Dubai, a vibrant metropolis in the heart of the United Arab Emirates (UAE), is known for its breathtaking skyline, luxurious lifestyle and dynamic business world. For entrepreneurs worldwide, Dubai is a magnet that lures with its unique business opportunities. In this article, we highlight how you can start a business in Dubai, with a special focus on the differences between starting a business in a free trade zone (Free Zone) and starting a regular business in Mainland Dubai. This guide is designed to provide you with both basic knowledge and enthusiasm for the wide range of business opportunities in Dubai. Welcome to the modern Oriental narrative of 1,001 profit opportunities!

1st company set up in Dubai – Introduction

Starting a business in Dubai sounds tempting and it is. But before you take this step, it is important to understand the ecosystem in which you will operate. Dubai offers two fundamentally different approaches to starting a business: in one of the many free zones or directly in Mainland Dubai. Each option has its own advantages and peculiarities that make it attractive to different types of entrepreneurs. In addition, in Dubai there are special conditions for starting a company, which potential founders should know.

A third option to start a business in Dubai, we will go unnoticed here for good reason. This is the establishment of a pure offshore company in Mainland Dubai. Although it is quite possible, it is almost impossible to open a bank account for such a company. Such a company formation is therefore only worth considering in special individual cases.

Dubai Free Zones: A Paradise for Foreign Investors

The Free Zones in Dubai are specially designed economic areas tailored to the needs of foreign investors. They offer numerous advantages, such as the assurance that foreign investors are 100% entitled to property acquired domestically. Of course, this also includes ownership of your own company. In addition, a complete profit reduction and significant tax relief wave. Thus, a general tax exemption applies, which is guaranteed for the next 50 years. It is also interesting that in certain free zones no customs fees are incurred when importing goods. However, the savings in this area are only 4 % of the value of imported goods. Moreover, and this is especially noteworthy, Free Zones allow entrepreneurs to run their businesses without a local partner. This makes them an extremely attractive option for many international business people.

Each Free Zone specializes in specific business sectors, which means your business can benefit from a community of like-minded and industry-specific services. Despite the advantages, there are also limitations. For example, companies in Free Zones are prohibited from trading directly with the local market in the UAE area outside the Free Zone without involving a local distributor.

Although there are no taxes, it is still important to note that the operating permit must be licensed annually by the authorities – and this is subject to a fee. In fact, these license fees are significantly lower compared to those for companies outside the Free Zones. However, they also vary depending on the activity of the company and the free zone from which it operates. Therefore, accurate information is impossible at this point. However, you can expect flat-rate fees of about EUR 5,000 per license. Compared to taxation in Germany, entrepreneurs in Dubai are certainly happy about these low costs.

Creating Mainland Companies in Dubai: The Gateway to the Local Market

3.1. Benefits of starting a business in Mainland Dubai

In contrast, starting a company on the territory of Mainland Dubai allows direct access to the local market of the UAE. This opens up far-reaching business opportunities, as such a company is able to do business with a very wealthy clientele or clientele. Among other things, it enables participation in public tenders. But also business relationships with companies in the Dubai Free Zones are possible in this case. In any case, this means especially for entrepreneurs who want to enter the market with services, such as in management consulting, IT or catering, that they can work fully in the UAE from this position.

3.2. Establishment of companies in Mainland Dubai: Requirement of a local partner

However, in certain cases, in particular when choosing a Dubai LLC as a legal form, a local sponsor or partner is required who holds at least 51% of the company shares. Capital companies can also be considered as partners. However, the prerequisite here is that they are held by Emiratis in the majority. Despite this participation, such a sponsor is more likely to be regarded as a silent partner. Especially in industries that want to participate in official tenders, for example to win orders from the police or other security institutions, a local partner with good repute is required. This can be a hurdle for some foreign investors, but it also offers the opportunity for deep rooting in the local market. Because a local partner can be helpful in initiating business with other Emiratis. In the long term, this commitment will certainly more than pay off.

Fortunately, there is still the possibility of starting a company in Mainland Dubai without the need for local partners. This applies in particular to the establishment as a sole proprietorship (sole establishment), which roughly corresponds to a sole proprietorship or a GbR in Germany. But for many areas of activity of a Dubai LLC, no local partner has been mandatory since 2022. However, if you want to gain a foothold in the financial sector or in the petrochemical sector, to give just two examples, a local partner remains indispensable.

