Trade License Guide

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Trade License Guide

 

SELECTING THE TYPE OF LICENSE YOU NEED

 

ON-SHORE LICENSES

The legal framework for incorporations within the UAE offers several different forms of On-Shore corporate entities to be established. Each may then be suitably licensed to conduct trade within the Emirate for which they are incorporated.

There are 3 main styles of On-Shore corporate entities:

Limited Liability Company (LLC)

By law, an LLC must have a majority of its shares owned by a UAE National for an expatriate then; an LLC company is actually a joint-venture between the UAE National and the expatriate partner(s). The expatriate may act as the company manager and run its day-to-day affairs. Shareholders are not entitled to any of the profits of the company unless the company's directors decide to pay dividends to shareholders. The company's liability is limited to the capital value of the company (which by law is required to be a minimum of USD 81,750 or AED 300,000).

Professional License

Equivalent to a Sole-Trader or Partnership company in other countries, a Professional License allows the applicant(s) to create a company partnership provided that the partner(s) can demonstrate their formal professional qualifications as suitable to hold the professional license. These licenses are restricted to certain types of highly-skilled trades. There is no requirement for a UAE national to be a Partner on this license although a UAE National must be appointed as an agent to assist with administration, visas and so on. In many ways the agent acts as the non-stock holding sponsor of the company.

Branch Office

Foreign (Non Emirati Nationals) companies can establish a Branch Office or a Representative Office in the UAE where the shareholding is 100% owned by the foreign company, subject to approval by the Government. The foreign company must be of good standing and have a trade history of at least 2 years. The Branch Office will generally conduct business on behalf of the parent company within the UAE. The licensed activities will generally match with business activities of the parent (foreign) company. A UAE National however, must be appointed as an agent. There are some restrictions on the type of branch companies that can be set-up dependent on their activities. Please contact us for further information.

Other Considerations

There are some activities which are restricted by law as requiring qualified people within the company to demonstrate competency. Examples of this are medical, legal, finance, management consultancy and so on.

Companies may apply for one or more activities as part of their trade license, subject to approval by the Government. Extra activities may also be added after incorporation.

 

FREE ZONE COMPANIES

The concept of a Free Zone or mid-shore company has been developed internationally as a model to help develop and promote business in many countries.

The UAE (and Dubai in particular) originally established Free Zone s to attract trade and export companies, with a high degree of success. Many new Free Zone s have since been added within the UAE.

There are 2 main types of Free Zone corporate entities, namely;

  • Free Zone Establishment (FZE)
  • Free Zone Company (FZCO or FZ-LLC)

The main difference between an Establishment and a Company is the number of shareholders required. An Establishment is a single-shareholder (either a person or a company) while a Company is actually a Limited Liability Company and generally requires 2 or more shareholders. Both offer the same operating benefits. Depending on the Free Zone there may also be differences in the share capital requirements.

The main difference between an Establishment and a Company is the number of shareholders required. An Establishment is a single-shareholder (either a person or a company) while a Company is actually a Limited Liability Company and generally requires 2 or more shareholders. Both offer the same operating benefits. Depending on the Free Zone there may also be differences in the share capital requirements.

A Free Zone company can also be a Branch Office of another company. As such, the Branch Office is not a separate company but an extension of the parent company, based in the Free Zone. Branch Offices are NOT an FZE or FZCO/FZ-LLC.

During the incorporation process, the company will be required to demonstrate solvency. This is a simple process where a new company bank account is opened in a UAE licensed bank under the new company's name. The share-capital amount is then deposited. A bank statement is then used to satisfy the Free Zone Authority. Once the company setup is completed, the capital is released and can be used as working capital for the company or simply repatriated until needed in the future.

The initial share-capital requirements vary between Free Zones depending on the stated purpose of the company but as a general rule the paid-up capital amount can be from AED 50,000 (approximately USD $13,600) to AED 300,000 (approximately USD $82,000) for the majority of Free Zones.

Free Zone companies are required to have some form of physical office in the Free Zone area. Several of the Free Zone authorities offer hot-desk and virtual offices for companies those are small enough not to require a full office for themselves. Most Free Zones have readily available space for new companies. However some of the more established Free Zones have a very limited vacancy level due to their popularity and facilities. Contact us for more information on availability.

