Penalties you can face during the Business Setup in Dubai

Are you an entrepreneur thinking about starting a company in Dubai or another emirate? Though Dubai is known for its ease of doing business, relying solely on Google and friendly advice would almost certainly lead to failure. Simple mistakes made during business setup in Dubai will cost you a lot of money in the form of hefty penalties. Here’s our guide to the penalties you could face when setting up a business in Dubai, particularly if you’re doing it on your own without the assistance of business setup consultants in Dubai.

Penalty for possessing the incorrect license

Obtaining a license is the first step in a company setup in Dubai. In Dubai, all commercial operations need a valid license from the appropriate authority. You must select the most suitable or correct business arrangement in order to secure a legal license. If you don’t, you’ll either get the incorrect business license for your practice or no license at all. This will result in some serious consequences. It might also expose shareholders to legal responsibility. As a result, if you want to start a company in Dubai, make sure you have the proper permits.

Penalties in Dubai with a company license that has expired

In Dubai, company licenses are assigned to particular business activities and have specific legal processes to meet the investor’s basic needs. If your business license is about to expire, you must renew it to avoid the Dubai government imposing fines. If you operate your company in Dubai with an expired business license, you are facing fines. In Dubai, there are three categories of fines that are often levied when a business license expires. They are described in more detail below:

1.     Monetary Penalties:

If a company fails to renew business license within the prescribed period, the Department of Economic Development (DED) will fine it up to AED 5000 plus another AED 250. AED 2000 will be prosecuted if a company runs with an established business license mismatch.

2.     Being put on a blacklist

A organization that performs its commercial operations without a license permit may be blacklisted in certain cases. When a company is blacklisted, it loses its transactional capability, its visas are revoked, and its owners, such as the owner, lenders, executives, and/or managers, may be deported from the UAE.

3.     Prohibition on expansion

If a company fails to renew its license within the specified time frame, it can be denied permission to expand. This may have a negative impact on the company’s long-term growth potential and also lead to insolvency.

In short, any company in Dubai must follow the DED’s business license renewal laws to the letter.

4.     Penalties for non-compliance with VAT registration and financial reports

VAT compliance is a must for all Dubai companies. Failure to VAT registration in Dubai for your company and maintain the required financial reports required by UAE tax law will result in severe penalties.

5.     Penalty for starting a company while working for someone else legally.

In Dubai, it is considered a breach of work agreements and contract law if an individual with a legitimate employment visa who is lawfully working as an employee of a firm starts their own business. If an employee wants to start a company in Dubai, they must get written permission from their boss.

6.     Penalties for failure to enter into formal deals or contracts

Even if certain commercial deals are conducted on the basis of mutual confidence and verbal negotiation of terms and conditions, it is preferable to have a formal contract that specifies it. And where there is a misunderstanding, a written and signed contract is also considered the only binding and enforceable contract between two parties.

7.     Penalties apply if intellectual property is not registered

Intellectual property is one of the most important intangible properties that a business can possess in Dubai, as it is anywhere in the world. As a result, intellectual property theft is punishable by harsh penalties such as fines, forfeiture of the stolen property, and even incarceration.

8.     Penalty for doing business in an unregistered place

When conducting any licensed business in the UAE, location is critical. Conducting business at an unregistered site is prohibited by the DED. A tax of up to AED 1,000 can be imposed for such offences.

9.     Penalty for failing to consider worst-case cases

Businesses must properly consider worst-case situations in order to determine the threats that are specific to their industry. Following the identification of pressure points and worst-case situations, safety precautions such as premiums should be taken to reduce damages caused by these hazards.

10. Conducting business in a DED-closed facility carries a penalty

Companies who conduct commerce or economic operation in a DED-closed institution will face hefty fines.

11. Infractions of the work hour permit will result in a penalty

In Dubai, private sector businesses are allowed to operate for 8 hours a day or 48 hours a week. If a company needs to work more hours, it must get special approval from the DED. Working extra hours without the DED’s consent will result in a fine of up to AED 1,000.

12. Penalty for modifying business activity without approval

More than 2,000 commercial operations are permitted under the DED. Companies, on the other hand, cannot modify or incorporate operations without first obtaining approval from the DED. They must submit an application to the DED for a commercial practice amendment. If they do not, they will be subject to a liability of AED 2,000

Although company forming and registration in Dubai seem to be simple on paper, there is a minefield of legislation and compliances to navigate. Such circumstances necessitate the assistance of any best business setup consultants in Dubai.