Crossroads of East and West: why business feels good in the UAE

Experts interviewed by RB.RU call the UAE one of the most popular regions where Russian entrepreneurs move business after February 2022. The Emirates also provide access to the global market, and many founders see opportunities for scaling here, even if business inside the country remains.

In the Global Entrepreneurship Monitor ranking for 2021-2022, the UAE topped the list of countries in which it is easiest to start a company. 

Comfortable conditions for entrepreneurs are created by the state itself: low taxes, support for the business community, legalization of cryptocurrency. The UAE easily accepts emigrants, and not only Russian-speakers: according to the UN data for 2019, about 88% of the population of the country — not indigenous.

Crossroads at the junction of East and West, huge skyscrapers, money from mysterious sheikhs, hot climate — all this leads the founders along the roads of the Arab world. RB.RU has prepared a detailed startup guide for technology entrepreneurs interested in the opportunities of this region.

Business environment

Kim Sanzhiev, founder and CEO of Get Outfit, a fashion referral platform, says the environment for startups is quite favorable, despite the small local market.

Kim believes that it is important for founders to be directly in the country if they want to succeed: “It is worth considering the region as a long-term investment. Relationships and business reputation are built here for a long time. It’s definitely not possible to come and earn money quickly in the UAE».

Alexandra Gerasimova, co-founder of Fitmost, also believes that it is worth living in the Emirates if you are interested in the MENA market and business "on the ground".

Fitmost is an ecosystem for fitness studios, beauty salons and yacht rentals. The co-founders of the startup have chosen to launch an international company in the UAE, where the wellness services market is developed. “We opened a company in Dubai outside the free zones, as we work with business on the ground. Yes, we pay taxes, but they are still much lower than in Russia, », — Alexandra says.

Free economic zones (FEZ), or free zones (free zone) — these are territories within a city or emirate with preferential economic conditions for doing business. The opposite of the free zone — the main territory of the UAE (mainland).

Anton Kondratyuk, founder of Fikra, which provides B2B solutions for managing employee ideas and innovation in large companies, also calls the atmosphere for startups in the UAE favorable.

Among the advantages, he highlights: the presence of free zones and investment capital, the country's focus on innovation (the UAE has a strategic development plan, including, among other things, the "cultivation" of potential unicorns), the ability to scale to the MENA region and beyond, simple conditions for obtaining residency and opening a company.

Anton believes that if an entrepreneur needs a country with loyal tax and investment legislation, where they can quickly turn around and have a market available for visitors within the country or in the region, as well as venture and investment infrastructure, — You won't find a better place in the UAE.

"In local accelerators, the number of applications from Russian companies has recently grown not even several times, but dozens of times", — notes Anton.

Of course, it will not be as cheap to do business here as, for example, in Turkey, but Dubai and neighboring emirates allow you to regulate the level of expenses. Many entrepreneurs compare the UAE with Israel: it is cheaper in the Emirates.

In addition, startup founders who do not want to do business directly in the Emirates still do not have to live in the region.

Features of registering a company in the UAE

In the UAE, a legal entity can be registered in mainland (mainland) and free economic zones, free zones — free economic zones located in different emirates.

The choice is worth making, taking into account the future plans of the company.

Mainland

Suitable for doing business throughout the Emirates and abroad. The tax here is one — VAT at the rate of 5%, which is charged if the company's annual turnover exceeds 375,000 dirhams (approximately 102 thousand US dollars). From June 2023, a corporate tax of 9% is also introduced.

Previously, registration required an offline office and personal presence when submitting documents, now it is enough to register online. It is necessary to study the market and establish business ties within the country.

Freezones

On the territory of FEZ, you can register two types of companies: for operating within the UAE and FEZ, and offshore for operating abroad. Taxes in both cases — null.

Companies registered in the FEZ may conduct business within a certain free zone, but the zone has its own lists of permitted activities. For example, for an automotive business, you can choose Dubai Auto Zone, and for an industrial company — Dubai Industrial City.

Offshore provides access to foreign markets, however, in the UAE, activities can only be carried out with certain restrictions (for example, goods can be sold through local companies).

In both cases, when registering a startup, documents can be submitted without personal presence, you can also limit yourself to an online office.

In terms of additional taxes, from September 2023, the government plans to introduce a corporate income tax of 9%. It is assumed that it will be paid by companies in both Mainland and free zones.

In addition to creating a legal entity, you need to obtain a license to work in the UAE. Here it is impossible, as, for example, in Russia, to have several OKVEDs for activities in different areas. For example, one company cannot do both marketing and construction. The minimum cost of the license — 5 thousand dirhams (about 1300 US dollars).

Also, to open a company, you need the authorized capital — its size depends on the region. For example, in the free zone of Ras al-Khaimah, it is 100 thousand dirhams (about 27 thousand US dollars). A current account can be opened online: many banks require confirmation of a monthly income of 3-5 thousand dirhams (800-1300 US dollars).

RB speakers note that banks sometimes do not require documents on authorized capital or allow them to be provided formally: without account statements.

It seems that it is easier to open a company in a free zone, but there are pitfalls. The trick lies in banking. It is not so difficult for a Russian entrepreneur to open a company in the free zone as to get an account for it. In some organizations, you can wait for an invoice for two months, or three, or even more. So you should take care of choosing a bank in advance, after consulting with other entrepreneurs.

Experts note that in general, registering a company will cost from 7 thousand US dollars.

Ecosystem

In the StartupBlink ranking, the UAE ranks 27th among the countries where it is worth starting a startup.