3.3 Requirement of physical presence and management in Dubai

But what you have to keep in mind when starting a business in Mainland Dubai is that you have to set up a physical presence on site and constantly prove it. The same applies to management. It must also be done at home. It does not matter whether you become active as an entrepreneur yourself or entrust a person resident in the UAE with the management. If you manage the fortunes of your own company yourself, a residence permit for entrepreneurs as well as a residence on site is required.

3.4 Taxation and accounting of a Mainland business in Dubai

Another point concerns the taxation of companies in Mainland Dubai. Here, too, it generally applies that no income tax is incurred. This is therefore particularly attractive for partnerships. Since July 2023, however, a corporate tax applies in the UAE and thus also in Dubai. This affects Dubai LLCs in particular, but also all other companies that are established outside the Free Zones. The tax rate is 9%, which is very low compared to corporation tax alone in Germany and many other EU countries and industrial nations worldwide. In addition, an allowance keeps the profit up to an amount of AED 375,000 (equivalent to about EUR 90,000) tax-free.

Which brings us to the next aspect, namely accounting and accounting requirements. These are very low in Dubai. Auditing also manages without significant risks.

3.5. Company formation in Mainland Dubai: start-up costs and ongoing license fees

Now let’s compare the start-up costs of starting a business in Mainland Dubai with those in a Free Zone. Here the fees start in the order of about EUR 20,000. Of course, the amount of the licence fee also depends on the type of licence to be applied for. And this in turn depends on the business activity of a company. Several licenses may even be required, depending on the scope of the business. Finally, even for companies you want to set up in Mainland Dubai, you have to renew this license annually. And yet these expenses are usually significantly lower than the taxes that you would have to bear as an entrepreneur in Germany.

4. Important conditions for starting a business

Regardless of choosing to start a business in a Free Zone or in Mainland Dubai, there are some key conditions that must be met for starting a business in Dubai. This includes creating a detailed business plan, choosing the appropriate legal form, registering the company name (company) and applying for the necessary licenses. These licenses are granted by the Department of Economy & Tourism or by the selected free zones. In many cases, an application for a licence requires proof of professional qualification. In some cases, an examination of these skills may also be necessary – possibly even on a regular basis.

It is also crucial to become familiar with tax obligations. In addition, a potential entrepreneur should accurately calculate the costs of starting a business and running it. These can vary depending on the location, size of the company and other factors. It is also advisable to use professional advice in advance in order to navigate through the start-up process. Specialised tax consultancy firms, such as ours, offer this service in full. This also includes the support of experienced service providers on site. Of course, we can also rely on our local cooperation partners.

At this point, an indication of a potential risk that generally exists after the establishment of a company in Dubai is allowed. Expenditure on the necessary licences must also be paid if a company makes little or no profits. So anyone who starts a company in Dubai should be sure of its success. Also for this reason, the submission of a solid business plan is a prerequisite for approval to start a business in Dubai.

Conclusion 5: A worthwhile adventure

Starting a business in Dubai offers both exciting opportunities and unique challenges. The choice between starting a Free Zone and a Mainland business ultimately depends on your business model, your goals and your willingness to engage with local circumstances. Despite the differences, both options offer the potential for growth and success in one of the most dynamic economic regions in the world.

Flexibility and direct market access make Mainland companies particularly attractive to those who wish to operate in the service sector or retail sector. However, entrepreneurs should be willing to engage with regulatory requirements and the business environment that is more closely interwoven with the local economy.

In contrast, free zone companies are particularly suitable for companies that are to operate internationally from Dubai. In this way, you can even conduct business from Germany or another country outside the UAE. So if you prefer to stay in Germany, you are recommended to set up a company in a Dubai Free Zone.

Finally, another advantage with which Dubai promotes the establishment of a company: Dubai has now entered into international commitments that allow an exchange of information in the field of taxes, but the banking secrecy in Dubai is, unlike in Switzerland, still intact. In addition, much in Dubai is digitalized and bureaucratic.

Dubai is more than just a place for business. Dubai invites you to a lifestyle that rewards innovation and excellence. For those willing to face the challenges, starting a business in Dubai can be an extremely rewarding adventure. With the right preparation, understanding of local conditions and a pinch of entrepreneurial spirit Their success in Dubai a fairytale future before – almost as in the stories from 1,001 night.