Starting a new business in the UAE is exciting but requires mandatory legal business compliance. Failure to comply with the laws and regulations relevant to your industry can result in troublesome lawsuits, fines, license suspension, and other penalties.
Like other countries, the UAE also has strict legal compliance requirements for startups. Once you’re sure your entity abides by all new business laws, your venture will run smoothly and successfully in the Emirates.
This guide helps you understand legal compliance for new UAE or Dubai businesses.
Let’s get started:
Understanding Legal Compliance in the UAE
Let’s start by understanding the role of legal business compliance for startups in the UAE:
What Is Legal Compliance for New Businesses?
Every country or jurisdiction outlines certain laws, regulations, and industry standards governing business operations. Key legal compliance typically encompasses the following (but not limited to):
- Business formation and structure
- License and permits
- Taxation compliance
- Local tax laws
- Employment laws
- Data privacy laws
- Consumer law
- Contract law
- Intellectual property
Why Are Legal Requirements Important for Startups in UAE?
Maintaining compliance with legal structure is not just about avoiding fines and penalties. It also offers many irresistible benefits to startups in the UAE, which are as follows:
- Reduces risks of potential lawsuits and disputes
- Builds a positive business reputation
- Enhances customer trust in all business types
- Ensures smooth business operations
- Allows to pursue expansion opportunities and build partnerships fearlessly
Licenses and Permits for UAE Businesses
To start a company in the UAE, you need to obtain the necessary business licenses and permits. The type of license required will depend upon the business type you want to operate in UAE. Here is the list of some of the business licenses that are legal company compliance:
Financial services license
Companies looking to conduct Financial services should obtain financial services permission from the following authorities depending upon the jurisdiction area:
- Dubai Financial Supervision Authority( DFSA) – Dubai
- Financial Supervision Regulatory Authority (FSRA) – Abu Dhabi
- Securities and Commodities Authority (SCA) – UAE Mainland.
Additionally, businesses may require a business bank account in accordance with UAE corporate law to operate within the legal framework of the region.
Industrial license
This license is necessary for startups operating manufacturing activities such as production, processing, or assembly of goods. It is a must for setting up factories and warehouses in the UAE.
Commercial licenses and permits
Businesses dealing in buying, selling, or trading goods and services require a commercial license. This will protect you from legal penalties in the UAE.
Tourism license
Travel agencies, tour operators, and hospitality businesses need to get a tourism license in the UAE.
Other licenses for UAE businesses depend upon the location and type of company you run. For instance, there are Free zone commercial licenses (for trading), free zone professional licenses (for services), and free zone industrial licenses (for manufacturing).
Also, mainland businesses can operate anywhere in the UAE, but for this, you must obtain a commercial license from the Department of Economic Development (DED) of the relevant emirate.
Common Permits and Approvals
In addition to the business license, Dubai businesses or UAE businesses require additional permits or approvals. These include:
- Municipal Permit: If your business involves retail, food, or construction, you will need a municipal permit from the local municipality.
- Health and Safety Permit: For businesses involved in food, healthcare, or construction, a health and safety inspection or certification may be required.
- Environmental Permit: If your company operates in a sector with potential environmental impact, you will need approval from the UAE’s environmental authority.
Taxation Compliance for New Businesses in the UAE
The Federal Tax Authority (FTA) is the authority that regulates tax compliance in the UAE. We have the following two tax systems in the UAE.
VAT
The VAT rate is very low at 5%. The VAT returns must be filed every quarter after registration to avoid penalties. Understanding tax regulations is essential to ensure compliance with local tax laws and avoid potential legal disputes related to VAT obligations.
Corporate Tax
Corporate tax is a form of direct tax levied on the taxable income of corporations and other entities from their business in a tax period. The companies are subject to UAE corporate tax after June 1, 2023.
Financial Reporting and Auditing
All legal entities doing business in Dubai must keep financial records and must obtain an annual audit report that contains all information about income and expenses. The auditor’s report can be submitted in Arabic or English.
For mainland companies, it is legally required for businesses to do an audit every year. This is not required to be submitted to any authorities. Most freezone authorities require a yearly audit to be done and submitted to them at the time of renewal of license.
Certain freezone companies are required to maintain an audited book of accounts with the FTA at the time of the tax returns. Whichever the case may be, it is always recommended to complete a yearly audit with a reputed audit firm. Seeing that the compliance requirements of the UAE are now reaching international standards, it will become mandatory to submit this to the government in the future.
