Dubai is the business hub of the Middle East. It is the ultimate place to do business in with such a thriving economy and the diverse population. There are countless advantages of starting a business in Dubai, especially for foreigner. The economy is constantly growing, the cost of labor is significantly lower, there are almost zero taxes and the free zones in Dubai make it the perfect business haven for foreign investors.
However, despite all that there are still some disadvantages that a foreign investor has to face when starting a business or conducting their business in Dubai. Listed below are some of those significant disadvantages.
No. 1 Free Zone Confinement
The first and foremost problem of starting a business in Dubai as a foreigner is the free zone confinement. There are over 20 different free zones in Dubai. All these places don’t have any income tax, and registration of a business is easy here. The rules and regulations are greatly relaxed making it almost the perfect place to conduct business. However, the downside of such free zones is that you will be limited to this particular zone for good. If the objective of the foreign investor is to slowly expand the business and move to the other parts of Dubai then they cannot take advantage of the free zone. Any business established inside the free zone shall remain within the zone. They are not allowed to expand their business in other markets of the UAE nor can they cater to the needs of other customers of Dubai living in other areas. This becomes a huge stumbling block for companies that have great growth potential.
No. 2 Type of company
Another huge problem of operating in the free zone is that companies are not allowed to establish any kind of companies within these free zones. There are restrictions and particular requirements for setting up companies within the free zone. Each free zone has individual type of business which is the only type of business that is permitted to be established in that region. In simpler terms, if a particular free zone allows technology then no other type of business, let us say export and import, cannot be established in that particular zone. This means, that no matter how much the demand for that company or services are there, unless the zone matches the business type, a foreigner unable of starting a business in Dubai and in particular area. This becomes a big problem for foreign investors as it takes away their chance of seizing the market in a specific area.
No. 3 Foreign Ownership
Unless and until the company is registered in the free zone, foreign companies in Dubai are not allowed to own more than 49% of the share. In other words, 51% of the ownership should be registered under a local company or a local partner. This becomes a big problem for all foreign investors because nobody would like to give up their ownership of a company especially if the business is doing really well.
No. 4 Access to bank accounts
A company bank account is a crucial thing about any business. It contains all the revenue, the reserve capital among other things. At the same time, a foreign investor would not like anyone having access to that particular bank account. However, one problem that most foreign investors face while doing business in Dubai is that their partners can have complete access to their bank accounts. It means that they can withdraw or use that money to whatever they see fit. Along with the fact that they also control 51% of the company, the foreigner is at quite a disadvantage here when it comes to the running of the business.
No. 5 No Branch Offices
Branch offices are a common form of business entity that most foreign investors look to establish when working in a different country. It basically promotes the parent company and connects the local business with that of the parent company. However, in Dubai, this certain thing is not allowed. According to the Free Zone rules nobody is allowed to establish a branch office. If they do start a branch office then it becomes a separate entity and completely different from the parent company. This puts the foreigners at a huge problem because a lot of the times they cannot fully operate or establish a new office for starting a business in Dubai. Rather they would prefer to set up branch offices and keep their activities in the new country to a minimum level.