Key benefits of incorporation within a Free Zone are:

  • 100% ownership by Expatriates
  • No currency restrictions
  • All capital and profits may be repatriated
  • No corporate, personal or capital gains tax
  • Excellent infrastructure & communications
  • Wide variety of labour readily available
  • Residency visas available

 

OFFSHORE COMPANIES

An innovation of the Free Zone authorities, the concept of an offshore company in the UAE is a flexible corporate entity which allows for the combination of On-Shore and Offshore features. Registered within a Free Zone, the Offshore Company has several of the benefits of a standard Free Zone Limited Liability Company (FZ-LLC) but is not intended as a substitute for a FZ-LLC company.

An Offshore company can conduct business outside of the UAE - but generally not within.

However, it can open and operate bank accounts with UAE-based banks, can own investments inside and outside of the UAE and can also own real estate in Dubai in certain designated areas (which are approved by the Free Zone registrar). Income derived from its investments (including real estate) can be held in the company bank account and repatriated thereafter.

Unlike other Free Zone companies, there are no minimum capital requirements for an offshore company to incorporate.

A minimum of 2 directors (maximum of 5) are required, all of whom must be natural persons (no corporate directors). Shareholder(s) may be either natural persons or corporate entities, any of which may also be non-resident (expatriates).

Key benefits of the Offshore Company are:

  • Short set-up time
  • No requirement for an office in Free Zone
  • 100% ownership by Expatriate
  • No currency restrictions
  • All income and profits may be repatriated
  • No corporate, personal or capital gains tax
  • Strong corporate privacy
  • Open and operate bank account in the UAE
  • Able to own property in Dubai
  • No residency visa without an office
  • Can own investments inside and outside of the UAE

 

SELECTING YOUR LOCATION

Where should you locate your business? One expert will tell you location is absolutely vital to your company's success; another will argue that it really doesn't matter where you are-and they're both right. How important location is for your new company depends on the type of business, the facilities and other resources you need, as well as where your customers are. If you're in retailing or if you manufacture a product and distribution is a critical element of your overall operation, then geographical location is extremely important. If your business is information- or service-related, the actual location takes a back seat to whether or not the facility itself can meet your needs.

Regardless of the nature of your business, before you start shopping for space, you need to have a clear picture of what you must have in terms of the minimal legal requirements, what you'd like to have, what you absolutely won't stand and how much you're able to pay. Developing that picture can be a time-consuming process that is both exciting and tedious, but it's essential that you give it the attention it deserves. While many start-up mistakes can be corrected later on, a poor choice of location is difficult-and sometimes impossible-to repair.

Types of Locations

The type of location you choose depends largely on the type of business you're in and where you obtain your license, but there are enough mixed-use areas and creative applications of space that you should give some thought to each type before making a final decision. For example, business parks and office buildings typically have retail space so they can attract the restaurants and stores that business tenants want nearby. Shopping centres are often home to an assortment of professional services-medical, legal, accounting, insurance, etc.-as well as retailers.

1. Home-based: This is perhaps the trendiest location for a business these days, and many entrepreneurs start at home, then move into commercial space as their business grows. Others start at home with no thought or intention of ever moving. You can run a home-based business from an office in a spare bedroom, the basement, the attic-even the kitchen table. On the plus side, you don't need to worry about negotiating leases, coming up with substantial deposits or commuting. On the downside, your room for physical growth is limited and you may find accommodating employees or meetings with clients a challenge. Quite option, this option is limited to only a few Free Zone set-ups.

3. Commercial: Commercial space includes even more options than retail. Commercial office buildings and business parks offer traditional office space geared to businesses that do not require a significant amount of pedestrian or automobile traffic for sales. You'll find commercial office space in downtown business districts, business parks, and sometimes interspersed among suburban retail facilities. One office option to consider is a business centre, where the facility provides receptionist and secretarial services, faxing, photocopying, conference rooms and other support services as part of the space package. Business Centres help you project the image of a professional operation at a more affordable cost than a traditional office and can be found in most commercial office areas.

4. Industrial: If your business involves manufacturing or heavy distribution, you'll need a plant or warehouse facility. Light industrial parks typically attract smaller manufacturers in non-polluting industries as well as companies that need showrooms in addition to manufacturing facilities. Heavy industrial areas tend to be older and poorly planned and usually offer rail and/or water port access. Though industrial parks are generally newer and often have better infrastructures, you may also want to consider any free-standing commercial building that meets your needs and is adequately zoned.

On-shore, Free Zone and off-shore companies conduct their business in constantly shifting operating environments with different jurisdiction and commercial office zoning policy. Navigating these shifts requires analysis of available options, evaluation and ensuring compliancy. Our consultants can help bring all the facts and considerations to light and recommend the optimal office solution for your company.