Employment Law Compliance in UAE
Employment and labor law in UAE refers to rules around leave policies, wages according to work models, employment termination laws, handling labor disputes, etc. Labor laws are meant to foster a positive work environment for employees and employers.
After Federal Decree No. 9 of 2024, the UAE labor laws have undergone significant amendments effective in 2025. These changes are:
- Extended timeline to file labor claims
- Faster, simpler, and cost-effective dispute resolution for claims below AED 50,000
- Stricter monetary and operational penalties for employer non-compliance
- Better employee protections
In this section, we’ll take a look at key labor laws and strategies to navigate them smoothly.
Key Labor Laws in the UAE
As per employment laws, employers must provide clear and fair employment contracts, including job responsibilities, terms and conditions, and legal requirements. They should also offer end-of-service benefits as 21 days of basic salary for the first five years and 30 days annually thereafter. In addition, employers must provide health insurance as per local regulations, covering all medical care costs.
Leave types
- Paid annual leave: 30 calendar days
- Sick leave: 90 days annually (Full pay for first 15 days | Half pay for the next days | No pay following 45 days)
- Maternity leave: 60 days (Full pay for 456 days and half pay for the last 15 days)
- Paternity leave: 5 days after birth
- Compensation leave: Up to the employer’s decision; 5 days of paid bereavement leave for a spouse’s death; 3 days leave for the death of a parent, child, sibling, grandchild, or grandparent.
- Hajj leave: Up to 30 days (Unpaid)
Wages in UAE labor law
No minimum wage is required. Salaries are paid in Emirati Dirham or any agreed currency.
Working hours
Generally, employees work 8 hours a day. However, during Ramadan, Muslim employees work only 6 hours a day.
Overtime: 25% of basic pay | 50% overtime compensation for night shifts | 50% of regular pay with compensatory time off for working on rest days or public holidays
Termination of employment
Reasons: Underperformance, serious misconduct, violating company’s policy, restructuring or budgetary limitations
Avoiding Disputes Through Legal Compliance
Violation of labor laws can create legal troubles for employers. Although there are rules for dispute resolution, the process can be hassling. So, businesses should ensure compliance with labor law in the UAE. This involves conducting regular compliance audits, updating internal policies, and ensuring employee contracts align with legal requirements.
Align hiring practices with Emiratisation goals to actively recruit, train, and retain UAE nationals, boosting their workforce participation.
There must be fair and transparent HR policies that adhere to the UAE laws. There must be a clear grievance procedure for dispute resolution and maintain transparency in promotions and rewards.
Taxation Compliance for New Businesses in the UAE
The Federal Tax Authority (FTA) is the authority that regulates tax compliance in the UAE. We have the following two tax systems in the UAE.
VAT
The VAT rate is very low at 5%. The VAT returns must be filed every quarter after registration to avoid penalties. Understanding tax regulations is essential to ensure compliance with local tax laws and avoid potential legal disputes related to VAT obligations.
Corporate Tax
Corporate tax is a form of direct tax levied on the taxable income of corporations and other entities from their business in a tax period. The companies are subject to UAE corporate tax after June 1, 2023.
Financial Reporting and Auditing
All legal entities doing business in Dubai must keep financial records and must obtain an annual audit report that contains all information about income and expenses. The auditor’s report can be submitted in Arabic or English.
For mainland companies, it is legally required for businesses to do an audit every year. This is not required to be submitted to any authorities. Most freezone authorities require a yearly audit to be done and submitted to them at the time of renewal of license.
Certain freezone companies are required to maintain an audited book of accounts with the FTA at the time of the tax returns. Whichever the case may be, it is always recommended to complete a yearly audit with a reputed audit firm. Seeing that the compliance requirements of the UAE are now reaching international standards, it will become mandatory to submit this to the government in the future.
Employment Law Compliance in UAE
Employment and labor law in UAE refers to rules around leave policies, wages according to work models, employment termination laws, handling labor disputes, etc. Labor laws are meant to foster a positive work environment for employees and employers.
After Federal Decree No. 9 of 2024, the UAE labor laws have undergone significant amendments effective in 2025. These changes are:
- Extended timeline to file labor claims
- Faster, simpler, and cost-effective dispute resolution for claims below AED 50,000
- Stricter monetary and operational penalties for employer non-compliance
- Better employee protections
In this section, we’ll take a look at key labor laws and strategies to navigate them smoothly.
Key Labor Laws in the UAE
As per employment laws, employers must provide clear and fair employment contracts, including job responsibilities, terms and conditions, and legal requirements. They should also offer end-of-service benefits as 21 days of basic salary for the first five years and 30 days annually thereafter. In addition, employers must provide health insurance as per local regulations, covering all medical care costs.
