The UAE has become a business hub for businesses looking for a central location for international expansion. The country is business- and tax-friendly with straightforward legislation, and presents an array of business opportunities. However, like any other country, the UAE also possesses numerous challenges to new entrants. These challenges of doing business in the UAE may discourage companies who wish to start their global journey from choosing the region as their place of business.
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Challenges of Doing Business in the UAE
In this article, we’ll look at the most common challenges foreign businesses face in the UAE and how a PEO can help resolve these issues.
1. Ownership of the Company
The foreign entity needs to share its business ownership if it wants to set up its operations in the UAE. Be it entering the market via local distributors, partnering with local business, franchising, or opening a representative office. The foreign entity also needs a local partner to set up a Limited Liability Company in the UAE.
2. Difficulty in Finding a Local Sponsor/Partner
When a foreign company plans to set up a business in the UAE, a local sponsor, partner, or advisor is a must! Finding the right sponsor or partner suitable for the company and is reliable can be a difficult task. Also, the local partner must have the market knowledge, understanding of the law, and handle the local operations.
3. Applicability of VAT
The UAE follows the value-added tax (VAT) system, implemented by the Gulf Cooperation Council in January 2018. VAT is an indirect tax applicable to all goods and services, with basic food essentials, education, and healthcare items as exceptions. The tax is applicable at a 5% rate and is also said to have simplified the taxation for businesses. However, one of the biggest challenges of doing business in the UAE is to get accustomed to VAT. Additionally, companies that fail to comply with the tax system or delay their registration can face hefty fines.
4. Funds to Run Operations in the UAE
Any foreign entity that wishes to set up a business in the UAE also needs sufficient funds to run its operations smoothly. Finding a local investor can be challenging, and the foreign company must have its detailed funds management plan laid down for its long-term services.
5. Social and Cultural Challenges of Doing Business in the UAE
The Middle East is a diverse and complex market. Thus, to operate a successful business, understanding the social norms and cultures is essential. The foreign company must enter the UAE market with an understanding of the Islamic religion. It includes social norms related to employees, local holidays, cultural norms, post-working hours, etc. The business must also assess the impact of the products or services before entering the market.
6. Challenges Associated with Real Estate
The UAE is famous for its real estate, and the business license of a company is also associated with its registered address. This rule makes it vital for an entity to operate from a physical office, often making it difficult for small businesses to enter the market. Also, the location of the office is key to its seamless operations. The UAE Free Zones offer foreign companies affordable real estate options. However, local expertise is a must to finalize the location and size of the office space as per the visa.
7. Linguistic Challenges of Doing Business in the UAE
The official language of the UAE is Arabic, though English is standard for business communication. Still, while hiring local employees, a foreign company must ensure that the employment contracts, records, training manuals, and other documents are in Arabic. For this, a company may need to find a local translator or legal expert who can draft them in Arabic and English.
8. Relaxed Approach to Time
As compared to the West, Europe, and APAC countries, the approach towards time is more relaxed in the UAE. People in the UAE are more accepting and allowing of meeting delays and even cancellation. Unlike other countries, the UAE has a different working week as well. Thus, any foreign company planning to set up a business would need to lower its expectations for punctuality and a long working week.
9. Challenge in Obtaining Work Visas and Permits
A foreign employee needs to obtain a work or residence permit to live and work in the country. The foreign entity bringing its overseas employees to the UAE especially needs to follow the visa norms. The company also needs to comply with the regulations laid down by the General Directorate of Residency and Foreigners Affairs and Ministry of Human Resources & Emiratisation.
10. Accessing the Local Talent
Setting up a business in the UAE would need a foreign company to hire local talent to run its operations. For this, the UAE has a particular set of guidelines that an international company must follow. Hiring local employees can be a challenge for a small entity who does not understand these regulations and practices.
11. Employee Management
Another challenge of doing business in the UAE is to manage the local workforce efficiently as per the local laws and compliances. Employee management can be difficult due to the difference in culture, language, and administrative approach. Payroll management and taxation of the employees as per the UAE laws may also seem complicated. Additionally, a foreign company needs to follow the Wage Protection System (WPS), along with the end of service gratuity payments and other benefits.
Dealing with the Challenges of Doing Business in the UAE with a PEO
A PEO acts as your local partner that can provide the right business support and knowledge. With a PEO, you get the experience and know-how of a team of professionals to set up and grow your business in the UAE.
Horizons is a licensed UAE PEO that can help you with your UAE market entry strategy while acting as your employer on record. You can easily connect with the local talent and commence your operations without setting up a legal entity.
Horizons can help you with:
- Hiring and management of local employees
- Payroll, employee benefits, and insurance management
- Contract management and translation
- Market research and impact analysis
- Market entry, incorporation, and remote office management
- Culture sensitization and adherence to local norms
- Access to a network of local vendors and distributors
Connect with Horizons today to simplify setting up your business and deal with the numerous challenges of doing business in the UAE.