Starting up in the UAE? Lawyer reveals how to determine which Freezone would be best suited for you
The UAE can be an attractive location for establishing startups. But when it comes to registering a startup in the UAE, the process can be complex. There are several factors to consider, says Lawyer.
- As of 2021, there were 450,000+ registered companies in the UAE.
- UAE’s position as a gateway to the MENA region makes it an attractive location for startups.
- Devika Raveendran, Lawyer and Founder of DR Partners explains how to navigate the complex maze of company registration in the UAE.
Could you share some insights about your background and the journey that led you to establish DR Partners?
After qualifying as a Lawyer, I began my career with the United Nations in Delhi, India.
Specializing in Human Rights, I worked with the protection team of the United Nations High Commissioner for Refugees.
But soon I was attracted by UAE’s tax-free jurisdiction and the opportunities in the Gulf. I decided to move to the UAE in 2007.
I was fortunate enough to join Trident Trust, a leading independent provider of corporate, trust and fund services to the financial services sector worldwide.
Their core areas of expertise included company formation, legacy planning, and fund setups. This marked my introduction to the corporate world.
I started learning about different jurisdictions and structuring started getting me excited. It was a challenge thrown at me to come up with the most tax-optimized, structure, addressing people’s succession planning challenges.
Since then I moved to a couple of organisations focusing on Private wealth structuring and family office advisory.
I returned to India and focused solely on Indian families with both domestic and offshore assets.
Around 2013 every country was going through a significant change, and India was no exception. UHNI or Ultra High Net Worth Families and Family Offices in India were struggling with succession planning.
Their wealth was predominantly tied up in their promoters' shareholding in listed companies or real estate. This seemed like a great opportunity.
It is becoming increasingly popular to assist corporates, startups, private clients, and private wealth with cross-border movement. Every client who arrives in a new jurisdiction, such as the UAE has thousands of questions.
All of these endeavours require an understanding of law and operational aspects in different jurisdictions.
Having been in this industry for over a decade, I decided to bring these elements together to provide a solution to those entities.
I returned to the UAE and built DR Partners, a boutique corporate & family office advisory firm.
How do you determine which Freezone would be best suited for your clients?
I am highly practical, as an advisor. That is why I believe cost should be a good starting point to consider when helping a client set up a business in the UAE.
Dubai has some highly reputable freezones, which are very expensive. Compared to that some of the neighbouring emirates have cost-effective free zone propositions.
2. Business model and target segment
Everyone is trying to attract investors, in the competitive environment of the UAE. So the next important factor to consider is my client’s business model and target segment.
If your goal is to cater to the customers in Dubai, then you need to be in Dubai rather than in Ras Al Khaimah or other free zones, goes without saying.
Some free zones now have a no-objection certificate that allows businesses to in the mainland due to the MOUs they have signed with the mainland authorities.
3. Tax Liability
Corporate Tax will become effective from June 1st, 2023, which could affect all free zones unless they are qualified free zones. My advice would be to consider your tax liability before finalizing a jurisdiction.
4. License category
The licensing process is easy in the UAE but has complex license categories.
Clients who set up a company without understanding the license requirements may find themselves in trouble when the bank asks for supporting documents that don't match their licensed activity.
Why many Indian companies are registered in Singapore and the US?
Both the US and Singapore offer attractive features for entrepreneurs.
With the Singapore-India Double Tax Treaty provides many benefits. Singapore has close to 140 tax treaties and a favourable business environment for Indian businesses.
Many businesses choose to register their company in Singapore to take advantage of benefits.
On the other hand, incorporating your business in Delaware, US is also a well-established and widely used option given.
Delaware, US does not impose a corporate income tax on corporations set up in the state, only if it does not do transactions in the same. However non-resident companies are subject to a nominal amount as franchise tax to be paid to the state.
It may make sense for companies seeking to enter the US market or attract US investors. However, the low cost and flexibility advantages of Delaware may only apply to some.
What advice would you give to founders, looking to register their startups in the UAE?
The UAE can be an attractive location for the incorporation of startups.
It is strategically positioned as a gateway to the MENA region and beyond.
When it comes to registering a startup in the UAE, there are several factors to consider. First and foremost, it's important to understand what the startup is offering and what its core market is.
Additionally, it's essential to know whether the startup is looking to attract outside capital and if its potential investors are interested in investing in the UAE.
Choosing the right jurisdiction is also crucial when registering a startup in the UAE. Depending on the startup's industry, it will be determined whether it should be established in the mainland or a free zone.
For example, if a startup in the service industry caters to both mainland and free zone consumers, the startup needs to set up its operations in the mainland.
In contrast, startups in the concept stage that are heavily dependent on outside capital may benefit from incubators in free zones.
Once the jurisdiction has been determined, the next step is to ensure that the startup is appropriately licensed and has the necessary banking solutions to begin trading.
It may be ideal for startups in the concept stage, to start conversations with potential investors. Founders and their teams may also require visas to reside and work in the UAE.
Finally, it's worth noting that the process of registering a startup in the UAE can be straightforward or complex, depending on the startup's requirements.
Founders need to seek proper guidance and advice when choosing a location for their business.
They should speak to friends and family who have experience in different markets and consult professionals to determine the best course of action for their specific business needs.
Looking to accelerate your career in finance? Fill up this form to talk to an industry expert. This is a part of our newly launched product The Finance Story Expert Connect.