In the United Arab Emirates (UAE), where innovative ideas flourish and entrepreneurs from various backgrounds seek opportunities, understanding the nuances of legal requirements is imperative for a successful venture. The process of establishing a business in the UAE is governed by the Commercial Companies Act, and acquiring the appropriate license is a crucial step in this journey.
The Department of Economic Development (DED) is the key regulatory authority responsible for issuing two primary types of business licenses: the commercial trade license and the professional business license. These licenses play a pivotal role in determining the nature of business activities one can undertake within the UAE, whether in a free trade zone or on the mainland.
This blog aims to unravel the intricacies of the commercial trade license and the professional business license, shedding light on their differences, benefits, and the processes involved in obtaining them.
DEFINING COMMERCIAL LICENSES
If your business involves selling tangible products, then acquiring a commercial trade license in Dubai is imperative. This license covers a spectrum of activities, from general trading to dealing in commodities, engaging in electronic trading, and even venturing into real estate. This license is essential for entities involved in the sale and purchase of goods and the provision of specific services. It provides the freedom to import, export, and trade within the local market, covering a broad spectrum of activities from selling toys and food to engaging in brokerage and real estate services
Under a business trade license, foreign traders can legally own up to 49% of the total shares, with the remaining 51% held by a local service agent or a UAE national. This partnership structure, typically forming a Limited Liability Company (LLC), ensures that shareholders have limited debts and liabilities.
The DED approves a diverse range of business activities under a commercial license, reflecting the dynamic nature of Dubai’s business environment. Some examples of authorized commercial activities include:
- Advertising services
- Automobile trading
- Beauty and baby care essentials
- Building maintenance services
- Cleaning services
- Cold storage
- Exchange and financial services
- Filling stations
- Flowers and plants trading
- General store
- Home appliances trading
- Import and export
- Plumbing and sanitary contracting
- Rental services
- Restaurant management
- Surveillance services
Key Features
Versatility in Business Activities – A commercial license in Dubai provides the flexibility to engage in a wide range of business activities, from trading goods to offering diverse services.
Authorization for Import and Export – Businesses holding a commercial license have the authority to import goods into the UAE, export them internationally, and conduct trade within the local market.
Incorporation Options – Entities can choose between establishing themselves in a free zone or operating on the mainland, each offering distinct advantages based on business needs.
Ease of Company Setup – Streamlined procedures facilitated by the DED or relevant free zone authorities make the process of obtaining a commercial license relatively straightforward, especially when supported by experienced company formation services.
Multiple Business Activities Under One License – A single commercial license allows businesses to conduct up to ten different activities simultaneously, providing a cost-effective and efficient way to diversify operations.
Local and International Trade Opportunities – Holding a commercial license opens doors for businesses to engage in both local and international trade, contributing to the UAE’s position as a global business hub.
Support for Economic Growth – The commercial license aligns with the UAE government’s vision of fostering economic growth by providing businesses with a legal framework to operate and thrive.
Restrictions
Limitations on Ownership for Foreign Entities – Foreign entities are typically restricted to owning up to 49% of the shares in a business under a commercial license. The remaining 51% must be held by a local service agent or a UAE national.
Stringent Naming Regulations – Businesses must adhere to strict naming regulations, avoiding disrespectful or profane words, well-known corporate names, and abbreviations when naming their firms.
Activity-Specific Permits – Depending on the nature of the business activity, additional permits may be required, and compliance with specific regulations may vary. It is essential to ensure that all necessary permits are obtained.
Location-Based Regulations – The choice between setting up in a free zone or on the mainland comes with its own set of regulations and benefits. Understanding and adhering to the specific regulations of the chosen location is crucial.
Documentation and Approval Process – The process of obtaining a commercial license involves a detailed submission of documents, and approval is subject to compliance with regulatory requirements. Delays may occur if documentation is incomplete or incorrect.
Government Fees and Costs – Various fees, including trade license fees, visa fees, and other government-related costs, contribute to the overall expense of obtaining and maintaining a commercial license.
Industry-Specific Regulations – Certain industries may have specific regulations and restrictions that businesses must adhere to, necessitating a thorough understanding of industry-specific compliance.
UNDERSTANDING PROFESSIONAL LICENSES
A professional license is specifically designed for sole proprietorship businesses, partnerships, joint ventures, and other entities seeking to set up business operations in Dubai. This license is also granted to individuals in various service-oriented professions such as artisans, consultants, designers, and more. The key criterion for obtaining a professional license in Dubai is that the business must be owned by a single individual. In cases where the ownership extends to two or more persons, the organisation is considered a civil corporation.
Entrepreneurs and businesspersons obtaining a professional license in Dubai can engage in a diverse range of activities, including but not limited to:
- Artisanship
- Carpentry
- Consultancy services
- Medical services
- Printing and Publishing
- Beauty salons
- Computer graphic design services
- Repair services
- Security services
- Document clearing, etc.
