How to open a franchise in the UAE

Launching any new business venture comes with its share of challenges. The uncertainty of market acceptance, the financial risks involved, and the lack of established brand recognition are all inherent difficulties that can scupper even the best-laid plans. Fortunately, there is an easier route to market that mitigates these issues: Franchising.

In the UAE, the franchise model is growing fast and represents a highly effective means to establish a successful business presence thanks to its proven track record of success, structured support systems, and the ability to leverage established brand names.

With over 600 international franchise brands already operating in the country and the market expected to continue growing, franchising is a proven business model you can use to tap into the UAE’s strategic location and diverse consumer base while mitigating the risks and uncertainties associated with starting a new business.

This article will guide you through the process of opening a franchise in the UAE. From understanding the market to navigating legal requirements and setting up operations, we’ll cover all the essential steps to help you launch a successful franchise in this vibrant market.

What is a franchise?

A franchise is a legal and commercial relationship between the owner of a trademark, trade name, or advertising symbol (the franchisor) and an individual or group (the franchisee) who wishes to use that identification in a business. The franchisee typically pays an initial fee and ongoing royalties to the franchisor in exchange for the right to operate a business under the franchisor’s name and system.

Types of franchise models

In the UAE, there are two types of franchise model:

• Single-Unit Franchise: This is the most basic form of franchising, where the franchisee owns and operates one outlet. It’s an excellent entry point for new entrepreneurs looking to leverage an established brand while maintaining hands-on control of the business.
• Multi-Unit/Developed Franchise: In this model, the franchisee owns and operates multiple outlets. This model offers greater revenue potential and market presence but requires more capital and management capability. It’s ideal for experienced entrepreneurs looking to expand their footprint within a specific region.

Understanding the franchise market in the UAE

Valued at approximately $30 billion and growing at a rate of 27% annually, the franchise market is one of the fastest-growing sectors in the region, and with over 60% of franchises being foreign-owned, the UAE has become a hub for international brands.

In terms of industry spread, the food and beverage sector dominates, accounting for around 40% of all franchises. This is largely due to the country’s diverse expat population and robust tourism industry. Other thriving sectors include retail (25%), health and fitness (10%), education (8%), and various services (17%).

The UAE offers excellent opportunities for franchising. With its prime location at the crossroads of Europe, Asia, and Africa, it’s perfectly positioned for accessing regional markets. Plus, the business-friendly environment, favourable tax policies and straightforward regulations makes setting up very easy and straightforward. Add to that a diverse and affluent consumer base, and you’ve got a ready market primed for all kinds of franchised products and services.

Research and selection of a franchise

Identifying potential franchises

When choosing the right franchise, start by considering key factors such as brand reputation, initial investment, and the level of support offered by the franchisor. Well-established brands with a strong market presence often come with higher initial costs but offer greater security and support. It’s essential to evaluate the financial requirements, including franchise fees, royalties, and other initial costs, to ensure they align with your budget. You should also look at the franchisor’s support system, including training, marketing, and operational assistance, to help you run the business efficiently.

Conducting market research

Before committing, understanding the market demand, competition, and consumer preferences in the UAE is crucial. Conducting market research can help you determine which products or services are in high demand as well as identifying your target audience and evaluating the performance of existing franchises in your chosen industry. Tools like surveys, focus groups, and market analysis can be very helpful for this.

Understanding UAE franchise laws and regulations

The UAE has specific laws and regulations that govern franchising, designed to protect both franchisors and franchisees. The primary legal framework includes the UAE Commercial Agency Law, which governs the relationship between foreign franchisors and local franchisees. This law mandates that franchises must be registered with the Ministry of Economy to be legally enforceable. Additionally, it offers protections for franchisees, such as restrictions on arbitrary termination of the franchise agreement by the franchisor.

Steps to open a franchise in the UAE

1. Initial approval

Start by obtaining initial approval from the Department of Economic Development (DED) if you are setting up on the mainland, or for free zones, the respective free zone authority. This involves submitting a business plan and required documents to demonstrate the viability and compliance of your franchise.

2. Commercial Licence

After registering your trade name, apply for a commercial licence. On the mainland, this is done through the DED, while in free zones, the respective free zone authority handles it. This licence permits your franchise to operate legally within the UAE. Depending on your business nature (e.g., food and beverage, retail), additional licences may be required.

3. Drafting and reviewing the franchise agreement

The franchise agreement is a crucial document that outlines the terms and conditions between the franchisor and franchisee. Key elements include:

• Franchise fees: Initial franchise fee, ongoing royalties, and other financial obligations.
• Territorial rights: The geographic area where the franchisee has exclusive rights to operate.
• Training and support: Provided by the franchisor.
• Marketing and advertising: Contributions and guidelines.
• Intellectual property: Use of trademarks and brand elements.
• Termination and renewal: Conditions for terminating or renewing the agreement.

Legal experts specialising in UAE franchise law should draft and review this agreement to ensure compliance and protect your interests.

4. Final approvals and registrations

The final steps in setting up your franchise involve obtaining necessary approvals and completing registrations. Initially, the Department of Economic Development (DED) or the respective free zone authority will review and approve your submitted business plan. This step evaluates the viability and compliance of your franchise with local regulations. Once approved, you can proceed to apply for commercial licences, which legally permit you to operate your franchise within the UAE. Additionally, it’s important to ensure that your trade name registration complies with UAE regulations, although this is often a formality for established franchises with recognised brand names.

5. Additional regulatory approvals

Depending on the specific nature of your franchise, additional regulatory approvals may be required. For instance, registering your franchise agreement with the Ministry of Economy is necessary to make it legally enforceable. This step provides an added layer of protection for both franchisors and franchisees. Additionally, if your franchise operates within the food and beverage industry, you must obtain approvals from local municipalities and health authorities to ensure compliance with health and safety standards.

How can Global Link help?

Global Link has over 16 years’ experience working with local and global businesses, providing bespoke consultancy services for company incorporation in Dubai and the wider UAE.

We offer specialised support for starting a franchise in the UAE, assisting with everything from navigating the regulatory landscape, securing the necessary licences and permits, to ensuring compliance with local laws and regulations. Our team provides comprehensive guidance to streamline the process and help you establish a successful franchise business.

If you need advice on this or any other aspect of company incorporation or visa acquisition, please get in touch with us on +971 4 553 9901 or email us at [email protected] and we will be happy to assist you.