There is a common misunderstanding about the types of firms that international entrepreneurs can establish in the UAE. To an outsider looking in, it may come into view to be a complicated process, especially for the prerequisite to work in partnership with a local partner.
The concern is, do you really need one?
To answer this query, entrepreneurs must first categorize the sort of business they want to start and whether it will be in one of the UAE’s many free zones – these two variables will decide whether a local partner is necessary.
If you would like to establish a professional services firm, for example, it is possible to do it with no local partner. The same is true for firms that operate in free zones.
These alternatives, though, are not suited for everyone, and as a result, many UAE-based businesses must start-up operations with the help of a local. Basically, every firm that comes under either commercial or industrial licenses, unless recognized in a free zone, must form a Limited Liability Company or LLC, which requires a local partner to possess a majority interest in the company. But don’t worry, you won’t sign away part of your company’s profits – more on that later on.
Local partners may give important benefits to firms looking to trade in the UAE, and as the 16,000(approximately) new commercial and industrial licenses awarded in 2015 (according to the Dubai Statistics Center) express, it is not something that discourages entrepreneurs.
Understanding business kinds is essential for successful teamwork.
For foreign entrepreneurs, there are three popular ways to establish a business in the UAE: getting a professional services license, establishing a free zone, or incorporating an LLC.
Transparency and Customer-centricity
Professional services license
This is the only alternative for foreign entrepreneurs to have power over 100% of their company and set up it outside of a free zone. While they do not cause any kind of local possession, it must be set up through a national service mediator who is paid a fee–the restricted agent, though, has no accountability or power over the firm. Firms that need a local presence in the UAE typically favored professional services licenses such as restaurant owners looking to function in a prominent location.
This is another alternative for foreign entrepreneurs to keep absolute control of their trades. They essentially defined its locations around the UAE that give different incentives to anyone looking to start a business, including 100% ownership and personal and corporate tax exemption. Entrepreneurs who set up their businesses in free zones can also repatriate 100% of their revenues. However, free zone firms cannot deal straight with the UAE’s local market without the help of a confined agent or distributor who will charge a payment.
Limited Liability Companies
Enterprises that want to do business locally inside the UAE and have profitable or industrial licenses–including retail and trade businesses and manufacturers– must create an LLC. Except for banking, insurance, and investing, there are nominal restrictions on the commercial operations that LLCs can connect in, and the only major condition is that they are at least 51% held by a UAE resident. It is serious to keep in mind, however, that income is not distributed in these percentages. In reality, in most situations, the specific mate has remunerated an annual fee, so businesses keep 100% of their earnings and are not even compelled to reveal their financials. While less frequent, the local mate earns a certain proportion of either sales or profits.
The advantages of working with a local partner
Understandably, the 49/51 split in favor of a limited partner raises red alarms in the minds of expat companies deficient to set up shop in the UAE. However, as previously said, depending on the agreement, entrepreneurs can still reap 100% of their revenues.
It is also worth noting that all income is kept in the company’s name, with nothing in the title of the regional partner. In fact, the foreign entrepreneur has total control of the firm, allowing them to conduct and run all day-to-day commercial actions with no interference or even engagement with their confined partner.
Many businesses, though, opt to use a specific partner’s local market knowledge to open doors and build connections and relationships inside the UAE that would not be workable otherwise.
Working as an LLC with a local partner also allows foreign tycoons to trade openly with the local market, open an unlimited number of branches throughout the UAE, and pitch for a variety of private and government projects that free zone or specialized services companies cannot access, not including them.
In addition to providing foreign directors with almost unfettered access to the larger UAE economy, LLCs are completely tax-free and, like free zone businesses, allow entrepreneurs to repatriate 100% of their income if they so want.
And that isn’t all. Foreign entrepreneurs who build an LLC with a localized partner are granted capitalist status within the UAE, creating it easier to make safe residence permits for both the investor and their folks.
Do you want a local business partner?
So, do you require to set up a business in the UAE? However, if you do not fulfill the principles for an expert services license and want to trade straight with the UAE market, this may be your best choice.
The thought of “handing over” half of your company is intrinsically upsetting, but in reality, you are not doing so. As previously said, based on the agreement reached with the local partner, entrepreneurs can carry on 100% of their revenues.
When you look at it this way, operating in a free zone is not all that different economically–the same tax and repatriation reimbursement are available, and free zone firms are still grateful to pay a local agent to trade directly with the UAE market.