7th November 2015
Starting a business anywhere should always be carefully planned; but particularly in a foreign country. I meet so many businesses which have jumped in without doing any market research, understanding the local customs or being aware of the local regulations. Unfortunately, this often leads to a more expensive and time consuming setup or unravelling the mess further down the line. Following are my 14 tips of what you need to know about business setup in Abu Dhabi.
Is there a market for your product or service?
This sounds an obvious question; but just because it is successful in other markets, it doesn’t mean that it will work in Abu Dhabi or the UAE as a whole. It might need to be adapted in some way to suit local market conditions. Also, if there is an existing market, think about how to position yourself so that you stand out from your competitors. Will your pricing structure work or need adapting?
Who are your clients?
You may have already identified your ideal clients – will they be public or private sector or a mix of both? Where are they based – in Abu Dhabi or one of the other Emirates? Are they located in one of the free zones? This is key information, not only to help you target your prospects and understand your market, but also to help you determine where to establish your business – you need to be licensed where you are doing business. So, if all your clients are onshore in Abu Dhabi then you will need Commercial License issued by the Department of Economic Development in Abu Dhabi (ADDED).
Which Emirates should you set up in – Abu Dhabi or Dubai?
Often international companies want to set up in Dubai because they are familiar with the name due to its international marketing and reputation. However, don’t forget Abu Dhabi, which is actually the federal capital of the UAE, is also developing in line with its Economic Vision 2030, and is cash-rich. There are plenty of opportunities in both Emirates, but if your potential clients are based in Abu Dhabi, then you need to ensure that you get licensed in Abu Dhabi. If your prospects are in more than one Emirate, it will be necessary to set up in one and then expand into the others as your business grows. Each Emirate has its own licensing procedures and regulations. There is no such thing as a federal license. One license does not allow you to work anywhere in the UAE!
Free zone or onshore?
The million Dirham question. Foreign companies are attracted to the free zones because they can own the business 100%, are exempt from import duty and it’s tax free. However, it’s important to understand the restrictions, the key one of which is that you are restricted to working with other companies also established in that particular geographical free zone or overseas! Also, as soon as goods leave the free zone you are liable for duty at 5%. Free zones are often sector-related, so if you naturally do business with companies in a particular sector, then a specific free zone may be perfect for you. However, if you are wanting to business with companies across Abu Dhabi or with the government or semi-government entities, then you need to be set up onshore.
Do you want to work directly with the national oil and gas companies?
If so, you will need a special approval from the Supreme Petroleum Council. Once approved, rather than receiving a certificate, you will get an additional activity listed on your Trade License: ‘Onshore and Offshore Oil and Gas Fields Facilities and Services’. This then enables you to approach the ADNOC (Abu Dhabi National Oil Company) group of companies directly and register as a supplier. To do this, you will need an Abu Dhabi Trade License (it is now also possible via Masdar City).
What is the correct legal structure for your business?
Limited Liability Company (LLC), Foreign Branch, Representative Office, Establishment, Public Joint Stock Company – which is right for you? The three most common structures in Abu Dhabi are the LLC, Foreign Branch and Representative Office – for an overview of the regulations and requirements, CLICK HERE.
What type of local partner is best for your business?
Everybody has a story about choosing a local partner. What is right for one business is not necessary right for another. You need to decide what you want from your local partner – if you are wanting someone to open doors and who has influence, then you might opt for a high profile figure, but do ensure that the person you choose will deliver on what you have agreed and isn’t too busy with other projects to dedicate the time you will require. Alternatively, if you want the control of your business and to ensure you receive all of your profits, you may prefer to opt for a nominee partner (sleeping partner).
Do you have sufficient financing?
