Starting a company in Abu Dhabi should be an exciting time as you embark on your new venture to take advantages of the opportunities in the Emirate. However, it should be noted there are a number of different ways to start a business and its essential to get the right business license (Trade license).
Following is an outline of what needs to be done to start your new business in Abu Dhabi.
- What will your Abu Dhabi business be doing?
If you already have an oversees business which is expanding into Abu Dhabi, you will already know this. If you are a budding entrepreneur you need to decide exactly what your new business will be doing as the first step. If you have a passion or hobby, your business might derive from these. Alternatively, identify ‘pain points’ which frustrate you or other people and try to find solutions for these.
2. Market research
Is there a market for your product/service? Desk research is a free way of starting this process. Later you may decide to engage on-the-ground professionals for specific studies. If you are already in Abu Dhabi, ask people what they think, but don’t just ask friends and family who may be inclined to just tell you what you want to hear. For overseas companies, be sure to check into UAE culture and customs to check whether or not it will be necessary to adapt your product/service to meet local requirements.
3. Identify your prospective clients
This is really important. Think about which companies you want to be doing business with, then find out who within that company you should be speaking with. Connect with them, perhaps via LinkedIn initially or other social media channels, and start to build a relationship so that your name is already familiar to them when you eventually reach out to them about your company. Find out where those companies are located and then if that location falls within one of Abu Dhabi’s free zones (Masdar, TWOFOUR54, KIZAD, ADGM, Airport City & ICAD).
4. Choose where your license should be issued
Your findings in the above point will determine where your trade license should be issued from. As a general rule, your business should be set up where your clients are located. Therefore, if all of your clients are in the media and film sectors, and based in TWOFOUR54, Abu Dhabi’s media free zone, then you should get a license issued in that free zone. A free zone license covers you to do work within the geographical boundaries of that specific free zone and with overseas companies only.
If your anticipated clients are located in more than one free zone, it will be necessary to have a license in each free zone. My suggestion would be to set up the first license in the free zone where you are anticipating your first piece of business or where you anticipate the bulk of your business to be and then expand into the second free zone when you need to.
If your clients are for example schools, these generally aren’t located in free zones and therefore are considered to be on the mainland. In this instance it would be necessary to obtain a license from Abu Dhabi’s Department of Economic Development (ADDED), which will cover you to work throughout Abu Dhabi.
5. Choose the structure for your Abu Dhabi business
If you are expanding an overseas company into Abu Dhabi, you will need to select either a foreign branch or a limited liability company (LLC) structure. You may be able to choose, but in some instances your business activities will determine the structure for you, e.g. if you will be selling products, then you need to have a Limited Liability Company.
A. LLCs are common because they are the most flexible type of business license and the owner’s liability is restricted to the value of their share capital. However, this type of license requires a foreign individual or company (non-Emirati or GCC national) to engage with a local sponsor who will hold 51% of the business. There are ways in which you can protect your business and ensure you keep all of your profits, by appointing a corporate nominee sponsor. Choosing the right sponsor is critical, so be sure to fully understand what you are getting involved with and what each party’s expectation of the other is from the outset.
B. Foreign branches are ideal for conservative, services-based companies because they are 100% owned by the parent company. However, this means the parent company will be liable for tax in their home jurisdiction (please seek professional tax advice in your home jurisdiction). The liability of the Abu Dhabi foreign branch falls back onto the parent company. This license is more expensive to set up, requires a AED50,000 bank guarantee to be lodged with the Ministry of Economy for the duration of the branch and it is more expensive to renew the license too.
C. Representative Office is less common. In essence, it is a foreign branch, but with restrictions, such as a limit on the number of staff which can have a visa under the license (max. five employees) and it can only promote and market the parent company, it can’t transact in any way.
D. Tajer Abu Dhabi licenses are only available for UAE citizens and residents. You need to have a visa and Emirates ID to apply. This license is ideal for startups and side businesses as it allows you to work from home for the first two years negating the requirement to lease an office or commercial space, thus keeping your costs down. A local sponsor is needed.
