What are the market entry challenges in UAE?

Prabhat Nigam

09 Sep, 2022

The United Arab Emirates (UAE) is one of the most business-friendly jurisdictions in the world, which happens to be located at the centre of the world. This attracts businesses across the globe to set up their offices in UAE for quick access to the rest of the central business centres of the world. UAE happens to be a tax-friendly nation, too, having specific legislation and presenting an array of business opportunities. However, like any other world jurisdiction, market entry challenges exist in UAE too. This piece of writing lists down the market entry challenges in UAE.

Challenges of the market entry in UAE    

Following are the market entry challenges in UAE that foreigners face while expanding their business presence:

Sharing of Ownership   

One of the primary market challenges in the UAE is sharing ownership with local representatives. If a foreign entity wants to enter the UAE market, be it through partnership, franchising, regional distribution or opening a representative office in UAE. Further, even if a foreign entity wants to establish a limited liability company in the UAE, it needs to partner with a local representative and offer a share in the company’s ownership. This is the case in most business categories barring a few, which has become one of the significant detractors of entering the UAE market.

Finding a capable and reliable partner/sponsor

Because every foreign entity is obligated to partner and share ownership with a local sponsor/partner, the companies are mandated to appoint one. The difficulty at this stage is finding a capable sponsor or partner that is well aware of the local laws and capable of handling the local operations of the company in an efficient manner.

The foreign entity also requires enough funds to run the business operations smoothly. This requires a capable investor who can fund the business’s day-to-day operations. Again, finding such a capable person is difficult. Therefore, it is suggested that the foreign entity must have its detailed fund management plan prepared for its long-term services or

Introduction of GCC VAT

Lately, to diversify their economy, Value Added Tax (VAT) was adopted by the Gulf Cooperation Council^[1] in 2018, which introduced the value-added tax to the tune of 5% on all goods and services, excluding basic food essentials, healthcare and education. Though the VAT applicable is as low as 5%, the major pain point for businesses is to integrate VAT within their business model and get accustomed to it, failing which they may face hefty penalties from the government.

Challenges arising out of differences in societies and cultures

One of the major market entry challenges in UAE is the differences in societies and cultures. Every foreign entity must be aware that UAE is still a Muslim country and, therefore, should take into account Islamic traditions and cultural norms while introducing your products and services in the UAE. Differences also exist in terms of local holidays, cultural norms, working hours, public holidays etc. The businesses should also be mindful of the UAE’s social milieu to carry out business operations in the UAE market effectively.

Finding an ideal location for the Office

In order to obtain a business license in UAE, the business is supposed to have a registered address with a physical office. This makes it difficult for small companies to enter the UAE market. Also, the location of the Office plays a vital role in the seamless operations of the company. Though free zones provide affordable real estate options, the location and size of the Office play the deciding role in the success of the business. This possesses a major market entry challenges in UAE.

Linguistic challenges

Foreign businesses should also be mindful of the linguistic challenges that exist in the UAE. While English is the standard for communication, the official language is still Arabic, and all the contracts, records and trading manuals written in English must be translated into Arabic. For translation purposes, businesses are required to find a translator to translate documents into English and Arabic. Further, the majority of residents of UAE are not very proficient in English and Arabic and mostly understand Hindi. Therefore, businesses need to understand Hindi to deal with such a population too.

Challenges related to visa requirements and work permits

The foreign entity bringing its employees to the UAE needs to follow the Visa norms and comply with the General Directorate of Residency and Foreigners Affairs regulations and the Ministry of Human Resources and Emiratisation. Further, foreign employees are also required to obtain work permits in UAE. Moreover, the UAE does not grant citizenship to non-emiratis.

Hiring and management of Local employees

While setting up a business in Dubai, a lot of residents are hired by foreign entities. For any foreign entity to run its business operations in UAE, a set of guidelines must be followed, which may be difficult for small entities due to a lack of resources. Another task is the management of employees, which involves compliance with the local laws and regulations related to payroll management, administration, language etc. Further, companies also need to follow the Wage Protection System along with the end-of-service gratuity payments.

Conclusion 

From the above mentioned reasons, it can be observed that UAE has its own set of challenges. However, these challenges can be dealt with with the services provided by Professional Employer Organisations (PEO) and incorporation experts that offer their services in setting up their client’s businesses. To know more about the market entry challenges in UAE specific to your business and how you can circumvent them, get the consultation offered by global incorporation experts at Enterslice.

Read our Article: The Ideal UAE Market Entry Strategy: Detailed Overview