7 Common Mistakes People Make When Setting Up a Business in Dubai & How to Avoid Them

About the Author

The author has over a decade of experience advising startups, SMEs, and international investors in Dubai. He has helped hundreds of entrepreneurs navigate the complexities of business setup. His expertise spans mainland, free zone, and offshore company formation, banking, corporate compliance, and regulatory advisory.

Key Takeaway:

• Choices around jurisdiction, business activity, office space, banking strategy, and compliance made at the start directly affect approvals, operating costs, scalability, and regulatory risk. Most costly mistakes stem from rushing these decisions without a clear operational plan.
  
  
• Underestimating setup costs, ignoring corporate tax and VAT obligations, or overlooking substance and documentation requirements often results in fines, delays, and rework that could have been avoided with proper planning from day one.
  
  
• Based on RadiantBiz’s experience advising businesses worldwide, companies that seek structured, on-the-ground advisory support avoid common pitfalls, reduce delays, and build compliant foundations that support sustainable growth in Dubai.

The Top 7 Pitfalls in Setting Up a Business in Dubai and How to Prevent Them

Dubai is one of the world’s fastest-growing business hubs. Its strategic location between Europe, Africa, and Asia, combined with a tax-friendly environment and world-class infrastructure, attracts entrepreneurs from across the globe.

But here’s the truth: while Dubai offers immense opportunities, many newcomers make avoidable mistakes that cost money and time in the form of months of delay.

In this article, we’ll walk through the 7 most common mistakes when setting up a business in Dubai and share practical advice on how to avoid them, based on our more than a decade of experience helping clients succeed.

Mistake #1: Choosing the Wrong Business Jurisdiction

One of the first mistakes we see entrepreneurs make is selecting the wrong business jurisdiction, mainland, free zone, or offshore, without understanding the long-term implications.

• Mainland companies allow you to trade directly with the local UAE market and issue contracts to UAE clients without restrictions. However, some mainland licenses may require a local sponsor, and setup costs are typically higher.
• Free zones offer 100% foreign ownership, no import/export restrictions, and attractive tax benefits, but limit direct trade in the UAE without additional licensing.
• Offshore companies are ideal for asset management or international operations, but cannot operate commercially within the UAE.

Expert experience: A European tech startup we worked with chose a free zone to save on initial costs. Within weeks, they realized their business model required direct contracts with UAE clients, a limitation of their free zone license. They had to pay extra fees and wait six months for a mainland license, delaying their launch.

Expert tip: Match your jurisdiction to your intended market. If you plan to operate locally, the mainland is usually best. For international operations, a free zone or offshore structure might be sufficient.

Mistake #2: Selecting an Incorrect or Incomplete Business Activity

Another frequent issue is choosing the wrong business activity or leaving it vague. Every license in Dubai is tied to a specific activity, and authorities carefully review these details.

Common errors

Selecting a broad category like “consulting” instead of the specific service you plan to offer, or combining incompatible activities on the same license.

Consequences

Banks may reject business account applications, visas could be delayed, and fines can occur if activities don’t match the license.

Expert experience: We worked with a client offering both marketing and event management under a single license. Authorities required two separate approvals, which delayed their operations by several weeks.

Expert tip: Verify activity codes with your licensing authority and plan for future expansion. Ensuring your business activity is precise prevents delays and compliance issues.

Mistake #3: Underestimating the True Cost of Business Setup

Many entrepreneurs come to Dubai thinking business setup is cheap, only to face unexpected expenses. The license fee is just the beginning.

Common overlooked costs

• Office space or flexi-desk fees
• Visa costs, including Emirates IDs
• Bank account setup and compliance fees
• Renewal fees and fines for delays

Expert experience: A small e-commerce business we advised budgeted AED 15,000 ($4,085) for setup. Once visas, banking, FTA-compliant accounting software, and office expenses were added, the actual cost exceeded AED 40,000 ($10,900).

Expert tip: Always request a detailed cost breakdown and budget for at least 12–18 months ahead. Include both one-time and recurring expenses.

Mistake #4: Ignoring Corporate Tax and VAT Obligations

Despite Dubai’s tax-friendly reputation, ignoring corporate tax and VAT obligations is a serious mistake.

Common misconceptions

• “Dubai has zero tax, so no accounting is needed.”
• “Free zones are completely exempt from taxes.”

Reality

• Corporate tax was introduced in the UAE for many businesses.
• VAT enrollment is mandatory for businesses with annual revenues exceeding AED 375,000.
• Businesses must maintain proper accounting records for audits and VAT reconciliation.

