Entrepreneurs and large companies can benefit from starting a business in a free zone in Dubai. There are numerous perks, such as tax benefits, ease of doing business, and 100% foreign ownership. But if you don’t know your challenges, you may find these perks become burdens.
Common Challenges in Freezone Business Setup
Understanding Legal and Regulatory Compliance
The excitement of bringing your business to a freezone in Dubai soon runs into reality when you understand the legal requirements and compliances. Every freezone is governed by its own set of rules and regulations. Hence, one definition or strategy cannot be implemented across the free zones in the Emirates. For instance, Dubai Media City’s registration process differs from that of Jebel Ali Free Zone.
The UAE laws are also dynamic and complex to follow without guidance from a local. Upgrades by regulators are powerful, and you may be running a business a day before that becomes a rule the next morning. The slightest error or forgetting to comply with regulations can result in a hefty cost, fines, or even suspension of business. We advise you to consult a professional legal advisor and network with an expert company or a business setup consultant in Dubai and the UAE.
Limitations on Business Activities
One of the first things you should consider is the type of activities performed in the freezone compared to the industry of your business. Dubai Healthcare City would be better suited if you are a medical product distributor. On the other hand, if you plan on setting up an IT company, Dubai Internet City may be the best. Other freezone locations in Dubai cover information technology, spare parts, e-commerce and other activities. Consider getting more general free zone locations if your company is a professional service.
The second factor is whether your company wants to do business with clients in the local Dubai market. You can only sell products or services produced in the freezone to the companies inside the freezone or on the international market. To do business on the local Dubai market – also called “Mainland” – you must find a partner or sponsor that is a UAE national or a UAE company with whom you will have to share your profits. In this case, you must form a company in the Dubai Mainland.
Recommend Reading: Mainland vs Freezone License in Dubai
Financial Implications
The expenses of setting up in a Dubai-free zone do not end once you have paid your initial setup fee. One of the most common mistakes that new entrepreneurs make is underestimating the costs linked to freezone business operations. Initial licensing, annual renewals, visas, office space, and air-conditioning deposits tend to increase quickly. And, as you read the small print, you may begin to notice further hidden fees.
Some freezones have set up charges for absence letters, while others have fees for administrative services or regulatory updates. If you are ready to hire more staff, costs for additional visas and office space again represent a crucial part of your budget. When you reach that point, keep an eye on your budget, including the obvious and the not-so-obvious costs. You do not want to be confronted with unexpected financial obstacles.
Visa and Employment Restrictions
While the free zones in Dubai tend to be somewhat visa-friendly for foreign business owners, there are always limits on the number and kinds of visas available. Each freezone will have rules about how many visas you can get based on the type of office space you rent. Usually, the smaller the office space, the fewer visas you get, which can pose challenges if you want to grow your team.
Sometimes, these visa limits are country-specific, and it can be challenging depending on the nationalities of the employees you’re trying to hire. Some free zones also stipulate that employees can only bring specific dependents, which can also be a hurdle for hiring the people you want or ensuring that your current team can move with their families when you set up an office in Dubai. You should also ask about hiring while comparing shops and which are free to set up. That will help ensure that the Freezone’s visa policies align with your growth plans.
Recommend Reading: A Guide to Dubai Free Zone Visa
Office Space Requirements
Most Dubai free zones require you to lease office space, including if your business is virtual or you’re a remote worker. Minimum office space per business license type is another requirement for every freezone, and it majorly inflates costs, especially for businesses not needing a physical workspace. Such criteria tend to hamper businesses and identically if a freezone doesn’t offer shared desks or flexible office spaces.
Startups particularly enjoy shared desk services, if you’re able to find such, this would be a very beneficial option to your choice. Some free zones do not allow certain types of offices, such as an example of this, where you may require an executive office or a dedicated desk by the freezone operator.
Limited Networking and Market Reach
A Freezone entails that your company’s operations will remain limited to the Freezone unless you obtain additional licenses or permits to operate in mainland Dubai. Freezone businesses must work hard to network with mainland Dubai businesses, reducing overall reach. Technically, Freezone companies are not supposed to do business directly with Mainland Dubai clients without certain permissions.
Therefore, your potential audience gets restricted if you’re not targeting business-to-business orders from other businesses within your specific freezone or through online channels. Suppose you are trying to set up a regular local business. In that case, you may want to consider how well your market strategy will align with these limitations before finalising a certain freezone.
Mitigating These Challenges
While the above challenges can feel overwhelming, there are ways to mitigate them to make your Dubai freezone business setup smoother. Here are a few key strategies:
Strategic Planning and Legal Consultation
One of the smartest decisions you can make is to consult closely with a local expert or, more idyllically, a legal advisor who has a profound understanding of the free zones in Dubai. Having someone who knows the rules and regulations and can advise you on potential policy changes is a blessing.
Besides, your advisor could also be extremely handy when discussing the pros and cons of each free zone, thus helping you understand which one overlaps with your industry, business activities, future visions, etc. Consequently, it helps you ensure minimal free zone restrictions and stay away from regulatory loopholes.
Financial Constraints
Financial preparation is just as vital. Many new ventures underestimate the business costs in a Dubai-free zone, looking only at the initial instalments to secure their business. You may encounter surprises; to prevent them, remember to prepare a budget that comprehensively elaborates on everything you could be spending. This includes the obvious licensing costs and other administrative services, visa services, a workplace, and any unexpected expenses you may face.
In addition to current costs, provisions for future expenses may also need to be put aside for future development. If you are thinking big and planning to expand the number of your team, here are new team expense clues for new hires, including extra visas. You must budget for these expenses if you want to apply for more visas or even need more space.
Staffing constraints
Tight labour quotas in some free zones can also cause problems. Before deciding on any location, study the freezone rules and determine what your staffing needs will likely be given the visa allocations. If these are a fraction of what you need to hire, make it a part of your freezone set-up to hire such employees only under more expensive licenses and visas.
If you cannot hire the necessary numbers, consider this constraint part of your freezone location decision. Also, check with the freezone authorities if it has any specific requirements regarding how many employees or what nationalities can be hired, as these may impede your growth.
Expand Gradually with Market Research
Gradual Expansion with Market Research Expanding your business inland in Dubai comes with many significant challenges, and one of the keys to successful advancement after this stage is to determine market demand and research how you can comply with the requirements. This includes deeply analysing compliance demands such as licensing fees, to-be compliance and local market demand for your products and services. If you expect vast business from mainland clients, you must operate both in these regions. Consider establishing a company to test these needs with cross-sectional operations.
Final Thoughts on Freezone Setup in Dubai
If you are planning to start a freezone business, take time to do an in-depth analysis of the Dubai company formation process, as the freezone business model is a bit complex compared to the mainland type of business. If you wish to establish a thriving business in Dubai free zones, consider these challenges and adapt proactively. Work with a professional consultant, choose the best-fit freezone and create a comprehensive business plan to get off to a running start.
