5 Mistakes Entrepreneurs Make When Setting Up in the UAE

In 2020, the United Arab Emirates had 405,000 registered businesses. By mid-2024, this had grown 152% to reach 1.021 million.

The growth reflects the UAE’s ascendancy as a preferred destination for business setup. For the fourth consecutive year, it has ranked first in the Global Entrepreneurship Monitor (GEM) report. The 2024-2025 report, specifically, named the UAE as the world’s best destination for entrepreneurship and small and medium-sized enterprises.

Mahesh Shahdadpuri, Founder & CEO of TASC Outsourcing, one of the leading workforce solutions companies in the MENA region, commented, “The government’s initiatives are nurturing the United Arab Emirates’ thriving and competitive entrepreneurship ecosystem. The reform and update of local laws and economic policies, in particular, continue to encourage investments and entrepreneurship.”

The UAE aims to enhance its global entrepreneurship competitiveness through more initiatives that will raise the entrepreneur success rate from 30% to 50% in the next 10 years. For businesses aiming to start a business in the UAE, consultants at TASC provide a list of the five mistakes to avoid when setting up a business in the UAE.

1. Choosing the Wrong Business Structure/Jurisdiction

Entrepreneurs can set up a mainland, free zone, or offshore company in the UAE. Each type has unique compliance and market access implications. Choosing the wrong structure or jurisdiction means unnecessary costs and compliance requirements, operational restrictions, and limitations on a company’s ability to scale and grow.

UAE free zone companies are fast and easy to set up, as they are regulated primarily by free zone authorities. They enjoy excellent tax advantages, such as a 0% corporate tax rate on qualifying income.

Offshore companies are likewise tax-exempt. They do not even need a physical office in the UAE. They simply register with a jurisdiction like the Jebel Ali Free Zone (which is popular for offshore business setup), and they usually have minimal filing requirements.

However, free zone and offshore companies have market access limitations. Free zone companies may operate only internationally or in free zones. Offshore companies may conduct business only outside the UAE; they may not operate in the UAE at all.

Entrepreneurs who want unrestricted market access can set up a UAE mainland company instead. UAE mainland companies can operate anywhere in the UAE and have the fewest restrictions on economic activities. Naturally, they are also subject to greater government regulation and oversight than free zone and offshore entities. 

2. Incomplete Market Research and Poor Planning

Poor planning can lead to unexpected difficulties, expenses and limitations. For instance, knowing only that free zone companies are easier to set up than mainland companies, an entrepreneur may register their bakery in a free zone. However, bread and bakery products trading, even in a free zone, is regulated by both the Department of Food Control and the Department of Public Health and Safety. Perhaps this bakery would have been better off registering as a mainland business to enjoy greater market access.

Enterprises may also be shortchanging themselves by rushing into company formation without a true understanding of their target customers in the UAE. A beauty soap company may fail if it doesn’t adjust its products’ light and airy scent profiles to fit the UAE market’s preferences. An e-commerce platform will not gain market share if it cannot clarify its position and differentiate itself in a market already dominated by Amazon, Noon and Ounass.

3. Underestimating Legal and Compliance Requirements

The UAE changes its regulations frequently, and these can trip up an unaware entrepreneur. The following are recently instituted changes in UAE laws that affect enterprises’ legal and compliance requirements.

• Corporate Tax: Federal Decree-Law No.60 of 2023 introduced a 9% corporate tax rate for taxable income above AED 375,000. Enterprises can retain their 0% corporate tax rate by registering at a free zone, but they must be aware that free zone companies are charged 9% corporate tax on all non-qualifying income. Furthermore, if their non-qualifying income exceeds 5% of total revenue or an absolute limit of AED 5,000,000, their entire income (including qualifying income) may be taxed.

• Value Added Tax: The 2024 amendments to the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax simplified the documentary requirements for zero-rate VAT on exported goods but also potentially narrowed the VAT-exemption scope.

• Anti-Money Laundering: The UAE’s National Strategy for Anti-Money Laundering (AML/CFT/CPF) for 2024-27 enhanced its anti-money laundering laws [i.e., Federal Decree-Law No. (20) of 2018]. Before UAE company formation, businesses must ensure that their processes minimise AML compliance risks.

4. Poor Financial Planning and Ignoring Hidden Costs

Company formation will incur various fees, and entrepreneurs must precisely account for all the applicable charges to grasp the true cost of business setup in Dubai and elsewhere in the UAE. Below are some of the costs they must plan for to ensure sufficient cash flow:

• Registration fees: Dubai free zones typically charge between AED 9,000 and AED 10,000 in registration fees.

• License fees: Licence fees recur annually, and they cost from AED 10,000 to 50,000 per year.

• Capital expenses: There may be minimum share capital requirements depending on jurisdiction and legal structure.

• Operating expenses: Rent, utility bills, employee salaries, visa fees, insurance fees, equipment maintenance, consumables, and software licences are recurring expenses, especially for enterprises that must maintain a physical presence in the UAE. According to Property Finder, Dubai offices have an average size of 1,000 square feet and an average rent of AED 17,000 per month. 

5. Neglecting Cultural Localisation, Digital Presence, and Networking

Enterprises in the UAE must localise their approach (particularly in marketing and branding), expand their networks, and use digital technologies and channels to succeed in the UAE market.

Localisation: The audience or the market informs marketing strategies and initiatives. This is why a UAE water park has Ladies Day, when the park has an all-female staff and access is available exclusively to female guests.

Entrepreneurs selling to the UAE market must also consider marketing not only in English but also in Arabic. The use of the local language is more effective at conveying emotions and sentiments that resonate with the UAE market. Language is rooted in culture and carries meanings and references that go beyond dictionary definitions.

It’s crucial that marketing be aligned with local values. A premium car maker ad shown in the UAE is a perfect example of what to avoid. In that ad, football players were singing the UAE national anthem, but the revving of car engines enticed them to start running towards the cars. The ad was supposed to incite excitement for the brand but, instead, it elicited anger because it implied the cars took priority over the national anthem.

Networking: Networking is essential to doing business in the Middle East. The Arabic concept wasta encapsulates the importance of trust-based, personal relationships. Therefore, establishing networks and connections is crucial to gaining business and market access.

Digital Presence: The ICT Development Index indicates:

• 100% of UAE households have internet access at home

• 100% of individuals have used the internet

• 100% of UAE inhabitants have active mobile broadband subscriptions

Not only is everyone using the internet. They’re shopping and buying online, too. The E-commerce Report 2025 by EZDubai reveals an e-commerce market value of $8.8 billion for the UAE in 2024 and predicts its growth to $13.8 billion in 2029.