Key Features
Ownership Benefits – A notable feature of a professional license is that it allows 100% ownership for foreign investors who wish to start a sole proprietorship business. This distinct advantage sets professional licenses apart from commercial and industrial licenses.
Local Agent Requirement – While foreign investors can enjoy full ownership, a UAE national is required to act as a local agent to complete judicial formalities. This local agent is not directly involved with the company but charges a fixed annual salary for the services rendered. Importantly, the agent does not hold any equity in the company nor is liable for the company’s liabilities.
Department of Economic Development (DED) Involvement – The entire process related to the professional license is managed by the Department of Economic Development (DED). Investors need to approach the DED to initiate and complete the licensing procedures.
Service Scope and Specialization – Professional licenses are tailored for businesses that provide specific services, making them ideal for consultants, healthcare professionals, artisans, and other service-oriented professions.
No Direct Liability for Local Agents – Local agents associated with professional licenses do not bear direct liability for the company’s financial obligations. This separation ensures that the business operations and the local agent’s personal finances remain distinct.
COMPARISON OF COMMERCIAL VS. PROFESSIONAL LICENSES
When setting up a business in Dubai, choosing between a commercial license and a professional license is a crucial decision. Each license type comes with its unique characteristics, ownership structures, legal implications, and associated costs.
| Commercial License | Professional License | |
| Application Process | To obtain a commercial license, businesses need to select a business category, legalize the business structure, finalise a trading name, and await approval from the DED or the relevant Free Zone Authority. Mainland companies apply directly to the DED, while free zone establishments follow the procedures outlined by their respective authorities. | The application process for a professional license involves determining the specific business activity, obtaining approvals from relevant authorities, selecting a location (free zone or mainland), choosing a company name, and submitting the necessary documentation to the Department of Economic Development (DED) or the respective free zone authority. |
| Ownership | Foreign investors holding a commercial license in the UAE mainland can own up to 49% of the shares, with the remaining 51% held by a local service agent or a UAE national. Free zones may allow 100% foreign ownership. | Professional licenses allow for 100% ownership by foreign investors, making it an attractive option for individuals or entities seeking full control of their business operations. A local agent may be required for judicial formalities but without equity or financial liability. |
| Legal Structure | Commercial licenses often lead to the formation of Limited Liability Companies (LLCs) on the mainland, providing limited liability to shareholders. In free zones, the legal structure may also vary but commonly includes options for various business entities. | Businesses with a professional license can be considered sole proprietorship businesses, partnerships, joint ventures, or civil corporations. The legal structure may vary based on the ownership model and the number of individuals involved. |
| Ownership Liability | Companies with a commercial license typically benefit from limited liability, protecting the personal assets of shareholders. The liability is restricted to the amount invested in the business. | Professional license holders have unlimited liability unless the business opts to be treated as a limited liability company. This means that the personal assets of the business owner may be at risk in the event of legal issues or financial challenges. |
| Cost Implications | Costs associated with commercial licenses can include trade license fees, visa fees, residence fees, and other government-related charges. The overall cost may be influenced by factors such as the chosen business activities and the specific requirements of the selected jurisdiction. | The cost of obtaining a professional license may vary based on the nature of the business, the chosen location (free zone or mainland), and associated government fees. However, the cost structure may be more straightforward compared to commercial licenses. |
| Scope of Work | Commercial licenses are expansive, covering a broad spectrum of trade-related activities. Businesses under commercial licenses can engage in the sale and purchase of tangible goods, import and export, and various commercial transactions. | Professional licenses cater to businesses offering specialised services, consultancy, artisanship, medical services, and more. The focus is on activities that involve the provision of a service or advice, relying on the expertise of the business owner. |
| Scalability | Commercial licenses provide ample opportunities for scalability, especially for businesses involved in trading and the exchange of goods. The ability to engage in diverse business activities under a single license enhances scalability. | Professional licenses may offer scalability for businesses focused on service-oriented activities. However, the scalability may be limited to the expertise and capabilities of the business owner. |
In Conclusion
Selecting the appropriate license type for your business in Dubai is a pivotal decision that sets the foundation for compliance, success, and sustainable operation. Before embarking on the licensing journey, thoroughly understand the nature of your business activities. Consider whether your primary focus is on providing specialised services, consultancy, or engaging in trade and commerce. This clarity will guide you towards the most fitting license type. Evaluate your ownership preferences and goals, and take into account the liability implications associated with each license type. Understand the cost structures associated with each, and consider the scope of business activities your venture may engage in.
Whether you opt for a professional license or a commercial license, the key is to make an informed decision that aligns with your business objectives, legal obligations, and long-term growth strategy.
