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Guide to penalties you can sustain during business set up in Dubai

April 22, 2021

Are you an entrepreneur who is considering setting up a business in Dubai or any other emirate? While Dubai is indeed famous for ease of doing business, you’re setting yourself up for failure if you are going to depend only on google and friendly advice. Simple errors that you make during company formation in Dubai can end up pretty expensive, raking up humungous penalties. Here’s our guide on penalties you can sustain during business set up in Dubai, especially if you are going it on your own without the help of business setup consultants in Dubai.

Penalty for obtaining the wrong license

The first step of company formation in Dubai is obtaining a license. All commercial activities in Dubai require a valid license from the relevant authority. To obtain a valid license, you must choose the most appropriate or correct company structure. If you don’t do that, you’ll end up having the wrong business license for your activity or not having a license at all. This can attract pretty steep penalties. It may even leave shareholders vulnerable to liability. Hence, if you’re planning to set up a business in Dubai, make sure you have the right license.

Penalties for an expired business license in Dubai

Business licenses in Dubai are allocated to specific business activities and offer specific legal structures to accomplish the investor’s exact requirements. When your business license is about to expire, you must renew it to prevent fines from being imposed by the Dubai government. If you run your business with an expired business license in Dubai, you run the risk of having penalties imposed. There are three types of penalties that are commonly imposed for business license expiry in Dubai. They are elaborated below.

  1. Monetary fines
  2. According to the Department of Economic Development (DED) rules, a business can be fined up to AED 5000, plus another AED 250 if it fails to renew its business license within the specified time. Similarly, if a business operates with an existing business license overlap, the investor can be fined AED 2000.

  3. Getting blacklisted
  4. In some instances, a company that conducts its business activities without licensing permit and can be blacklisted. Being blacklisted means the company’s transactional capabilities will be blocked, their visas revoked, and stakeholders, including the owner, shareholders, directors, and/or managers, may be deported from the UAE.

  5. Expansion prohibition
  6. If a business fails to renew its license within the given timeline, it may not be allowed to expand its operations. This can affect the company’s long-term growth prospects and even result in insolvency.

In short, any business in Dubai must maintain complete compliance with DED’s business license renewal laws.

Penalties for VAT registration and financial records violations

All Dubai businesses must ensure that they are VAT compliant. There are harsh penalties for not registering your business for VAT and failing to keep the mandatory financial records specified by UAE tax law.

Penalty for launching a business while legally employed elsewhere

If any person holding a valid employment visa and legally employed as an employee of a company starts a business of their own, it is considered a violation of employment agreements and contract law in Dubai. If an employed person goes in for a business setup in Dubai, they must obtain written consent from their employer.

Penalties for lack of written agreements/contracts

Even though quite a few business transactions are done based on reciprocated trust and verbal agreement of terms and conditions, it is best to have a written contract specifying it. A written and signed contract is still considered the only valid, enforceable contract between two parties, especially when there is a dispute.

Penalties for not registering intellectual property

As is the case elsewhere globally, intellectual property is considered one of the most valuable intangible assets that a company can own in Dubai. That being the case, intellectual property theft attracts stringent measures, including fines, seizure of the stolen material, and even imprisonment.

Penalty for business activity at an unregistered location

Location is a vital aspect while engaging in any permitted business in the UAE. The DED prohibits conducting a business activity at an unregistered location. Such violations can incur a penalty of up to AED 1,000.

Penalty for not assessing worst-case scenarios

Businesses must correctly analyze the worst-case scenarios to identify the risks that are characteristic of the business. After identifying pain points and worst-case scenarios, safety measures such as insurance should be taken to mitigate losses due to these risks.

Penalty for conducting business in a DED-closed establishment

Companies that carry out business or economic activity in an establishment that has been closed by DED will have to shell out a substantial penalty.

Penalty for work hour permit incompliance

Private sector companies in Dubai are permitted to work 8 hours a day or 48 hours a week. If a business wants to function for additional hours, they need special permission from the DED. Working for additional hours without permission from the DED can get you fined for up to AED 1,000.

Penalty for amending business activity without permission

The DED allows more than 2,000 business activities. However, companies cannot change/add or activities without getting permission from the DED. They must apply for a business activity amendment with the DED. If they fail to do so, they may need to pay a penalty of AED 2,000.

Hire the best business setup company in Dubai

While company formation in Dubai and company registration in Dubai looks easy on paper, there’s a minefield of regulations and compliances that you’ll need to deal with. Such situations necessitate the services of one of the best business setup companies in Dubai – Avyanco Business Consultancy. With Avyanco’s extensive business setup services in Dubai, you don’t need to lose sleep over business setup in Dubai. Reach out to Avyanco’s business setup consultants in Dubai, and we’ll make sure your business setup in the UAE is smooth and efficient. We offer our expertise in matters relating to company license renewal in Dubai, VAT registration in Dubai, and corporate PRO services in Dubai. With Avyanco’s business setup consultants supporting you, company formation and company registration in Dubai is smooth and hassle-free. Call/WhatsApp: +971 50 3989000, (T): +971 4 240 5000, Email: info@avyanco.com

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