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100% business ownership possible in Dubai's free zones

dubai - A foreign national can open or start a company in any free zone in Dubai

Q: I am an EU citizen. I want to set up a trading business in Dubai and would prefer 100 per cent ownership in my name. I have learned that the free zones in Dubai allow 100 per cent foreign ownership. As this is an initial start I do not want to spend on the costly office which will not be utilised for at least two years. Please suggest a solution for me. - N.G., Dubai
A: A foreign national can open or start a company in the free zone of Dubai with 100 per cent ownership. In the free zone, you generally have the options of leasing a pre-built office, a pre-built warehouse or even lease a plot of land. For smaller investors, some of the free zones like Jebel Ali Free Zone and Dubai Multi-Commodities Centre have facilities like work stations or flexi desks. Here the investor will not need to lease a full office and licence can be issued based on this shared facility. Free zone will see the merit of the case and the activity involved and based on the same they may grant or reject the proposal. In future, when your business grows you can even upgrade the facility.

Q:  I started my building material trading company more than 10 years back. The initial years were very good and we had good business particularly from one large customer who accounted for more than 50 per cent of our sales. After a few years this customer moved from us and our sales and margins dropped drastically. Since last few years we are supplying to one large organisation though we have to maintain sufficient stocks for this organisation and there is no guarantee that they will buy. I have concerns about our business model, please guide. - S.J., Dubai.
A: From your query it is apparent that you were heavily reliant on one large customer and the same has been repeated again. Concentration of business on a few customers leads to a high risk of both sales as well as the credit. One is exposed to the scenario where in case the customer decides to leave than the business is seriously affected. Even credit concentration for a few customer is high risk as a default from one of them would have serious implication on your company's liquidity. Any customer is welcome though reliance on just a few should be avoided. The UAE has a large local and export market for building materials, I suggest that you explore the market for new customers even at a lower margin to ensure that your day to day cash flow is maintained and you are not over exposed. What happens to the stocks which you are holding for one customer when such customer either departs or chooses to have other items? As long as you will be able to sell such stocks above costs and recover the dues in reasonable time you are safe, if not, you need to rethink. Building materials is a large field hence you may also explore items which you have not dealt for in the past, albeit necessary research should be done before you embark on this route.   

Q: I have started a retail business in Dubai a few years back with investment from my own funds. I see an opportunity for more brands in Dubai though I would need some additional funding for the same. Few banks who I have approached have not responded positively. Please guide. - F.D.V., Dubai
A: Most banks have tightened their lending since the end of last year in view of some defaults that have hit the market. The most to suffer are the SME's. Banks would need to satisfy themselves with respect to recoverability of the loan as well as security against the same. If you have good known customers, you may also seek cheque discounting facility from the bank. If banks are not willing to lend, you may also consider approaching your suppliers for higher credit period or offer cash discount to your customers. The banking situation is expected to be better by the end of the year where you may try again. Needless to say that you would need audited statements to comply with the bank requirements. Friend and relatives can be the other mode of financing.
- The writer is partner at Crowe Horwath, UAE. You can send your business queries to him at atik.munshi@crowehorwath.ae