6. Organize your documents
For individuals setting up trade licenses in Abu Dhabi, it is very straight forward as you only need your passport, visa and Emirates ID. However, for businesses expanding into Abu Dhabi certain corporate documents will be required including, but not limited to, your company’s Certificate of Incorporation, Memorandum & Articles of Association, Board Resolution & Power of Attorney (POA) to your signatory. These will all need to be notarized in your home country, apostilled at your country’s equivalent of the Ministry of Foreign Affairs and then stamped at the UAE Embassy in your home country. They will then need to be brought to the UAE where they will be stamped at the Ministry of Foreign Affairs in-country and then need to be legally translated. Some free zones don’t require the legal translations or the Ministry of Foreign Affairs stamping.
7. Choose your company name
If your company will be a foreign branch it will automatically take the same name as it’s foreign parent. For all other licenses the name should reflect one of the activities selected for the license, e.g. if your company will be providing IT Consultancy services, it should contain the word consultancy to clarify that the business is a consultancy.
If your company will be a mainland company, it will be necessary to select your local sponsor (LLC and Tajer licenses) or service agent (foreign branch and rep office licenses).
9. Company registration
For ease and efficiency, I would strongly recommend engaging a professional company formation provider with a good reputation. They will then manage the process for you whether it is a mainland trade license or free zone license. However, if you opt to go it alone, your chosen local sponsor/service agent will be able to help you through the online registrations if you are establishing a mainland company (some information will be required in Arabic); and, if you are setting up in a free zone, the free zones’ customer services will be able to assist you.
During the process, either you or your signatory will need to sign the corporate documents before the Notary Public, at the moment, due to Covid, the Notary services are via WEBEX.
10. Commercial Premises
All licenses (except Tajer Abu Dhabi licenses for the first two years) are required to have a commercial premise. This needs to be suitable for the activities on your license, e.g. if you are providing consultancy services an office would be considered suitable; whilst if you are retailing toys, then it would be necessary to have a shop. The size of the premises should also be large enough for the number of staff you are anticipating to work for the company, e.g. the minimum size for an office is 14sqm. Some activities will have specific minimum requirements and these can be checked with ADDED in advance. A Tawtheeq lease will be required – this means that the premise has been registered with the Abu Dhabi Municipality. If the landlord can’t give you a Tawtheeq lease it means the premise hasn’t been registered and you won’t have sufficient documentation to get your license issued without one.
In the free zones, it is possible to get virtual offices and flexi-desks rather than leasing a physical office, which is ideal for one-man-bands and startups or for businesses which will initially be managed from overseas. Free zones generally require more physical space to be leased per employee than is required for mainland companies.
11. Trade License Issue
Congratulations on reaching this point. You can now legally start doing business!
A. Instant licenses are also available in Abu Dhabi for certain activities. These are ideal in situations where you might have contractual obligations and need to have a license quickly. You will still need to have your documents organized in advance and these will need to be submitted as part of the application process, but everything else can be completed after the issuance of the trade license, such as the notary public signing and organizing of premises.
B. Dual licenses are also available for free zone companies to expand their business onto the mainland. These licenses enable them to contract directly with the government, as well as legally work outside of the geographical boundaries of the free zone, but within Abu Dhabi Emirate. To apply for a license, it is necessary for the free zone entity to have a physical commercial office or premise within the free zone – a flexi desk or virtual office will not suffice. The entity is not required to have a local partner for this type of license. Dual licenses are applied for via ADDED. Not all activities are eligible for dual licenses and there is no guarantee of approval.
The above is just a very brief overview to help you establish a business in Abu Dhabi. There are lots more things to consider, which may affect your license choice or structure, such as your longer-term expansion plans and/or exit strategy. Engaging experts to help you get the right license is an investment which will allow you to focus your time of developing your business rather than getting stuck navigating systems, processes and document requirements. An expert will also be able to identify any risks you should be aware of and how to mitigate them, as well as answer all of your questions. Starting a business is a huge investment. Be sure to get the right license for your specific circumstances and ongoing requirements.