Tim Elliott
Welcome to Lawgical, the UAE’s first regular legal podcast. I’m with Ludmila Yamalova. Ludmila is the managing partner of Yamalova & Plewka. Lovely to see you, Ludmila.
Ludmila Yamalova
It’s great to see you, Tim. Thanks for being here.
Tim Elliott
Today, we’re going to be talking about the most critical mistakes that businesses make in the UAE—starting on the wrong foundation. Specifically, we’ll discuss businesses coming from outside of the UAE.
It’s such an important topic, isn’t it? Ludmila, everything you do starts with a good foundation—whether you’re building a structure or even raising children. You know where I’m going with this.
Ludmila Yamalova
Indeed, Tim, and it’s a very important topic. I often say if a business is built on the wrong foundation, it’s like building on eggshells—it’s only a matter of time before it collapses.
Having spent 25 years as a lawyer, with 16 years running my own law practice, I’ve seen this issue firsthand—not only through my clients’ experiences but also through my own journey of setting up and managing a business in the UAE.
Tim Elliott
Can you explain why the initial decision of where to set up a business in the UAE is so crucial?
Ludmila Yamalova
Absolutely. First, you cannot just set up a federal UAE company. In the UAE, you must decide where in the UAE you want to set up. Each emirate has its own specific business jurisdiction. For example, if you want to set up in Abu Dhabi, you must set up in Abu Dhabi. The same applies to Dubai, Ajman, Fujairah, and so on.
The UAE is a country of seven emirates, and each one operates its own licensing authority. Historically, many businesses focused on the cost of setting up and were drawn to jurisdictions with cheaper options—like Fujairah. However, this decision often comes with unexpected limitations.
For instance, in the past, if you were set up in Fujairah and held a Fujairah investor visa, you couldn’t register a car in Dubai even if you lived there. You had to register it in Fujairah. These restrictions, though improved now, highlight how your choice of emirate affects everything, from business operations to personal conveniences like car registration.
Tim Elliott
So, essentially, where you set up impacts not just your business but sometimes your personal life as well?
Ludmila Yamalova
Exactly. For example, back in the day, renewing your Emirates ID or completing medical checks often required you to return to the emirate where your visa was issued. While processes have become more streamlined, choosing the right emirate still requires thorough consideration.
Price should not be the sole deciding factor. Many businesses mistakenly think the location doesn’t matter—until they’re deep into operations and realize it matters a great deal. For example, banking can be challenging if your business is in an emirate or economic zone that lacks strong international recognition.
Tim Elliott
Can you explain the difference between free zones and the mainland when setting up a business?
Ludmila Yamalova
Sure. Historically, mainland businesses required a local partner to hold 51% ownership, while free zones allowed 100% foreign ownership. This distinction led many businesses to choose free zones. However, recent legal changes allow 100% foreign ownership on the mainland for most businesses, leveling the playing field.
Free zones and mainland setups differ in structure. On the mainland, businesses deal with three main authorities:
- Licensing Authority (e.g., Department of Economic Development) – Handles your business license and renewals.
- Employment Authority (e.g., Ministry of Human Resources and Emiratization) – Manages employment contracts and quotas.
- Immigration – Handles visa issuance and renewal for employees.
Each authority operates independently, requiring separate portals and processes. Free zones, on the other hand, often centralize these processes into one portal, making operations more efficient.
Tim Elliott
Which free zones stand out for their efficiency and business-friendliness?
Ludmila Yamalova
Several free zones are well-regarded for their user-friendliness:
- DMCC (Dubai Multi Commodities Centre) – This is where our firm is based, and it offers a streamlined, centralized portal for all business operations.
- JAFZA (Jebel Ali Free Zone Authority) – One of the oldest free zones with strong infrastructure.
- DIFC (Dubai International Financial Centre) – Ideal for financial services with its specialized regulatory framework.
These free zones are known for their transparency, accessibility, and efficient operations.
Tim Elliott
What about newer free zones? Are there challenges with them?
Ludmila Yamalova
Yes, newer free zones often rely on agents or consultants to attract businesses. Some free zones even require you to work exclusively through an agent, which creates an extra layer between your business and the authority.
This setup can lead to complications. For instance, businesses may face delays in making changes, like altering shareholding structures, because they’re dependent on the agent. Some businesses aren’t even aware they’re working through an agent until they encounter issues.
Tim Elliott
Have you dealt with cases where this caused significant problems for businesses?
Ludmila Yamalova
Absolutely. For example, a European company set up on the mainland without understanding the implications. They struggled to hire additional employees due to quota restrictions tied to their office space and business category. They were also unaware that their licensing documents only allowed one individual to make decisions for the company—someone who wasn’t even based in the UAE.
Another client was set up in a free zone through an agent. When they wanted to make structural changes, they couldn’t proceed directly with the free zone authority because only the agent was authorized to act on their behalf. This lack of control left them frustrated and hamstrung.
Tim Elliott
So, the key takeaway is to do your due diligence and seek professional advice?
Ludmila Yamalova
Exactly. Setting up a business is a legal and financial decision that affects your entire operation. While agents can be helpful, businesses should first consult qualified professionals—preferably lawyers with UAE-specific experience—to ensure they start on the right foundation.
Tim Elliott
Thank you, Ludmila. That was incredibly insightful.
Ludmila Yamalova
Thank you, Tim.
Tim Elliott
That’s another episode of Lawgical. You can find us on Instagram, Facebook, TikTok, LinkedIn, YouTube, and wherever you get your podcasts. For more UAE-centric legal information, visit lylawyers.com.