Common Mistakes When Incorporating a Company in UAE (And How to Avoid Them)

Although the UAE has many attractive features regarding doing business, don't make the mistake of failing to get proper advice about your company incorporation—this could result in serious problems for your business. Things that might not seem that important at first (such as selecting a company name) can lead to issues with your bank account, obtaining visas for employees, increased expenses, and limitations on your ability to operate.

This article identifies some of the more common mistakes entrepreneurs make when incorporating a business in the UAE and outlines the steps that can help you prevent these errors.

The First Mistake is Selecting an Improper Legal Structure

A common error is choosing a legal structure based solely on the recommendation of someone else or the impression of the structure being the least expensive option without understanding the ramifications of the chosen legal structure on how you will operate your business, how you will obtain visas for your employees, how you will open and/or cash-check your bank accounts, and how easily you will be able to expand your business in the future.

Many entrepreneurs select a Freezone, Mainland, or Offshore company without realizing that their selection does not get them the access to an unlimited market or create a limitation on how they can conduct business within the UAE.

The Problems Caused By Selecting a Legal Structure in This Manner:

Limited Market Access
Limited Ability to Operate Within the UAE
Restricted Ability to Support Government Contracting
Limited Ability to Get Approved to Open and/or Cash Check a Bank Account

How To Avoid This Problem:

Choose Your Legal Structure Based On:

Target Customer Base in the UAE vs International vs Both
Nature of Activities (e.g. retail, service, manufacturing, etc.)
The Requirement for A Physical Office
Plans For Future Expansion

Example: If you want to provide services to clients located in the UAE, then establishing a Mainland company is likely to be a better option than a Freezone company.

Incorrectly Selecting a Visa For Your Business Needs

Another common error is to file for a visa without determining the total number of visas you will actually need and which category is appropriate for your position.

Typically, founders either: File for fewer visas than required File for an inappropriate visa class, Do not consider future hiring needs

What are the problems created by this:

The number of visa quotas
The difficulties in securing staff in the future
The costs of having to re-apply for visa(s)
Delays in business operations

How do you avoid this:

Prior to incorporation, consider:

An investor visa vs. a partner visa
The number of employees needed now and in the future
The size of the office is tied to visa eligibility

Pro Tip: You should plan for at least 2 - 3 years of visa needs (not just plan for year one).

Not Taking Advantage of the Cost Savings Offered Through Multi-Year Package Options

Many business owners do not realize they are paying greater costs year after year due to selecting only a single year license and visa and believie this allows for flexibility.

In fact, multi-year packages generally offer an overall cost savings.

What are the problems created by this:

Higher renewal costs
Duplicating the same documentation
Each year new processing delays

How do you avoid this:

Select: 2-year or 3-year license options
Multi-year visa packages
Bundled incorporation options

Reality Check: Your overall costs will likely reduce 15% - 30% using multi-year packages, plus your overall level of compliance stress will be lower.

Underestimating the Role of Banking Entity Approval in Business Operations

This has become one of the most costly errors that companies have made due to improper setup of their business in the United Arab Emirates (UAE).

Many companies choose to incorporate their business first, and in turn, will then decide on what banking entity they are going to use later. However, most companies do not consider how banking entities evaluate your risk based on your selected activities, structure and where you incorporate your company.

Why This Is a Problem:

Bank Account Approval Issues
Long Waiting Periods for Approval
Delays on Transactions
The Need to Re-Structure the Company

How to Minimize the Potential for Issues

Before you incorporate your business, take into account the following:

The Activity You Are Incorporating Is “Bank-Friendly”
The Jurisdiction accepts Your Company
The Shareholder Profile(s) for the Company
Expected Volume of Activity

Key Takeaway: A business does not become operational until the banking entity approves the company's application for a bank account, even if the business was incorporated very quickly.

Company incorporation in the UAE is easy, provided the correct steps are taken. This is the reason for most of the issues that arise are not related to UAE law, but the wrong decisions made during the planning stage.