"There is a desire for innovation in the country, a consistent policy is being pursued in attracting talent from all over the world and a desire to be a trendsetter is noticeable, which positively affects the country's PR and the development of the ecosystem", — shares Kim Sanzhiev.

For example, in the UAE there is a government initiative to grow 20 unicorns by 2031 — "Entrepreneurial Nation" launched by the Ministry of Economy. Recently it was updated to 2.0 and promised to support — including the creation of 8 thousand small and medium-sized businesses.

The most famous accelerator — Hub-71 in Abu Dhabi — state. More than a hundred startups from various fields have passed through the hub.

For one of the most popular destinations in the region, Fintech, the Dubai International Financial Center, DIFC — the leading financial center of the MENA region.

DIFC started out as a financial services hub but has evolved into a sector-independent financial ecosystem with a total market size of over $424 billion — about 30% of the GDP of the Persian Gulf countries. The largest banks, insurance companies and law firms cooperate with the center.

Of the large technology parks, Dubai Techno Park (Dtec), which is a free zone, is distinguished. Also in the future, in the same Dubai, they plan to open another "smart" technopark Urban Technology District with a business incubator and space for conferences, training, research.

There is also SRTIP (Sharjah Research Technology and Innovation Park): a large technology park for the development of industrial start-ups. There you can conduct, for example, scientific research in laboratories.

The target business audience in the UAE is wealthy, rich and very rich people. There were 67,900 dollar millionaires in Dubai in 2022, according to New World Wealth. The Boston Consulting Group report says that 41% of all private wealth in the United Arab Emirates is owned by ultra-rich people, and by 2026 this number could increase to 43%.

The UAE's foreign direct investment (FDI) figures are also optimistic, with total FDI reaching $20 billion in 2021, up 11% from the previous period. At this time, global investment decreased by 20%.

According to the World Competitiveness Center’s Global Competitiveness Report 2021, the UAE ranked 1st in the region and 9th in the world in terms of investment attractiveness.

According to a report by Wamda and Digital Digest, startups in the Middle East raised nearly $4 billion in 2022, with — UAE. Companies in the food technology, fintech and e-commerce sectors were the most successful.

One of the reasons why — tax policy and many free zones. There are 45 free economic zones in the UAE, 20 of which are located in Dubai.

Popular niches and investment environment

Total startups in the country — about 4 thousand.

Companies in the UAE raised $699 million in the first half of 2022, according to the Magnitt platform, making the Emirates the top MENA country in venture capital funding. The UAE also led the way in terms of transaction volume, up 10% year-over-year.

Among the largest transactions in 2022, "lit up" local startups. Yellow Door Energy, an alternative energy company, received $400 million from Actis, Arab Petroleum Investments Corporation, International Finance Corporation and Mitsui & Co.

Kitopi, a cloud kitchen, has raised $300 million from investors. TruKKer, a truck aggregator that provides services to both carriers and businesses, received $204 million. Pure Harvest, an agricultural project, was invested with over $180 million by IMM Investment, Metric Capital Partners and Olayan Group.

Among favorable niches, experts name FinTech, PropTech, Web 3.0, Blockchain & Crypto, Metaverse, AgroTech, Wellness and RetailTech.

Alexandra Gerasimova, co-founder of Fitmost, says there are few seed and round A venture capital funds in the Emirates, "but everything is cool with larger investments, so raising $10-20 million may be easier than smaller amounts at earlier stages».

Anton Kondratyuk says: “Investments here are diverse and based on accumulated oil revenues, as well as on attracting foreign capital. There is a lot of money in the economy: in 2022, GDP growth was +7.6%, but local oriental flavor leaves its mark on their availability and distribution.

There are traditional accelerators like In5 where you can apply and go through the standard selection process. But at the same time, in one accelerator there may be a requirement that the age of the project is no older than two years (regardless of location), and in the accelerator across the road, the requirement will be the opposite. Therefore, it is necessary to carefully study the requirements and prepare an individual application for each accelerator.

There are investment funds, and not all of them are based in the UAE — Many VC-focused funds understand the local location and are happy to invest in projects they like. For example, structures based in Cyprus or the USA do this.

Also, paradoxically, experts interviewed by RB.RU note that it is easier for Russian startups to get investments in Dubai than in Russia.

Anton Kondratyuk says that “traditionally, the most mysterious — private foundations, offices of sheikhs and "sheikhs". Moreover, some of them may not even have a website on the Internet — not all of them promote themselves, rightly judging that they do not need it.

They may have different concepts: investing at different conditions and stages, but mainly at the middle and late ones. Some funds generally focus not on investments, but on support and joint development with a startup (which may turn out to be even more promising).

The ideal project in terms of local capital — this is a company that already has a solid track record in foreign markets, tested all its hypotheses, with a confirmed assessment from foreign venture capitalists. It is better to contact such structures through local entrepreneurs.

Businessmen interviewed by RB advise paying attention to the fact that niches that are considered traditional for Russia are not occupied in the UAE. For example, there are  many opportunities in the restaurant business (despite appearing in the Michelin guide), entertainment, fitness and a healthy lifestyle.

The founders also refer to this as a disadvantage of the region: it can be problematic to find a hookah bar comparable to Moscow.

Summary

In general, the UAE and Dubai in particular — great places to do business. Entrepreneurs can be scared off by intense heat in summer, oriental specifics, or the lack of a niche for a particular project.

But there are not so many alternatives to the UAE for Russian founders today: the local markets of conditionally friendly countries are small, and far from all countries provide business scaling opportunities.

The region is developing, the state is doing a lot to support technological entrepreneurship, and such low taxes are almost nowhere to be found.

UAE — an expat friendly country and therefore one of the best places to land a company in unstable times.