Leave types
- Paid annual leave: 30 calendar days
- Sick leave: 90 days annually (Full pay for first 15 days | Half pay for the next days | No pay following 45 days)
- Maternity leave: 60 days (Full pay for 456 days and half pay for the last 15 days)
- Paternity leave: 5 days after birth
- Compensation leave: Up to the employer’s decision; 5 days of paid bereavement leave for a spouse’s death; 3 days leave for the death of a parent, child, sibling, grandchild, or grandparent.
- Hajj leave: Up to 30 days (Unpaid)
Wages in UAE labor law
No minimum wage is required. Salaries are paid in Emirati Dirham or any agreed currency.
Working hours
Generally, employees work 8 hours a day. However, during Ramadan, Muslim employees work only 6 hours a day.
Overtime: 25% of basic pay | 50% overtime compensation for night shifts | 50% of regular pay with compensatory time off for working on rest days or public holidays
Termination of employment
Reasons: Underperformance, serious misconduct, violating company’s policy, restructuring or budgetary limitations
Avoiding Disputes Through Legal Compliance
Violation of labor laws can create legal troubles for employers. Although there are rules for dispute resolution, the process can be hassling. So, businesses should ensure compliance with labor law in the UAE. This involves conducting regular compliance audits, updating internal policies, and ensuring employee contracts align with legal requirements.
Align hiring practices with Emiratisation goals to actively recruit, train, and retain UAE nationals, boosting their workforce participation.
There must be fair and transparent HR policies that adhere to the UAE laws. There must be a clear grievance procedure for dispute resolution and maintain transparency in promotions and rewards.
Immigration and Office Space Compliance
Here are the legal compliance requirements for immigration and office space in the UAE:
Visa Requirements for Business Owners and Employees
Immigration compliance for startups in the UAE involves obtaining the right visas and permits for business owners, employees, and stakeholders. Business partners or entrepreneurs can apply for an investor or partner visa to live and work in the UAE.
Employees, on the other hand, require an employment visa sponsored by the business, which permits them to live and work in the country. Freelancers can apply for a Freelancer Permit. Additionally, you, as a business owner or employee, can sponsor your family members under a UAE family visa. Entrepreneurs may also apply for a remote work visa if they work for an overseas company while residing in the UAE.
Overall, understanding and adhering to the UAE immigration laws is essential for startups to avoid legal complications and ensure smooth business operations. Legal compliance is key when you establish a business entity, as proper compliance protects companies from potential risks. This ensures your business setup is legally sound and aligned with local regulations.
Office Space Regulations
In the UAE, the type of office space you need depends on your business activities, location (mainland, free zone, or offshore), and business structure. Different intellectual property rules apply to each scenario.
A mainland business must have a registered physical address (office) in the UAE. The lease can be for commercial offices, warehouses, or retail locations, depending on the type of business.
Many free zones offer shared office spaces, flexi-desks, or virtual office packages, ideal for small businesses and startups. For businesses established in offshore jurisdictions, you are not required to have physical office space within the UAE.
Your office must comply with local safety and data protection regulations. If you’re leasing office space on the mainland, you must register the lease with Ejari.
Business Formation and Structure in the UAE
Selecting the right type of business structure affects your company’s legal ownership and operational flexibility. It also protects you from unnecessary debts and obligations.
In the UAE, you can choose from different business structures, including LLCs, Partnerships, PJSCs, Free Zone Companies, and Offshore Companies, each with its legal requirements and benefits.
Choosing the Right Business Structure
The most common legal company formation in Mainland, Offshore, and Free Zone in the UAE include (but not limited to:
| Sole proprietorship |
|
| Civil company |
|
| Limited Liability Company (LLC) |
|
| Free zone company (FZC) |
|
| Partnership company |
|
| Private joint stock company (PrJSC) |
|
| Public joint stock company (PJSC) |
|
| Branch office of foreign companies |
|
Conclusion
Navigating legal compliance for new businesses in the UAE is essential for ensuring smooth operations and successful business. By understanding and adhering to key legal compliance—ranging from corporate tax and VAT to data protection regulation and business setup requirements—entrepreneurs can protect their ventures from potential legal penalties.
To get legal advice for a startup in UAE, you can take the help of highly skilled and experienced professionals like Connect Group. We are experts in guiding you with the right business structure and can help you with all the documents, registration, licenses, and permits needed for business setup in Dubai or UAE. Call us now!
