How to prepare for business startup costs in the UAE

Doing business in the UAE is easy.

It ranks 16th globally in the World Bank’s current Ease of Doing Business rankings, which places the country in the top 10% in the world.

With low costs, an attractive tax situation and minimal time investment required, the process of setting up in the UAE is easy as well – but that doesn’t mean you can just get started without a setup budget.

Here we look at the main costs involved in setting up business in the UAE, with some tips on the financial planning required to make sure you get through those early stages successfully.

1. Business setup fees

The first thing you need to decide is whether you intend to set up in a free zone or the mainland. This will have a significant bearing on the fees you have to pay.

It can be very beneficial to use a professional advisor to help set up your business, particularly if you are new to the region. They will make sure you’re aware of all the fees involved and the financial incentives available in the free zones.

You can expect to pay a trade license fee, visa costs (if required), health insurance, office rental (required for all free zone trading licenses) and any future costs related to your company license, such as renewal or cancellation fees.

How to plan for these fees

In order to budget for your setup fees, you need to know exactly how much you will need ahead of time. This means starting your research months before you aim to open your company, and tapping into local knowledge as much as you can.

There are several companies and individuals that specialise in helping businesses get established in the UAE. Talk to a few and get at least three quotes for comparison. Before signing, make sure you understand all of the fees they charge and the full extent of the services they provide.

If you set up in a free zone, you will be provided with professional support in registration, licensing and planning, so you can complete all of this quickly and easily.

2. Running costs in the early stages

Few businesses become profitable right away, but the bills still have to be paid. It usually takes time to develop a steady stream of business and income. As Tony Hsieh, CEO of billion-dollar retailer Zappos has said, “Chase the vision, not the money; the money will end up following you.”

In other words, make sure you have a decent fund to cover the day-to-day running costs in the early stages of the business, because cash flow will be an issue. By planning ahead, you can alleviate the stress of paying the bills and concentrate on the important business of establishing your reputation.

How to plan for day-to-day costs

Factor at least six months of running costs into your savings plan and try to build up this savings buffer well ahead of launching your company. This way, you’ll know you have expenses covered and won’t be in danger of not meeting your commitments.

If setting up in a free zone, you can maintain 100% foreign ownership to benefit from more of your hard-earned income.

3. There are some taxes

Despite substantial tax relief in the UAE, some payments are still required and it’s essential to budget for these to avoid falling short.

According to the International Monetary Fund (IMF), the business tax burden in the UAE is around 15.9% of profit. This is a combination of labour taxes, land transfer/registration fees, trade license renewal and vehicle registration fees. It’s important to establish a clear understanding of your ongoing tax requirements in order to save that percentage of what you earn.

Free zones can minimise this burden. You will be able to take advantage of generous incentives such as no corporate or personal tax and 100% repatriation of capital and profits.

How to plan for taxes

Work with a financial adviser or use accounting software to calculate the percentage of income you need to save, then add a couple of percentage points to keep on the safe side. Make sure that you deduct this amount from your earnings each month and put it into a savings account that you can’t easily withdraw from, so it’s still there when you need it.

4. Always expect the unexpected

Even in the UAE, there are rainy days. Make sure you plan for them.

However carefully you map out your future, something unforeseen may still go wrong. In addition to following all of the above advice, it’s highly advisable to have a contingency budget for such eventualities.

How to plan for contingencies

Build up an extra savings pot in the bank to use as a buffer to cover unexpected expenses, clients who don’t pay, and so on. Use a different account to your tax and early stage running costs accounts. Some banks will let you create micro-accounts within a broader account, so you can specify a purpose for those particular funds.

The process of setting up a business in the UAE continues to improve every year. The government has made it easier to start a company by improving online procedures, property registration, and your legal rights as a borrower. The range of assets you can use as collateral against a loan is now greater than ever.

By saving and budgeting carefully, your business will be well on its way to a successful first year – and long-term savings of operating in the UAE will promise a bright future.

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