The Downside of Doing Business in the UAE

Any person can set up their own company in the UAE; however, there are definitive rules that must be followed, which are much different than the free enterprise system that is welcome in the United States.

A business can be established in either a free zone or in the mainland UAE, as a limited liability company. Though there are benefits of conducting a business in the UAE in both ways, there are disadvantages of doing business in a free zone as well as in the mainland.

  • Free Zone

The biggest downside of doing business in a free zone is that you are unable to expand your operations to other markets within the UAE. For example, if you start a company in a Dubai free zone, you cannot market your products and/or services to any of the other six Emirati states and you are not allowed to cater to customers outside the free zone as well.

At the end of the day, your business is confined within the walls of the free zone and hence, you cannot experience much growth. This can eventually cause a decline in your profits. Another serious disadvantage is that you cannot establish a company or a business in any industry or sector you want. It depends on the free zone, as each zone is allocated to a specific type of business.

For example, there are certain free zones where you are only allowed to set up a technology related business and there are zones where you are permitted to only establish an import and export business. Hence, this confines your business to cater in a single industry only.

  • Mainland

The best thing about doing a business in the mainland is that unlike in a free zone, you can expand and cater to different customers all over the UAE. However the biggest downside of opening a company in the mainland is that you cannot have 100 percent ownership of the company. This factor is not present in the free zone and you can have 100 percent possession of the company.

Therefore, every foreign investor has ownership limitations; they have to register 51 percent of the company’s shares under the name of a local Emirati partner. Hence, the local partner has the ability to access the company’s bank accounts as well, in addition to the fact that they can claim 51 percent ownership and liability of the company.

Additionally, side agreements are a requirement and they cannot be officially registered. A complete and a full POA are required from the local partner. The UAE has also witnessed a number of financial scams and frauds, mostly targeted at foreign investors and businessmen. Many of them have lost millions of dollars by being victims to these scams and they money has never been returned.