Summary:
One cannot start a business in the UAE without obtaining a trade or business license. There are multiple types of trade license, and the investors can obtain them as per their business activity needs. You will need to find out which one is the right one for your business type.
To start a business in UAE, you first need to obtain a business trade license. These trade licenses are categorised into two legal types; professional license and commercial license. Which license you must obtain depends on what business you want to engage in the UAE.
Here in this article, we will try to find out the difference between the two licenses:
Business Activities
If you have obtained a commercial license then your business activity will include selling of material products. That could be anything from electronic trading, software trading, to general trading and more. So, in simple words, commercial licenses allow you to engage in all types of goods trading. Goods that we can touch and see.
On the other hand, if you want to engage in some service, using your special skills of professional knowledge in exchange for fees or money, you will need to obtain a professional license. This includes all types of consultancy services, accounting services, legal advisors, software development, and more.
Business Setup Ownership
If you have a commercial licence, then expatriates can have a 49% share in the company while the remaining 51% is with the UAE national or local agent or partner. In a professional license, the expatriate can have 100% of the company’s ownership and therefore, it becomes a sole establishment.
However, if companies with professional licenses decide to convert into LLC later in the future; then the company’s ownership is distributed amongst the expatriates and UAE nationals. Similarly, when just one owner runs a professional company, the ownership is shared, and it becomes a civil company.
Shared Capital and Ownerships
The minimum capital amount required for a commercial license company is AED 300,000. A professional licensed, company that has a single owner becomes a sole establishment and when it has more than one owner, then the ownership is also divided, and it becomes a civil company. In such circumstances, the minimum shared capital of the company is AED 150,000.
Government License Fees
The government charges different fees for both the licenses. While the cost of the professional license can be around AED 11000, the cost of the commercial license is about AED 17000. This cost is when both have only one expatriate partner. The cost and charges of the licences will increase as and when the number of expatriate partners will increase or whenever a particular licensed business activity will need additional business approvals.
Business Liability
The commercial license is always suffixed by L.L.C. Meaning, the liability of the company with commercial licence is limited. On the other hand, a professional license usually has unlimited liabilities. However, if the professional company converts the license into a limited liability company, the liability becomes limited. Moreover, once the liability becomes limited, the ownership also must be divided among the expatriates and the UAE nationals.
Both the professional and commercial licenses are in high demand in the UAE. Investors choose them as per their business activities. While all consultancy services need a professional license, trading of goods and materials require commercial. Therefore, investors must understand which license is required to establish a business in the UAE.
