11 Challenges of creating branch of foreign company in UAE

The United Arab Emirates has long been a preferred destination for global companies seeking expansion in the Middle East. With its stable economy, world-class infrastructure, and investor-friendly environment, the country offers unmatched opportunities for international businesses. Establishing a branch of a foreign company in UAE allows access to a diverse market, strategic location, and robust trade network connecting Asia, Africa, and Europe.

However, setting up a foreign branch is not without its complexities. From understanding local legal frameworks to meeting compliance obligations and managing cultural differences, foreign investors often face several operational challenges. Still, with proper planning and professional support, these challenges can be effectively managed, paving the way for successful business growth in the UAE.

Key Takeaways

• The United Arab Emirates was ranked 10th globally for inbound FDI in 2024. 
• According to the UNCTAD World Investment Report 2025, foreign direct investment in the Emirates reached $45.6 billion, marking a 48.7% increase compared to the previous year.
• The UAE’s non-oil foreign trade in the first half of 2025 reached AED 1.7 trillion (USD 462.8 billion), up 24 % year-on-year. 
• By 2030, sectors like metals/minerals (73% of exports) will drive exports growth in the United Arab Emirates.
• By October 2025, more than 1,500 U.S. companies and over 15,000 Chinese firms operated in the country, with many choosing Dubai as their regional headquarters.

11 Hardships while forming Branch of Foreign Company in the UAE

Full Liability Exposure

Setting up a branch of foreign company in the United Arab Emirates means it operates as an extension of the parent entity, not as an independent legal body. This structure makes the parent firm entirely responsible for all debts, contracts, and obligations of its Emirati branch, leaving global assets open to unlimited financial and legal risks.

Limited Business Scope

A foreign company branch in United Arab Emirates can only carry out activities identical to those of its parent company abroad. It cannot introduce new services, expand into unrelated markets, or diversify beyond the parent’s approved operations. This limitation can restrict flexibility and growth potential in the local market.

Complex Regulatory Procedures

The process of establishing a branch of foreign business in the UAE involves navigating multiple layers of government regulations. Businesses must coordinate with entities like the Ministry of Economy (MoE) and the Department of Economic Development (DED), each having distinct rules that vary across Emirates and free zones.

Taxation and Compliance Challenges

Yes, the United Arab Emirates offers an investor-friendly tax environment. However, a foreign business branch there must still comply with corporate tax laws on profits above certain limits and manage Value-Added Tax (VAT) obligations. In some cases, there may also be tax implications for the parent company in its country of origin.

Requirement of a Physical Office

A leased physical office is mandatory for branch registration in the Emirates. Authorities generally do not accept virtual office setups, making it essential for businesses to maintain an on-ground presence to operate legally and meet inspection requirements.

Banking and Financial Delays

Opening a corporate bank account for an Emirati branch often involves lengthy approval procedures. Documentation, verification, and compliance checks can cause unexpected delays, requiring patience and proper guidance to complete the process successfully.

Cultural and Communication Barriers

Foreign branches may face differences in business practices, communication styles, and negotiation etiquette. Adapting to local culture is crucial for building trust, fostering effective teamwork, and maintaining long-term relationships with Emirati clients and partners.

Employment and Labor Compliance

Companies must follow Emirati labor laws, including visa sponsorships, employment contracts, and end-of-service benefits. These regulations may differ significantly from international standards, requiring HR teams to stay updated to ensure compliance and avoid penalties.

Language and Legal Translation

Most legal and governmental documents in Dubai are issued in Arabic. Accurate translation is critical, as even minor errors in legal wording can lead to misunderstandings or disputes. Hiring certified translators and legal experts is highly recommended.

Competitive Local Market

Foreign branches entering Dubai often compete with established local companies that already enjoy brand trust and market familiarity. Building visibility and customer loyalty takes time and requires a well-planned local marketing and networking strategy.

Administrative and Reporting Duties

Running a branch in Abu Dhabi comes with ongoing administrative responsibilities, such as annual license renewals, compliance filings, and financial audits. These processes demand consistent attention, resources, and a dedicated management team to ensure smooth operations.

Process to Set Up a Foreign Branch in the UAE

Choose Your Jurisdiction

Begin by deciding where to register your branch of foreign company in UAE, either in a Free Zone such as DMCC, IFZA, or RAKEZ, or under the Mainland through the Department of Economic Development (DED). Your choice depends on your business activities and whether your target clients are within the country or abroad. Free Zones are ideal for global trade, while Mainland registration allows direct operations with local customers.

Get Initial Approval

Before launching your branch of foreign firm in the Emirates, you must obtain pre-approval from the Ministry of Economy (MOEC). This authorization confirms that your foreign company is allowed to conduct business in the country. The Ministry’s official website provides full details on documentation, timelines, and legal compliance for this process.

Prepare All Required Documents

To establish your foreign firm branch in Sharjah, compile key documents such as the parent company’s incorporation certificate, Articles of Association, and a board resolution approving the international branch. Appoint a General Manager and provide a notarized Power of Attorney. All documents must be translated, notarized, and legalized to meet Emirati standards.

Submit the Application

Once, your paperwork is complete, file your application with the DED or the selected Free Zone authority. Some jurisdictions accept online submissions, while others require in-person processing. Submitting these documents officially initiates the setup of your international branch in UAE, allowing authorities to review and move forward with licensing.

Obtain Your Business License

After review and approval, you’ll receive your operating license, commercial, professional, or industrial, depending on your business nature. The licensed activities must match those of the parent company. This license authorizes your branch to operate legally and marks the official start of your Emirati business.

Lease Office Space and Process Visas

To activate your license, your branch of foreign company in Ajman must lease an office or Flexi Desk within the chosen jurisdiction. After securing the space, you can apply for residence visas for the General Manager and key staff. This final step completes your branch’s legal and operational foundation in the country.

Conclusion

Setting up a foreign branch in the UAE is a promising step toward global growth. However, it requires thoughtful planning and proper execution with an eye for the future growth. The country’s dynamic market and strategic location offer immense potential for the expatriate investors.

Yet, success depends on how well companies adapt to local regulations and business practices. They can do so by approaching the process with patience, due diligence, and reliable local support. Hence, international businesses can turn initial challenges into long-term opportunities.

In the end, those who plan wisely and operate compliantly are best positioned to thrive in the country’s evolving business landscape. Foreign investors make your entrepreneurial transition to the UAE seamless with a branch office opening. Turn this transition easy as pie with professional consultants of KWS Middle East right now.