With its entrepreneurial culture and a thriving economy, the UAE is definitely a great place to start your own venture. You need an appropriate license, though, and for that, you have two options; a trade license or a freelance permit. You should apply for a professional license if you choose to establish a business, or a freelancer license if you only want to operate as a sole practitioner.
In this blog post, we will address some of the advantages and drawbacks of each license and help you determine which choice is right for you.
What is a Freelance Permit?
A freelancer is a self-employed person who is offering a certain service. He/she is a sole practitioner and starts the business in their own name.
Steps Involved in Obtaining a Freelance License
- Apply with one of the above-mentioned free zones
- Submit the application along with your passport copy
- Pay the requisite fees
- Collect the certificate for a freelancer visa approved by the UAE free zone
- The freelance license will be issued in 7-10 days
Jurisdictions in the UAE that Offer Freelancer Permits
Almost all free zones in the UAE offer freelancer permits. Some free zones which are popular amongst the freelancers are mentioned below:
- Twofour54 (Abu Dhabi)
- Dubai Media City
- Dubai Knowledge Park
- Dubai Internet City
- Dubai Studio City
- Dubai Production City
- Dubai Design District
- Dubai Creative Cluster Authority
- D-TEC at Dubai Silicon Oasis
- Dubai Development Authority
- Ras Al Khaimah Economic Free Zone Authority
- Fujairah Creative City
- Ajman Free Zone
What is a Trade License?
It’s a general license that allows one to carry out multiple trading activities that are in the same or different industries in the UAE. The activities include imports, exports, trading of products, and services. Anyone who is willing to do a wholesale business must have a trade license. Having a trade license can help you in conducting your business activity locally, as well as internationally
Steps Involved in Obtaining a Trade License
- Select the legal structure and trade name for the company
- Determine the business activities to be carried out
- Apply for initial approval
- Draft the Memorandum of Association (MOA) and other documents from the necessary authorities
- Choose the location for your business
- Submit the application to the Department for Economic Development (DED)
Freelancer Permit vs. Trade License
We have compiled and list down a few instances to compare both types of licenses. This comparison may help you in deciding which one is better for your business.
Situation 1 – Hiring Employees in the Future
Freelancer Permit: As a freelancer, you are offering your services as an independent contractor. You’re a one-person business and work as an individual under your own name. But the key point is – you are a sole practitioner, and the freelancer permit only allows you (the named person) to work in the business. It doesn’t allow for employees. If you want to remain a one-person business – and many people do – then the freelance permit may be the way to go.
Trade License: If you’re hoping to grow your operation and take on staff, you should probably opt for a trade license. You could, of course, de-register your freelance permit or upgrade it to a trade license once you’ve been running for a while – but it would be easier to have a trade license from the start.
Situation 2 – Ease of Setting Up and Running Your Business
Freelancer Permit: It is relatively easier to get a trade license or a freelancer permit in the UAE but getting the freelancer permit will likely be easier and proves an ideal starting point for a UAE entrepreneur. A freelance permit is available in free zones like RAKEZ, Dubai Media City, and Dubai Design District.
The process is simple, with your business name just being your own name. With initial growth secured, many then invest in securing a full trading license to ensure growth isn’t stymied by the limits of freelancing alone. And – as elsewhere in the world – freelancers in the UAE are not always subject to audits or required to submit formal accounts. Freelance permits are also available for a limited list of professions, which are related to Media, Education, and Fashion.
Trade License: Because of the lack of financial transparency, some large organizations may be reluctant to work with freelancers. They might consider you too small. So, if you intend to work with larger companies or on government contracts, a trade license may be the way to go. It can give you more credibility. And if you have a corporate client, you might be requested to provide a Tax Registration Number (TRN number), issued by the Federal Tax Authority, which cannot be obtained by freelancers. That might limit you to work with medium and large-scale corporates.
Trade license is available for almost every profession and industry.
Situation 3 – Low Costs
Freelancer Permit: It is certainly easier to keep costs under control as a freelancer. You don’t have to pay for staff and you don’t need to rent office space. Free zones let you rent a workstation that you may use for your activity. Also, there are some very attractive freelance permit packages available. UAE residents who want to freelance in the media and education sectors can get freelance permit packages for an annual fee of AED 7,500. However, this is not the final fee you have to pay, as it doesn’t include residency visa fees, immigration cards, insurance, and other accruing costs.
On average the total price for a freelance permit varies from AED 10,000 to AED 20,000 and depends on factors like:
- You need a 1-year permit, or you wish to opt 3 years straight away
- You need a residency visa, or you are a stay-at-home mom who simply needs an operational permit for yourself to conduct your commercial activity legally in the UAE
Trade License: If you set up a fully-fledged company, with some free zones your costs might not exceed AED 25,000 to AED 28,000, however, you will be able:
- To get a TRN number and trade with corporates
- In the future to hire employees, when your business grows
- You will have greater credibility in the market, building your brand, where corporates still prefer to work with legal entities, rather than freelancers
- You will be able to open a corporate bank account which also adds credibility, whereas a freelancer you can operate only through your personal bank account
- Easier to sponsor dependents
Situation 4 – Sponsoring Dependents
If you own a business, you can apply to sponsor your dependants for their visas. You must, though, hold a valid UAE residence visa yourself.
To sponsor dependents as a business owner, it doesn’t matter whether you have a trade license or a freelancer permit. Both are acceptable. But it might be more difficult to prove your minimum salary as a freelancer. Running a freelance business can be very difficult – and it can take time to build up contacts, clients, and revenue. Your earnings can be variable too, even when you’re established. Having said that, with some freelancer permit packages, an estimate of your expected salary should be enough for sponsoring your dependents.
Situation 5 – Trading with the UAE Mainland
Freelancer Permit: If you set up in a free zone, you are prohibited from trading directly with the UAE mainland – although there are ways to set up the trade. For a freelancer it may be more complicated, depending on your free zone. For example, in Dubai Media City, you are restricted to just working in certain free zones. But because free zones tend to be sector-specific, that may not be an issue.
Trade License: If you have a trade license, you can open a branch outside the free zone, which requires a license from the DED. Or you can work through a locally appointed distributor.
Do you want to start up your own business? The UAE is certainly a great place to do that. You do though need an appropriate license, and for that, you’ve two options. You can go for a trade license if you want to start up a company, or a freelancer permit if you just want to work as a sole practitioner. Our business setup advisors at Riz and Mona Consultancy can help you in deciding which license to opt for. Contact us today to book an appointment.