5 Common Mistakes while setting up a Company in UAE

UAE Is an attractive location for setting up a company due to the several business benefits available for the investors. The entrepreneurs must be aware of various aspects of setting up a company in UAE. It will help them to avoid making mistakes while starting a business venture in UAE. This article will highlight 5 common mistakes made while setting up a company in UAE.

Often first-time investors who come to UAE are overwhelmed by the various company formation options available for them. There are certain aspects the investor must ensure while setting up a company in the region.

Additionally, there is are business jurisdictions, wide variety of business activities, and cost-effective company formation packages to choose from for the new business owner. UAE has many business advantages and the right ecosystem to boost your business.

Common Mistakes made while Opening a Company

For successfully setting up and continuing your business operations of the company, here are 5 common mistakes entrepreneurs must avoid.

1. Not identifying the right jurisdiction to setup Company

For investors, it is very important to choose the right jurisdiction to setup a company. In UAE, there are Free Zones, Mainland, and Offshore jurisdictions for investors to start a company. There are significant differences in the modus operandi of the business jurisdictions.

Solution: Choose the right business jurisdiction

The Free Zones are ideal for foreign investors aiming for a low cost company setup with a significant tax savings. Also, the Free Zones are best fit for conducting import-export, consulting, ecommerce and more. The investors can operate locally and internationally through a Free Zone company.

Similarly, Mainland is the right fit for investors looking at local business expansion and projects in UAE. It is best suited for retail, small manufacturing units, professional services catering to UAE, GCC region.

The 100% foreign ownership in Mainland is a highlight and flexibility to take an office space anywhere in the respective Emirate where the company is incorporated.

Lastly, Offshore is ideal for investors who are looking at international business, high-sea sales, holding companies, etc. However, they are not eligible for doing business with UAE Mainland. So, the investor must make their decision of choosing the right business jurisdiction based on their specific business requirements.

2. Selecting the cheapest Business License package (cheapest will have several limitations)

Selecting the cheapest Business License Package is another common mistake investors do while setting up a company in UAE. There are many cheap company formation packages that are marketed in UAE and often investors fall for it.

These cheap company formation packages will have several limitations and will cost more in the long run. Most of the cases there will be hidden charges or upgrades required to the cheapest package.

For example. many Banks in UAE require the investor to have a physical office space for opening a corporate bank account. At such instances, the cheapest company package would become challenging to upgrade.

So, always ensure the right company formation package is chosen that suits your business requirement and not just a cheap offering. That will help save time, money, and effort in the future and have a hassle-free business operation in the region.

3. Not seeking advice of a Professional Business Consultant based in UAE

Often a common mistake many investors make is not seeking advice of a Professional Business Consultant based in UAE. It is always best to get in touch with an expert business consultant to have a hassle-free company set up in the UAE.

Often there can be outdated information sources on the internet that would not give you the right facts.

So before you sign up with any consultant or online company setup package, ensure the credibility of the Consultant or the website. Contact them and physically visit them as company formation is a long-term engagement with your consultancy.

Benefits of having a Business Consultant for Company Setup in UAE

Your consultant will be playing a vital role not only in company formation and obtaining your trade license. As your progress in the business, any additional requirements related to company formation, administration, and accounting, you can rely on your business consultant’s assistance.

Business Consultants come in handy for a lot of business support & advisory services such as:

• Adding new Business Activity & Visa quotas
• Opening a new Branch, subsidiary, holding company
• Approvals from Government Authorities (as per requirement)
• Shareholder Agreements, Share Transfer, Shareholder Name changes.
• Legal Translations, VAT & Corporate tax registration, Accounting
• Visa and Emirates ID Assistance
• Banking Assistance
• Company Liquidation and more..

4. Not learning about Corporate Tax/ VAT implications

As an investor not Learning about Corporate Tax/VAT implications on their company can turn out costly. The UAE Federal Tax Authority has strict penalty policies for defaults. The investor must register for VAT and Corporate Tax and file the returns the right time.

So, it is important for the investor to be aware of the applicability of VAT and Corporate Tax on their business. Depending on their business jurisdictions there are exemptions to VAT & Corporate Tax if they full fill certain conditions.

To know more you can read: Corporate Tax Applicability for my company

5. Not aware of the KYC ( Know Your Customer) requirements for opening Business Bank Account

Opening of a Business Bank Account is one of the biggest requirements for all investors after they setup the company. Many investors are unaware of the (Know Your Customer) KYC requirements for opening a bank account.

Mostly, the banks will require the following documents to be provided by the investor as part of their KYC process to approve the Corporate Bank Account.

• Company documents – Valid trade license, Certificate of Registration, MOA/Articles of Association, Board Resolution and Share Certificates.
• Share holder Identity – Passport, Emirates ID, residence Visa and Home Country address proof.
• Business Ownership and Transactions – investors must disclose UBO (Ultimate Beneficiary Ownership) details, proof of business activity such as Contracts, invoices, supplier agreements, company profile, etc. Additionally, 3-6 months financial records of previous business or salary transfers, etc.

So, there are several aspects that the investor must consider while setting up a company in UAE. For the smooth onboarding of their company and functioning of the business operations, ensuring all of the above parameters are essential. Avoid these common mistakes will help in a successful company formation in UAE.

To know more about a hassle-free Company Formation in UAE, talk to our experts right away!