Three Key Company Formation Changes In The UAE That Could Affect You In 2019
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This year has seen a raft of banking and business regulations sweep across the UAE. There have been new tax laws, changes in Central Bank guidelines, and a general shift in bank compliance criteria.
This means if you’re a budding entrepreneur looking to start or grow a company in the UAE, you need to get up to speed with these changes.
To help, we’ve detailed three important company formation changes and explained how they could affect you.
1. Banking regulations are tightening across the UAE
This last year has seen a number of announcements by the UAE government that have forced businesses to adapt quickly to stay competitive.
Just under one year ago we saw the introduction of Value Added Tax (VAT) in the UAE. This has already impacted how companies negotiate with customers and suppliers, as well as influencing pricing structures, cash flow, and business processes.
Just before this, excise tax –an indirect tax on goods that can cause harm to human health, such as tobacco– was introduced. These are big changes for a country known for being tax light.
The biggest change: The UAE government has joined over 100 countries in agreeing to a Common Reporting Standard (CRS). This is an exchange of information between different tax authorities to increase transparency.
CRS means the UAE Central Bank demands that local banks are now much more stringent in performing due diligence and compliance. As a resident or a non-resident, this could impact you in particular as your accounts would now be reportable under the CRS system, if the banks feel you are not a resident for banking purposes. This means that an Ejari (lease agreement), and DEWA bill, in Dubai’s example, are needed to support your VISA and EMID from the bank’s point of view in order for them to bank you as a resident for non-exchange.
Why is this all happening now?
Well, the more skeptical among us might suggest it has something to do with the UAE being temporarily dragged onto the EU’s tax blacklist in late 2017.
Despite being removed from the black list fairly rapidly in early 2018, the UAE is still sitting precariously on the grey list. As a result, the central bank and local banks have increased the requirements to prove your residency for banking purposes which is not a bad thing, and a sign of the progression and willingness of the UAE to evolve as it has always done over the last 50 years.
What this means for you in 2019
Every year, the country does more to align itself with its international partners.
As with any country, you need to stay on top of the tax laws and banking regulations. The problem now is that things are changing so fast that information on the internet quickly becomes obsolete. So always check the date when the information was written and double check any advice.
This may all sound ominous, but in the long-term it’s actually positive for you as a business owner. Such changes show the UAE’s willingness to adapt and move with the times. They will create new opportunities for FDI and ensure compliance with international standards.
But this also means it’s more important than ever to find a trusted advisor in the UAE. One with local knowledge and expertise, who will be able to guide you through the process of setting up a company step by step.
2. Dubai and Abu Dhabi are becoming the go-to places for new business
A knock-on effect of these tax and bank regulations is a physical shift in where companies are choosing to locate their office.
New Central Bank guidelines require a UAE residency visa and Emirates ID if you want to open a corporate account. Also, as a signatory, you will need a local corporate address that is a physical office. A flexi-desk will no longer cut it in many cases, plus you will need a residential address to support any application, to show you are based here.
In the past, one of the great attractions of the Northern Emirates’ free zones was their flexi-desk options. But no more. Now there are only a few places where banks are prepared to consider a flexi-desk and they’re all in and around Dubai or Abu Dhabi. Examples include DMCC, Dubai South, DWTC, JAFZA, DIFC, DSP, and ADGM.
Added to this, the Northern Emirates are no longer the cost-effective option they used to be.
The E-Channel Immigration System is a unified immigration system implemented in five of the seven Emirates back in 2017. The Northern Emirates have been forced to introduce the system, but Dubai and Abu Dhabi continue to use their own independent ones for now.
While E-Channel has many benefits, such as online processing and faster approval, it comes with a high outlay of AED 7,000 to 8,000.
Take Ras Al Khaimah Economic Zone (RAKEZ) as an example. Registration costs AED 2,000. Then there is an AED 5,050 guarantee fee (although bear in mind this is refundable). Annual re-registration then costs around AED 1,200.
What this means for you in 2019
With Northern Emirate free zones costing more, clients are looking more closely at options in Dubai and Abu Dhabi.
But that doesn’t make it an easy choice. Where you locate depends on several factors including your business activity, size of operation, overall visa requirements, and amount of capital you have to invest.
Something else to be aware of: Moving into 2019, the UAE government is introducing dual licenses that allow companies to hold one license to operate in the mainland and one to operate in a free zone without needing office space for both companies. This widens your options, but of course it can also make your decision more complex. But it does bring massive benefits for business planning.
Again, it will pay to take one-on-one advice to find the best option for your company and receive help dealing with local banking regulations.
3. Banks are favouring different business activities
If you’re looking to start a general trading or management consultancy company then things might be tougher for you in 2019. Business activity choice is coming under greater scrutiny as banks clamp down on what they deem ‘high-risk’ or ‘vague’ activities.
It doesn’t help that UAE federal law is very stringent about companies not deviating from their registered activities.
‘The company shall obtain all the approvals and licences as required for the activity to be conducted by the company in the State prior to commencement of its activity.’
Unfortunately, banks are also becoming warier when it comes to certain nationalities. Some people are viewed as riskier than others from a geopolitical standpoint, leading to more compliance paper work and background checks. Ultimately, this can mean higher costs, delays and in some cases rejection of your application, where a proper business plan is not submitted or where supporting information is not available and in place.
What this means for you in 2019
Think carefully about how you would define your business activities. Given how lax some other countries can be with upholding activity registration, it can be tempting for entrepreneurs to assume the same for the UAE.
This would be a big mistake. Even if the bank accepts your application, things may go awry further down the line. You may encounter issues when it comes to audits. You may face questions about your suppliers or clients. You even run the risk of fines.
But the above pitfalls can be avoided if you seek out a specialist consultant with a reputation for offering a high-quality service. Ultimately, this is how you can ensure your venture gets off to the best possible start.
Keep your ear to the ground
The past couple of years have seen rapid change to how companies operate across the UAE. There is little to suggest 2019 will be any different. So make sure you keep up-to-date with changes as and when they happen.Related: Six Reasons Why UAE Attracts Global Startups