Trade licence vs. freelancer permit – the pros and cons
Do you want to start up your own business?
The UAE – with its entrepreneurial culture and booming economy – is certainly a great place to do that.
But you do need an appropriate licence, and for that you have two options.
You can go for a trade licence if you want to start up a company, or a freelancer permit if you just want to work as a sole practitioner.
In this article, we’ll look at five specific areas to help you decide which option is better for you.
1. Hiring employees in the future
There comes a point in the life of any business when the time is right to hire. If you have a trade licence, this is a straightforward process. For freelancers, there are a few additional steps required.
Trade licence: As a trade licence holder, you can hire as many employees as your licence will allow. This figure will depend on the size of your premises or the free zone in which you do business. If your licence allows for six visas, then you are entitled to make six hires.
Freelancer: There is an additional step involved if you wish to hire as a freelancer. The freelancer permit only allows you (the named person) to work in the business. However, many people opt for the freelancer permit as a starting point and then switch to a full trade licence set-up when they are ready.
This is a simple process and once done you are free to hire as many employees as you have available visas.
2. Ease of setting up and running your business
When it comes to setting up, both options are straightforward – apply to the Department of Economic Development (DED) for your licence or permit if you wish to trade from the mainland or apply directly to your chosen free zone.
When it comes to doing business, however, there are a couple of differences between the set-ups that you should consider.
Trade licence: This is perhaps the easiest way to do business in the UAE. Both the DED and all free zones issue trade licences so getting set up is not an issue. Equally, the vast majority of UAE and international businesses are comfortable working with companies that operate under a trade licence so you should have no trouble doing business in the long term.
Freelancer: Freelancer permits are not as widely available as trade licences, however many UAE free zones now issue them, including RAKEZ, Dubai Media City, Dubai Internet City, Dubai Design District and Dubai Knowledge Park.
The only thing to note in terms of doing business is that some larger companies may request a tax registration number (TRN), which is not available to freelancers. Furthermore, as a freelancer, it is also not possible to open a corporate bank account in the UAE.
3. Keeping costs low
Cost is always an important factor when running a business.
When it comes to comparing the trade license and visa options, the one that works out the most cost-effective will depend largely on the size and nature of your business.
In both cases, it is possible to keep costs down by not taking on staff or office space.
Trade license: In terms of set-up costs, it’s possible to establish a free zone company for around AED 25,000 to AED 28,000. This is a little higher than the freelance option, however you will be able to:
- Get a TRN number and trade with large corporates
- Hire employees quickly as your business grows
- Open a corporate bank account
Freelancer: If you are looking to set up a small business on a budget then the freelance option may suit you better. There are some very attractive freelance permit packages available starting from just AED 7,500.
However, this is not the final fee you have to pay, as it doesn’t include residency visa fee, immigration card, insurance and other costs.
On average the total price for a freelance permit varies from AED 10,000 to AED 20,000, and depends on factors including:
- Whether you need a 1-year permit or you wish to opt for 3-years straight away
- Whether you need a residency visa or you are a stay-at-home mother who simply needs an operational permit for yourself to conduct your commercial activity legally in the UAE
4. Sponsoring dependants
If you own a business, you can apply to sponsor your dependants for their visa. You must, though, hold a valid UAE residency visa yourself.
Trade license: As a business owner, you are eligible to sponsor dependants providing you meet the salary criteria. If you wish to sponsor a spouse, child, maid, driver or any other dependant for their visa, the process consists of four straightforward stages: entry permit, status adjustment, a medical fitness test, then Emirates ID registration and visa stamping.
Freelancer: If you wish to sponsor dependants as a freelancer, the process is the same as above. It is worth noting, however, that it can be hard to prove your earnings as a freelancer. Having said that, if you do have official documents showing that you meet the salary threshold, you should have no issues applying for dependants’ visas.
5. Trading with the UAE mainland
UAE free zones businesses are not permitted to trade directly with the local market on the mainland. However, whether you have a trade licence or are a freelancer, there are a number of ways to do so indirectly.
Trade licence: The easiest way for a free zone company to trade with the mainland is via a locally appointed distributor who will take a fee for their services. Alternatively, you can apply to the DED to open a branch office outside of your free zone and trade with the mainland from there.
Freelancer: There is no specific legislation stopping a freelancer from taking on work with mainland companies. However, some free zones may restrict your ability to do so. The best advice is to work with a company formation specialist who can advise on the best set-up to suit your trading needs.