Trade license vs. freelancer permit – which should you go for?

30 October 2018 Category :

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. 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.

In this article we’ll discuss some of the pros and cons of each license. We’ll look at five specific areas to help you decide which option is better for you.

Hiring employees in the future

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. Freelancing is a very common way of starting up a business, and is growing in popularity both worldwide and in the UAE.

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.

But 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.

Ease of setting up and running your business

It’s relatively easy 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.

There is a drawback, though, around the last point. Because of the lack of financial transparency, some large organisations 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 Federal Tax Authority, which cannot be obtained by freelancers. That might limit you to work with medium and large-scale corporates.

Freelance permits are also available for a limited list of professions, which are related to Media, Education and Fashion.

Keeping costs low

Are low costs important to you? If so, the freelancer option may be the one for you.

It’s certainly easier to keep costs under control as a freelancer. You don’t have to pay staff and you don’t need to rent office space. Free zones let you rent a work station that you may use for your activity.

As Khaleej Times recently reported, 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 fee, immigration card, 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

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, where as a freelancer you can operate only through your personal bank account
  • Easier to sponsor dependents

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.

To sponsor dependants as a business owner, it doesn’t matter whether you have a trade license or 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.

Trading with the UAE mainland

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 trade. If you have a trade license, you can open up a branch outside the free zone, which requires a license from the DED. Or you can work through a locally appointed distributor.

For a freelancer it may be more complicated, depending on your free zone. In the Dubai Media City example above, 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.

Summary

To start up a business in the UAE, you need either a trade license or a freelancer permit.

Freelancing is undergoing significant growth at the moment. The UAE, long a hub of entrepreneurship, has seen its knowledge-based industries and services increase from 32% of its GDP in 2001 to 37.5% in 2012. This isn’t going to stop any time soon; the UAE Vision 2021 plan aims to boost this percentage by a further 25% by 2025.

The savvy entrepreneur will appreciate the benefits of both freelancing and trade licenses as part of a ‘journey’ into UAE entrepreneurship.

Freelancing is a fantastic initial means of entering this lucrative economy, but the writing is on the wall: your initial success will naturally find its limit in freelancing, leading to the natural progression into a trading license that will unlock true and lasting growth for your ventures.

Setting up your own business has never been easier. Virtuzone takes care of it all so you can focus on what matters – building your business. For more information about company formation in the UAE mainland or free zones, please call us on +971 4 457 8200, send an email to info@vz.ae, or click here.

Related Posts

About the author: Olga Melnyk, Head of Business Development, Virtuzone.
About the author: Olga Melnyk, Head of Business Development, Virtuzone.

Having spent the past seven years working in the field of legal company incorporation, Olga now works closely with entrepreneurs both locally and internationally in assisting them with their UAE company setup requirements. This includes both free zone and onshore in Dubai and other emirates across the UAE. Olga always advises each of her clients on the best legal setup for their particular needs, and in so doing she supports across the entire range of company setup, from legal translation to document certification to management of the entire communication and legalities with the local UAE company setup authorities. Olga was born and raised in the Ukraine and has a degree in Business Administration and International Law.