For entrepreneurs setting up shop in the UAE, there are two basic options; set up in a free zone or in the mainland.
Many entrepreneurs establishing a business in the UAE for the first time choose the free zone option for the obvious benefits of 0% tax for the first 15 years, 100% ownership of the business, and no foreign exchange controls. And there are numerous fantastic free zones in the UAE offering plenty of opportunities for foreign businesses. However, a mainland business might just be a great next step for those entrepreneurs hoping to scale up their business fast.
Establishing your business in the mainland allows the company to trade with other UAE mainland businesses (something which is not possible as a free zone company), opens up opportunities with government contracts and allows you to apply for an unlimited number of visas for staff and dependants. It also enables you to build a presence in the UAE business market, which will be beneficial to the long-term growth and stability of the business.
Such are the opportunities presented by operating from the mainland that entrepreneurs with established free zone businesses often choose to move to a mainland position. If that’s a move you’re considering, here’s our guide to making the successful transition from free zone to mainland.
If that’s a move you’re considering, here’s our guide to making the successful transition from free zone to mainland.
Are you ready to become a mainland business owner?
The first question you should ask is whether you and your business are ready to make the transition to the mainland. It’s a move that requires certain characteristics, including:
Courage: Any new business venture requires courage but some require more than others. There’s a huge difference between trading as a free zone business and a mainland company and, to a large extent, you will be stepping into the unknown. While the business forecast from Dubai SME is encouraging, you cannot take anything for granted. There will be storms to weather and you will have to work hard to get established. The good news is there is plenty of expert help you can call on to steer you through the setup process.
Trust: One of the biggest challenges of registering as a mainland company is finding a UAE national to sponsor you. If you can get reliable referrals for potential sponsors with a good reputation, it will take a weight off your shoulders.
Many expat forums are filled with local candidates offering their services as sponsors, but it can be difficult to know how trustworthy they are. An alternative is to use a local service agent (LSA), who is a UAE national empowered to assist a foreign entrepreneur in the licensing requirements and other government-related matters in exchange for an annual fee. Either way, getting advice from a company formation specialist can help with peace of mind when it comes to this major step.
Innovation: Progress is a direct product of innovation. Without this key ingredient, businesses will stagnate in the UAE. When embarking upon this new era in your venture, look for ways in which you can expand and grow the company’s activities. The UAE is a fast-moving market. In Dubai, for example, SMEs make up 95% of the business population. In order to stand out from the crowd, you must be ready to innovate.
Don’t be fooled into thinking you’re jumping on a bandwagon that’s bound for success. Look for the gaps in the market and think of ways in which you could fill them. Having a niche product or service – one that does not currently exist in the region – is a very good basis for establishing a UAE mainland business.
Stability: Before transitioning from a free zone, you must ensure that your business is sustainable. Taking the leap to the mainland comes with both a financial and time investment, which means that the more confident you are in the robustness of your business, the better chance you’ll have of success.
Treat the move as you would the launch of a brand new business and carry out the usual tests, such as a SWOT analysis. Your strengths and weaknesses may need to be redefined in the context of this new business environment and the threats and opportunities will certainly change.
Knowledge: In some respects, the UAE mainland market is unique. You should research it thoroughly before attempting to set up a business there. Make sure you are abreast of the future plans for the region. There are many significant schemes, initiatives and plans coming up that will have a major bearing on the way companies need to position themselves.
For example, tech company owners setting up on the mainland should take note of the Smart Dubai 2021 plan, a scheme that will see 100% of governmental activities move to digital by 2021, leaving paper documentation in the past. Equally, those dealing in tourism and hospitality need to be aware of the Sharjah Tourism Vision 2021, which will seek to attract 10 million tourists by 2021, bringing more business to the travel sector. The year 2021 marks the 50th anniversary of the founding of the UAE, a landmark that will inevitably bring increased business opportunities. Since a multitude of schemes are already in the pipeline, business owners will be able to benefit greatly simply by doing their research ahead of time.
Dedication: Making significant changes to any business is a risky move, especially if the venture is already profitable and stable. Taking the leap to the mainland requires a high level of dedication and persistence. While the process is a well-trodden path and there is plenty of help and advice available, there will be tasks and hold-ups that demand perseverance.
The stepping stones to transition – some key points
In terms of bureaucracy, becoming a mainland business owner is a relatively straightforward process but there are forms to fill in and boxes to tick. To help you prepare in advance, make sure you’re on top of the following requirements.
Muster the capital: Bootstrapping is not an option when it comes to setting up a mainland company in the UAE. Before embarking on a new business, you must have the requisite funds in place. In-depth research should be carried out to determine exactly what is required for your specific business.
Secure a sponsor: We have spoken about the need for a UAE national to act as sponsor for your business. This will be a partnership in which the sponsor will be the majority shareholder, with 51% or more of the business, or an LSA, providing the necessary services for an annual fee. This individual will usually have a high standing in the business world and will ideally be someone who is already known to you. In choosing your sponsor, take a great deal of care.
Prepare for extra costs: When striking a deal with a sponsor, you have to sign a Memorandum of Understanding and Agreement (MUA), which outlines the obligations to which each party has to adhere. Your sponsor will expect a cut of the profits and perhaps some upfront fees as well, so make sure that you fully comprehend the nature of the agreement before undertaking it, and are aware of all the costs involved before committing.
Apply for DED approval: Before you can operate as a mainland business, you need to obtain permission from the Department of Economic Development (DED). Once you have decided on a trading name and registered it, you will go through an application process to gain the initial approval certificate, without which you will not be able to proceed with the application process. Next you need to submit the relevant documentation – the MUA, passports, proof of addresses, CVs and bank references – to receive the business licence. An LSA can take care of all of this for you.
Next you need to submit the relevant documentation – the MUA, passports, proof of addresses, CVs and bank references – to receive the business licence.
Visas: Gaining the proper visas is, of course, a legal requirement of this process. In order to apply for an onshore, two-year visa, an applicant must provide a trade license, an establishment card and a copy of a valid passport. Business owners and their staff may also apply for visas for their family members, including their spouse and children.
Bank accounts: Finally, you need to change the business accounts to reflect the fact that your business is now mainland registered. While this is only a minor detail, failing to undertake it at the first possible instance could lead to problems further down the line.
Making the move to mainland
The thought of giving up the comforts of a free zone for the relative unknown of the mainland can be daunting, but if the opportunities it presents thrill you, then the time may be right for you to make the transition. If you’ve read through the above points and feel you tick all the boxes, all you need is the impetus to take the first step. The key information is readily available on the UAE government website and a good local business setup consultant can help you through every step of the process, allowing you to concentrate on keeping the business in the best of health, ready for the big leap forward.
Virtuzone Mainland is dedicated to helping clients open a company on the UAE mainland, providing advice and assistance with every aspect of the company formation. To set up a consultation, please call us on +971 4 457 8200, send an email to email@example.com or click here.