity and financial stability.

Your Financial Gateway to Dubai’s Market

Embarking on the entrepreneurial journey in Dubai offers a landscape ripe with opportunities, matched by the financial responsibility of navigating initial and ongoing expenses.

From understanding the nuances between mainland and free zone setups to ironing out visa costs and legal fees, the financial blueprint of your Dubai enterprise must be meticulously charted. Balancing these expenditures against the potential of a vibrant economy requires foresight, planning, and a touch of audacity.

Investing in this dynamic environment involves more than a financial commitment; it’s a pledge to be part of a relentless pursuit of innovation and growth. Equip yourself with comprehensive knowledge, make informed decisions, and let the allure of Dubai’s economic prowess be the backdrop to your business success story.

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