Starting a company in Dubai: The comprehensive guide for aspiring entrepreneurs

Dubai has established itself as one of the world's leading economic centers, attracting entrepreneurs from all over the world. With a stable economy, modern infrastructure and a strategic location, the metropolis offers excellent conditions for founding and growing a company. If you are planning to set up a company in Dubai, here is a clearly structured guide to help you successfully enter the Arab Emirates market.

Why Dubai is the ideal location for your business

Dubai offers a number of benefits that make it an attractive location for entrepreneurs. The strategic location between East and West provides access not only to Middle Eastern markets, but also to important international trade routes. In addition to excellent connections to global trade, Dubai offers modern infrastructure, excellent networking opportunities and strong government support for companies. The city is known for its cosmopolitan business community and innovative business models that promote the growth of companies. But what makes Dubai so special as a business location?

Tax benefits and business opportunities

Dubai is known for its tax incentives, which make it particularly attractive for companies. The most important tax benefits are:

• No corporate tax for most types of companies: This also applies to many Mainland companies, which can now have 100% foreign ownership.
• No value added tax (VAT) on many services and exports.
• A moderate corporate tax of 9%, which, however, only takes effect from a profit of 375,000 AED per year. For many companies, the tax burden therefore remains low, in particular thanks to the Small Business Relief.

The opportunity to benefit from this tax relief makes Dubai a particularly attractive location for international investors and entrepreneurs who want to optimize their tax burden.

The various corporate structures in Dubai

Choosing the right company structure is crucial for the success of setting up your company in Dubai. There are multiple options, depending on your business goals and the type of business you want to start. The differences between Mainland, Freezone and Offshore companies are important to consider.

1. Mainland companies: flexibility and expansion

Mainland companies give you the most flexibility as you can operate across Dubai and the entire UAE. The new regulation, which allows you to own a Mainland company 100% foreign, has removed many of the previous restrictions. This makes Mainland companies even more attractive for many entrepreneurs. While it used to be necessary to have a local sponsor, it is no longer necessary today.

The Mainland is ideal for companies that want to offer their services across Dubai or accept public contracts. It is also the preferred option for companies that establish a headquarters in Dubai and are looking for direct access to the local market.

2. Freezone companies: tax exemption and 100% ownership

Freezone companies also offer 100% foreign ownership and many tax benefits. You can set up your Freezone company in one of the numerous Freezones, which offer specialized frameworks for different industries, including IT, logistics, media and e-commerce. One downside, however, is that your business activity is often limited to the freezone or export market.

Freezones often offer simplified visa processes and reduced bureaucracy, which makes them particularly attractive for start-ups and small companies. They also make it possible to set up a company quickly and guarantee privacy for private individuals and companies.

3. Offshore companies: flexibility for international investors

Offshore companies are suitable for investors who want to conduct their business activities outside the UAE without the need for a physical presence in Dubai. This structure offers tax advantages and a high degree of flexibility, but is less suitable for local businesses. Offshore companies are particularly popular for holding structures, asset management and international business activities.

The step-by-step process for starting a business

The founding of a company in Dubai follows a clearly structured process. Here are the steps you should take to successfully set up a company.

Step 1: Selecting the location and company structure

First, you have to decide whether you want to set up on the mainland, in a free zone or as an offshore company. The choice depends on your industry, your company's goals, and desired geographical reach.

Step 2: Register and apply for a license

Registration takes place either with the Department of Economic Development (DED) for Mainland companies or with the respective freezone authority. Mainland companies used to often require a local Emirati partner with at least 51% shares. However, as of 2021, most companies can have 100% foreign ownership.

However, there are exceptions where an Emirati partner or service agent is still required. This applies in particular to certain strategic or sensitive activities, such as:

• oil and gas industry
• telecoms
• water and electricity supply
• security services
• arms trade or military equipment
• Some types of transport (e.g. taxis)
• pharmacies and some medical areas

The business license is issued depending on the purpose of the company (e.g. trade license, industrial license, or professional license).

Step 3: Office location and infrastructure

Depending on the type of business, you'll need a physical office location. For freezone companies, a virtual office is often enough, but for Mainland companies, you must have a real office that meets legal requirements. Choosing the right office is important when applying for an Emirates ID and other visas.

Step 4: Documentation and formalities

To start your business, you'll need to submit a number of documents, including passport copies, a business plan, and proof of capital. The exact requirements vary depending on the company structure and license type. Careful preparation of the documents makes the process easier and shortens the visa process.

Step 5: Open a business account

After registering your company, you'll need to open a business account. Dubai has a variety of banks that offer tailor-made solutions specifically for companies. Opening a company account is often linked to the possession of a valid residence visa and an Emirates ID.

Tax benefits for companies in Dubai

No corporate tax (up to a certain profit)

A major advantage of setting up a company in Dubai is the extremely favourable tax framework. The UAE does not levy corporate tax on corporate profits up to a certain threshold of AED 375,000 annually. In addition, companies in the freezones often benefit from a tax-free phase that is valid for the first 15 to 50 years.

Tax benefits for real estate investors

Companies that invest in real estate enjoy additional tax benefits. Not only can real estate purchases and running costs such as administration, maintenance or financing be deducted for tax purposes, but the profits from real estate sales within the company are also generally tax-free.

For companies that buy real estate in Dubai, the tax structure therefore offers significant advantages. For example, if you buy a commercial property, not only the purchase costs but also the ongoing operating costs can be claimed for tax purposes. This makes it possible to structure your investments in a very tax-efficient way.

Deduction of managing director salaries and other operating expenses

Another tax advantage for companies in Dubai is the ability to tax deduct salaries and operating expenses, such as rental costs, maintenance and financing costs. This means that the salaries of managing directors and employees can be recorded as operating expenses and deducted from the tax burden. This reduces the company's effective tax burden and contributes to financial optimization.

Real estate company for investments in real estate: tax analysis

Setting up a real estate company in Dubai offers numerous tax benefits for investors who are planning to invest in the real estate market. The tax structure of such a company makes it possible to optimize real estate purchases by deducting all associated operating expenses such as administrative costs, maintenance costs and financing costs. In addition, profits from the sale of real estate within the company can be realized tax-free.

Setting up a real estate company also offers the advantage that it acts as a legal entity and protects your private assets from legal and financial risks. This minimizes the risk of being held personally liable, which is particularly important if you invest in commercial real estate that potentially involves a higher risk.