How to Get a Sole Proprietorship License in Dubai: Process & Benefits

Dubai has become one of the most business-friendly cities in the world, and it offers entrepreneurs numerous opportunities to establish and grow their businesses. One of the simplest and least expensive business forms in Dubai is a sole proprietorship license, which allows a person to be the sole owner of a business.

For freelancers, consultants, and professionals, this type of license is ideal, offering complete control and low setup costs. However, it is important to understand the process and requirements to be on the right side of the law. Throughout this article, we will explore the Dubai sole trader business license, its benefits, costs, and the key differences between sole proprietorship and  Limited Liability Company (LLC) in the UAE.

What is a Sole Proprietorship in Dubai?

A sole proprietorship is a business ownership structure controlled by an individual who has absolute authority in decision-making and profits. A sole proprietorship, in contrast to an LLC, does not have a legal separation from the owner, thus making the individual personally responsible for the business's debts and liabilities.

This type of business is best for professionals such as consultants, accountants, legal consultants, designers, and medical doctors who want to practice independently. Expatriates can apply for a Dubai sole trader business license only for professional activities and need to appoint a Local Service Agent (LSA) for government liasion.

Sole Proprietorship vs. LLC in UAE

The choice between a sole proprietorship or an LLC depends on a number of factors such as liability, growth, and legal requirements.

A sole proprietorship provides 100% control, fewer setup costs, and absolute decision-making powers. However, it also provides unlimited liability, and the owner's personal properties would be vulnerable in case of business debt.

On the other hand, an LLC offers limited liability, which protects personal assets from business obligations. It also allows for multiple shareholders, making it a better option for companies that require investment and scalability. However, an LLC entails a more costly setup and higher compliance obligations.

If you prefer a simple and low-cost form of business, a Dubai sole trader business license is perfect. With that said, if your business has high financial risks or growth opportunities, you might prefer to convert to an LLC as a better long-term solution.

Benefits of a Sole Proprietorship License in Dubai

There are many advantages to obtaining a Sole Proprietorship License in Dubai. One of the most significant benefits is 100% ownership of the business. Unlike other types of companies, a sole proprietorship allows full control over decision-making and profits. 

Additionally, the low setup costs make it an attractive choice for small business owners and freelancers who wish to establish their companies with minimal financial investment. Further, sole proprietorships are exempt from corporate taxation for profits under AED 375,000. 

Nevertheless, registration for VAT might be mandatory in case the annual turnover is more than AED 375,000. Additionally, there is less compliance and reporting needed for this business arrangement, which makes it simpler to administrate than an LLC.

Despite these benefits, it is important to consider the risks of unlimited liability. Since the business owner is personally responsible for debts, adequate financial management and risk planning are essential.

Eligibility & Requirements for a Sole Proprietorship License in Dubai

Before applying for a Dubai sole trader business license, it is important to check the eligibility criteria. UAE nationals can apply for any type of sole proprietorship, including commercial and professional activities. 

Expatriates can only apply for professional service businesses and need to appoint a Local Service Agent (LSA), who does not have any ownership rights but assists in administrative procedures.

The documents required for a sole proprietorship license are:

• A copy of the passport and UAE residence visa
• A copy of the Emirates ID
• Trade name approval certificate
• Office lease agreement (Ejari)
• Educational and professional certificates (for some professions)

Additional approvals for regulated industries such as legal and medical services

Step-by-Step Process to Obtain a Sole Proprietorship License in Dubai

Step 1: Choose a Business Activity

The Department of Economic Development (DED) lists all permitted business activities. It is important to select an activity that aligns with your professional expertise and qualifications.

Step 2: Select a Trade Name

The trade name must indicate the nature of your services and be in accordance with DED naming conventions. It should not contain objectionable words or religious names. It needs to be approved by the DED once selected

Step 3: Obtain Initial Approval

You need to get the initial approval from the DED before the final application. This is to ensure that your business activity and trade name are in adherence to Dubai's regulations.

Step 4: Get an Office Space

Dubai law requires businesses to run from a physical office location. The office lease  (Ejari) is mandatory for the license approval.

Step 5: Submit the Application to DED

Once all the documents are ready, you can now apply to the DED and pay the applicable fees.

Step 6: Obtain the Sole Proprietorship License

After approval, you will now have your sole proprietorship license in Dubai and can legally start operations.

Cost of Setting Up a Sole Proprietorship License in Dubai

The cost of a sole trader business license in Dubai depends on the nature of the business activity, office space rental, and additional approvals.

Below is an approximate breakdown of the cost:

Reservation of Trade Name: Starts from AED 600

DED License Fees: Starts from AED 8,000

Local Service Agent Fees (if any): Starts from AED 5,000

Office Rent & Ejari: Starts from AED 15,000 (subject to location)

There are further costs for visa applications, government approvals, and business support services.

Sole Proprietorship Taxation & Compliance in Dubai

One of the advantages of a sole proprietorship in Dubai is that it is exempt from corporation tax for profits under AED 375,000. However, VAT registration is mandatory if the business has an annual income of over AED 375,000.

Additionally, while audited financial statements are not required, it is best to maintain accurate financial records for business growth and compliance. Annual renewal of the license is also mandatory for legal continuity of business.

Common Challenges & How to Overcome Them

While it is straightforward to form a sole proprietorship in Dubai, there are certain pitfalls that business owners may face. The biggest risk is unlimited liability, which means that personal assets are vulnerable if the business incurs debt. To minimize this risk, business owners must take business insurance and be careful with finances.

In addition, sole proprietorships are less scalable since they cannot accept partners or investors. If the business significantly expands, it is advised to convert to an LLC. Another downside is the opening of a corporate bank account since there are banks that have sole proprietorship account restrictions. It is feasible to collaborate with business setup consultants in order to ascertain the most appropriate banking solutions.

When to Consider Changing from a Sole Proprietorship to an LLC

If your business is expanding and you require investors, increased limited liability protection, or a broader range of operational capabilities, it may be time to switch from a Dubai sole trader business license to an LLC.  An LLC conversion offers greater financial protection, reputation, and growth opportunities, making it a more suitable choice for larger businesses. 

A Dubai sole proprietorship license is an ideal option for professionals, freelancers, and consultants looking for a low-cost and simple setup for their business. Although it offers 100% ownership, lower costs, and operational flexibility, it also involves the risk of unlimited liability.

If you're unsure whether a Dubai sole trader business license or an LLC is best for you, then a conversation with a business setup consultant can ensure you a hitch-free licensing process.

Seek our professional on-the-ground guidance, contact us via mail at info@radiantbiz.com or WhatsApp & call us at  +971 55 234 7124!

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