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23 April 2024

Only hours to set up shop, says DED

By Nitin Nambiar


A World Bank report on the “ease of doing business” ranked the UAE at the 68th position in the world in September. Saudi Arabia and Oman were ranked 23rd and 49th.

Three months after the release of that report, Dubai’s Department of Economic Development (DED), which controls the licensing and registration of new companies in Dubai, feels business confidence is high and that reforms in the business environment have put the emirate in a competitive position against the rest of the region.

“The 12 per cent annual growth rate in Dubai justifies its attractiveness for companies to set up shop here,” said Ali Ibrahim Mohammed, deputy director-general for executive affairs at DED.

According to the World Bank report, it takes 11 procedures to start a business and 21 steps to get a trade licence in the UAE – which span 62 days. But Mohammed feels this figure is overstated. He said: “It takes about nine steps and less than 15 days to start a company in the UAE. If you include the labour permission and recruitment, then you can add a few more days. That’s all. In fact, if all the paperwork is in place, it is only a matter of hours before you can get your initial approval.”

Investor protection and insolvency are the two areas in which the UAE scored poorly in the World Bank report. According to the UAE company law, a limited liability company, or LLC, must be at least 51 per cent owned by a UAE national. But Mohammed said the Dubai Government is already in the middle of redrafting this law. “The new law will allow foreign investors to own a majority stake in the company, thereby giving it a more secure management control and a safer environment for long-term growth. An announcement in ownership pattern could be made as early as December-end.”

Investment advisers and company formation specialists Morison Menon believe the biggest problems start-ups face here are credit and office space.

“It’s very difficult for start-up companies to get a loan from a bank without any sort of security. If you are a company coming from the United Kingdom or the Far East with no track record in this country, then I think most banks would be unwilling to provide you with credit,” said Raju Menon, managing partner, Morison Menon.

“The other issue is related to the leasing of office space before you can procure your trade licence. In some cases, this one component alone can account for more than 60 per cent of setting-up costs,” said Menon.

But Mohammed feels the region’s economic system means the need for a prior office space cannot be done away with, at least for now.

Start-up costs

The DED is responsible for issuing trade licences. Licences span three areas – general commercial licence; professional licence for services; and industrial licence for manufacturing.

“The total fees, from initial application to final approval, can range from Dh10,000 to Dh12,000. You have to deposit a security amount of Dh300,000. Then you have the cost of office space. So, you are looking at Dh350,000 to Dh400,000 as start-up costs,” said R Menon.

Case studies

LAUDES CORPORATION: Larry Underwood, Chairman of the LCI Group that set up Laudes Corporation in Dubai Media City, said: “As far as our licensing and registration is concerned, we did not have any issues as we engaged a consultant to advise us. But in the absence of a specialist firm, it can be complicated for a start-up.”

SPACE GROUP: Seoul-based Space Group specialises in architecture consultancy and urban planning. “While applying for licences, we found the guidelines were not very systematic. Also, since procedures vary from one emirate to the other, compliance can be an issue,” said Jay Cabalce, project manager. “And they can carry hidden charges.”

MCARDLE SPORT-TEC: Bob Seward, general manager for the Middle East of this UK-based civil engineering firm, said: “The registration was reasonably straightforward. Other requirements such as labour card took time. The need for a local sponsor complicates the procedure.”