Dubai is widely recognized for its business-friendly environment, offering streamlined company incorporation, low to zero taxes, minimal social contributions, and strong intellectual property protection. However, before starting a business in Dubai, there are several key factors that entrepreneurs should carefully consider. In this article, Kirill Kukshev, Counsel, and Sergey Medvedev, Partner at Gorodissky & Partners, outline five essential points to keep in mind when launching a business in Dubai.
1.Choosing the Right Location
Dubai’s business landscape is divided into two main zones: the mainland and the free zones.
Mainland: Companies established in the mainland have the flexibility to conduct business both within the UAE and internationally. However, they are subject to a 9% corporate income tax if their annual profits exceed AED 375,000 (approximately USD 102,000).
Free Zones: Businesses not engaging with mainland UAE may opt for a free zone setup, which can offer exemptions from corporate taxes, provided certain conditions are met. Each free zone is tailored around specific industries, offering specialized infrastructure that can accelerate business growth
2. Selecting Your Business Activities
In Dubai, business activities are categorized into professional, industrial, and commercial sectors. Mainland businesses often require separate licenses for different activities, especially when combining professional and commercial operations. However, in free zones, multiple activities can often be combined under a single license for an additional fee. For companies involved in manufacturing or production, an industrial license is mandatory.
3. Obtaining and Renewing a License
The company registration process is generally straightforward, with licenses issued within a few days of application. However, businesses engaging in regulated activities (e.g., legal services, architectural design, medical services) may require additional approvals from relevant authorities, which can extend the timeline.
One key requirement for company registration is a lease agreement, whether for a physical office or a virtual office (referred to as a “flexy desk” in free zones). It’s important to note that opening a bank account for a mainland company with a virtual office can be challenging. The cost of obtaining a license starts at approximately AED 7,000 (around USD 2,000), plus 5% of the lease cost. The actual fee varies depending on the business activities. Mainland licenses are issued for one year and require annual renewal at similar costs, while free zone licenses may be issued for one or more years, with renewal required at the end of the term.
Companies in Dubai must also have share capital, with the Dubai Economy Department recommending a minimum of AED 100,000 (about USD 27,000). For mainland companies, proof of full capital payment is required upon license renewal, though this may not be necessary in free zones.
4. Registering a Trademark
As a rule, a brand that individualizes a company’s goods or services is a trademark, which should be registered through either an international or national procedure. In the national procedure, a trademark must be registered with the UAE Ministry of Economy. Without registration, legal protection will not be granted, and exclusive rights to the trademark will not arise.
Verbal, pictorial, and combined designations, as well as colors, color combinations, figures, sounds, smells, holograms, and 3D signs, can all be registered as trademarks in the UAE. A trademark must be new, distinctive, and not misleading to consumers regarding the product (service) or its source of origin.
In the UAE, a trademark can be registered in the name of a physical or legal entity (applicant). The applicant must prepare and file a trademark application, which is done electronically nowadays. The application includes a layout (sample) of the trademark, its description, the goods or services for which legal protection is sought (international class), and other relevant information. One trademark application can only apply to one international class.
Examination and registration of a trademark, if no obstacles arise during the process, typically take about 4-6 months. After approval by the trademark department, the trademark is published in a special bulletin, and the applicant is issued a trademark certificate, certifying the priority and exclusive rights of the trademark. Once registered, the trademark owner has the right to use the trademark, assign or license it, and prevent third parties from using it without consent.
The term of trademark protection is 10 years from the date of filing the trademark application. This period can be extended an unlimited number of times at the request of the trademark owner, without requiring a new examination.
5. Exploring Franchising Opportunities
Franchising is a popular model for business expansion in the UAE. Many industries, including hotels, restaurants, medical centers, grocery stores, sports clubs, and IT services, are growing globally through franchising.
Franchising is based on a franchise agreement between the franchisor (business owner) and the franchisee (user). Sometimes, the parties sign a business development agreement, with the main element being the sale of a franchise. Such agreements grant the right to develop a business unit in a certain territory and within a specific period, allowing the franchisee to use the franchisor’s trademark and intellectual property (e.g., copyrights, know-how). In return, the franchisee pays the franchisor a royalty fee, along with other potential payments.
Franchise agreements typically define the type of franchise (exclusive or non-exclusive), the rights granted, the franchisee’s obligations, and dispute resolution mechanisms. The Dubai International Arbitration Center (DIAC) is often selected for arbitration.
Franchise agreements or business development agreements are not subject to registration with the UAE Ministry of Economy. However, if a separate trademark license agreement is concluded between the parties, it can be registered with the trademark department, though registration is not mandatory.
In practice, franchise relations are often structured through a local master franchisee, who first acquires an exclusive franchise for the UAE territory and then sells non-exclusive sub-franchises in different Emirates, including Dubai.
Additional Considerations
In addition to the points above, other factors such as immigration, labor laws, accounting, and taxation should be considered when starting a business in Dubai. Navigating these aspects can be complex, so even with a solid understanding of the process, seeking professional advice is recommended for a smooth and efficient setup.
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Gorodissky & Partners is an international law firm that recently opened an office in Dubai. It aims to foster meaningful legal discussions revolving around IP and TMT. The company endeavors to expand the legal knowledge within the markets and address the pertinent issues that shape the industry. The company is the largest IP and TMT firm in Russia and CIS region. About 140 patent/trademark/design attorneys and lawyers of the firm advise on various legal issues and provide highly qualified legal services to Russian and foreign clients in IP and TMT spheres.
Authors: Kirill Kukshev, Counsel, and Sergey Medvedev, Partner at Gorodissky & Partners