Starting a business in Abu Dhabi can be costly, depending on the activities you will be involved in. You will incur government fees to obtain the Trade License along with a number of third party fees, such as legal translations (if you aren’t Arabic, then the legal documents will be in dual text, English and Arabic) and Notary Public fees. Additionally, you will incur incorporation fees if you aren’t organising the business set up yourself (this is worth the investment if you aren’t familiar with the process/requirements as it will save you considerable time and enable you to focus on getting your business off the ground). Your local partner is likely to charge a fee; you will need to pay for various legal documents to be drafted; and it is mandatory to lease and fit out a commercial premise relative to the activity on your trade license. All of these fees need to be paid in advance before you can start generate any income.
The importance of cash flow
Staying solvent is paramount. Once you have set up the company, you need to ensure that you have sufficient funds to tie you over until such time that you start to make money. Staff will require visas and their salaries will need to be paid; furthermore, there will be business operating costs, such as utilities bills, equipment, travel expenses, marketing etc…
What are the ongoing costs?
Each year the Trade License needs to be renewed – failure to do so will incur fines that accrue monthly. The commercial premises will need to be renewed too. In the case that the corporate structure is a Foreign Branch Office, an annual fee of AED10,000 is required to be paid to the Ministry of Economy. From year one, an additional charge from the Centre of Waste Management needs to be paid – this is calculated based upon the activities of the company and the number of employees. It’s important to budget for these annual renewal costs.
Staff and visas
Every person working in Abu Dhabi is required to have an employment visa and labour card. It is the responsibility of the employer to arrange this, along with health insurance, which is mandatory. Thereafter, on a monthly basis, the employer must pay the salaries through a special payroll system called WPS (Wage Protection System). When leaving a position after being employed for at least one year, employees are entitled to a gratuity payment – companies need to ensure that they put by sufficient funds to cover these end of service benefit payments.
Know the law
In this part of the world simply stating that you “didn’t know” the law is insufficient. It is essential that you are familiar with the laws and regulations, at the very least with the Commercial Companies Law, the Penal Code, the Employment Law, the Civil Code and Commercial Code to ensure you are protected and those working for you are too. There other laws which will also affect living and working here such as the Cyber Crimes Law. It’s also worth noting that various proposed laws are in process, such as Investment Law and Insolvency Law. Engaging with a locally-based lawyer or legal counsel would be helpful. Most law firms produce regular updates of changes to laws, so you could request to be added to a mailing list or two. Also, keep an eye on local media for updates.
It’s all about relationships in Abu Dhabi and earning trust before the transactions happen. However, once you are given the opportunity to prove yourself, it is essential that you deliver all that you have promised. Abu Dhabi is a well connected business community, so if you can build up a good reputation for yourself and your business, you will find that the community is your extended business development team and will refer you. People put a lot of trust in referrals and recommendations. There are numerous networking groups and events that you can join to get you started. Your Embassy and national trade and enterprise organisations can also assist.
Familiarize yourself with the culture and business etiquette. Respecting the culture and making an effort to learn the language will be well received by your Emirati and Arab hosts. It will also demonstrate your commitment to doing business in the region. It could be the difference between winning and losing a contract!
For more information about how to start a business in Abu Dhabi speak to the Gateway Group of Companies, which provides specialist company formation services and a corporate nominee service for onshore entities. www.GatewayToAbuDhabi.com
About the author
Jenny Hunt is the Founding Partner and CEO of the Gateway Group of Companies, a company formation specialist providing a corporate sponsorship platform for onshore companies in the UAE. Jenny has worked in company formation in Abu Dhabi since January 2012, managing incorporations for startups to MNCs across a variety of sectors. Jenny is an active Committee Member for the British Business Group in Abu Dhabi; regularly presents to incoming trade delegations about setting up and doing business in Abu Dhabi for UK Trade & Investment (UKTI) and other trade and enterprise organisations; participated in the International Business Excellence Awards 2015 as a Judge; and, was conferred with an Asian Women Leadership Award in October 2015. Jenny’s background, as a qualified marketer, was in UK advertising agencies and prior to moving to the UAE in 1999, she set up and managed her own business in London for five years. Jenny is an active blogger and firmly believes in sharing knowledge, experience and expertise within the community.