Expert experience: One client delayed VAT enrollment, thinking it was optional. They later faced fines and had to pay backdated VAT, something that could have been avoided with early planning.

Expert tip: Understand your obligations from day one, maintain accurate accounting records, and consult a tax professional before filing.

Mistake #5: Opening a Business Without a Bank Account Strategy

Even with the right license, many entrepreneurs struggle to open a business bank account in Dubai. Banks have strict compliance requirements, and a mismatch between license and business activity can cause rejection.

Common errors

• Applying to banks that don’t serve certain industries
• Mixing personal and business funds
• Incomplete documentation or unclear business plans

Expert experience: A fintech company we assisted faced three months of delays because their license activity did not align with the services they planned to offer. We corrected their documentation, and the account was approved within two weeks.

Expert tip: Research banks suited for your industry, prepare documentation meticulously, and maintain clear financial flows aligned with your business activity.

Mistake #6: Overlooking Office Space and Compliance Requirements

Dubai’s authorities are strict about substance and compliance. Some entrepreneurs assume a virtual office suffices, but many licenses require physical presence.

Key issues

• Economic substance regulations require proof of operations
• Certain free zones require dedicated office space
• Lease agreements and staff documentation are often inspected

Expert experience: A consulting client chose a coworking space to save costs. Authorities later required a dedicated office, delaying visa approvals. A small upfront investment in the right office could have prevented this.

Expert tip: Always check office requirements for your license type and maintain proper documentation to stay compliant.

Mistake #7: Trying to Do Everything Alone or Choosing the Wrong Consultant

Finally, attempting to handle business setup alone or hiring the wrong consultant is one of the biggest pitfalls.

Risks

• Conflicting online advice
• Missing approvals and paperwork errors
• Costly reapplications and delays

Expert experience: A startup we advised tried setting up independently. They had to redo their license three times due to incorrect activity codes and missing documents. By the time they engaged expert guidance, they had lost over two months.

Expert tip: Work with consultants who have proven experience, transparent pricing, and ongoing compliance support. Experienced guidance saves time, money, and stress.

7 Common Mistakes People Make When Setting Up a Business in Dubai & How to Avoid Them with RadiantBiz

At RadiantBiz, we have noticed a recurring pattern of errors made by business owners from all over the world when setting up a business in Dubai. These are not isolated incidents or minor oversights, they are repeated mistakes that continue to surface across industries, nationalities, and business sizes.

Drawing on our years of hands-on experience, we have identified these pitfalls early and consistently warned businesses before they made decisions that could slow down operations, increase costs, or create compliance challenges later. More importantly, we have helped entrepreneurs avoid these mistakes entirely by structuring their businesses correctly from the outset.

In many cases, these errors stem from a lack of familiarity with how Dubai’s business ecosystem actually works in practice. Online research, second-hand advice, or assumptions based on other markets often lead to decisions that seem logical at first but create complications once the business becomes operational.

Through advising startups, SMEs, and international investors, we have seen how early missteps, such as incorrect structuring, rushed jurisdiction selection, or misaligned licensing, can impact everything from approvals and compliance to scalability and long-term stability. 

Using our experience, we guide businesses through these complexities with clarity, helping them make informed choices that support both immediate needs and future growth.

FAQs

1. What is the most common mistake when setting up a business in Dubai?

The most frequent mistake is choosing the wrong jurisdiction without understanding market access, licensing rules, and long-term implications.

2. Can I start a business in Dubai without a consultant?

Yes, but doing so often leads to delays, errors, and higher costs. Working with experienced consultants ensures smooth approvals and compliance.

3. Do all businesses in Dubai have to pay taxes?

While Dubai is tax-friendly, corporate tax and VAT now apply to many businesses. Free zones may offer exemptions, but still require compliance with accounting standards.

Avoiding Costly Mistakes in Dubai

Dubai offers incredible business opportunities, but success requires careful planning. The 7 common mistakes when setting up a business in Dubai we’ve highlighted are preventable with the right approach.

From selecting the correct jurisdiction and business activity to budgeting accurately, planning your banking strategy, understanding taxes, ensuring compliance, and working with trusted experts, these steps save time, reduce stress, and protect your investment.

If you’re planning to start a business in Dubai, seek guidance from experienced professionals. With on-the-ground expertise, you can avoid costly mistakes and focus on growing your business efficiently.

Seek our professional on-the-ground guidance, contact us via mail at info@radiantbiz.com, WhatsApp‬, or call us at +971521322895‬!