Depending on the requirements for your initial approval of your business activity you may have special requirements to meet in terms of the type of office, shop or warehouse facility. Once you have your space located, it is advised that you check with your business consultant, if the space is compatible with the requirement prior to making the investment.

Important features to note:

  • Size
  • Zoning: Commercial, Retail or Industrial Area
  • Jurisdiction: Free Zone or On-Shore
  • Government of Dubai or Real Estate Department owned plots

 

SELECTING YOUR BUSINESS ACTIVITY

Our approach is simple. We’re here to offer you our expertise and give you the clarity you need to make the right decisions and take the right actions. Our expertise is grounded in perspective, the kind that comes from a wealth of experience. Our perspective begins at eye level, with a clear understanding of your business objectives and the scope of your business.

When defining the scope of your business, the considerations are rather complex. You need to take into account the core activities categorised as ‘industrial’, ‘professional’ and ‘trade/commercial’, along with a multitude of organisational support functions such as administration, management, marketing, sales and distribution, technical support, maintenance and product development.

With our business consultant by your side, you can have peace of mind that you’re on the right path to setting up your business successfully. We will help you determine the suitable business activity and ensure you have a full understanding of the different business structures and jurisdictions available. So you can choose the activity that matches your business objectives and future business plans.

 

SELECTING YOUR COMPANY NAME

What's in a name? A lot, when it comes to small-business success. The right name can be effective advertising tool that can help your customers understand what your business does and which market you are targeting. The wrong name can confuse or drive away customers. Ideally, your name should convey the expertise, value and uniqueness of the product or service you have developed.

Some experts believe that the best names are abstract, a blank slate upon which to create an image. Others think that names should be informative so customers know immediately what your business is. Some believe that coined names (that come from made-up words) are more memorable than names that use real words. Others think they're forgettable.

Regardless of industry and sector, all companies look for names that are relevant, outstanding and have a ‘success’ ring to it! After all the overall aim of selecting a name is to accumulate brand value and transform it into an asset.

There are two prerequisites to choosing and vetting a company name: you need to abide by the regulations stipulated by your company’s jurisdiction in respect to the license name, and; include some pertinent information about your business, especially if the name is not self-explanatory. This will help your company get categorised accordingly and make the search much easier for the potential clients and customers.

In reality, any name can be effective if it's backed by the appropriate marketing strategy. Here's what you'll need to consider in order to give your business the most appropriate and effective name while keeping in line with the Government guidelines.

Below are some guidelines on naming your company.

  • Trade Name Reservation is only valid for 60 days and is subject to renewal
  • Can be renewed for a maximum period of 1 year.
  • In the case where there is a trade name registered in another Emirate, it is possible to maintain or use the same name in the Emirate of Dubai if the trade name is not registered with the Ministry of Economy and Commerce, it can be used in the Emirate of Dubai.
  • It is not possible, as a user to be altered through the trade name reservation service that the trade name chosen is identical to chosen to existing trade names, so the user shall choose another trade name and confirm this through the available trade name search.
  • For registration/reservation of the trademark and trade name, you must obtain a certificate of no objection from the owner of the trademark to use the name in the Emirates of Dubai, or a certificate of the name registration as a trade mark from the Ministry of Economy.
  • The chosen name trade name shall not violate the standards of public order or decency or contain obscene words such as ‘bikini’, ‘sexy woman’, etc.
  • The chosen trade name shall not refer or relate to another person or to one of the royal families or tribe members, only it may relate to the license holder, for example a license under the name of ‘Mohammed Al Shamsi’, should not be named ‘Muhammed Al Dhahri’, etc
  • Trade names shall not be similar to a name of any active brand in the Emirate of Dubai or Government Projects or Global Brands, such as ‘Emaar’, ‘Kentucky’, etc.
  • The chosen trade name shall not be translated, for example: if the name is pronounced in Arabic ‘Al Samaa Al Aalya’ it is translated ‘Al Samaa Al Aalya’ and not ‘High Sky’. Similarly, if the name is pronounced in Englsh ‘Sky High’ it must be kept as ‘Sky High’
  • Trade names shall not contain the names of States or Governments
  • Trade names shall be linked to the company commercial activity and reflecting it in case the activity is mentioned, for example, it is not acceptable to issue a trade name such as ‘Orange Juice Contractors’
  • Trade names shall not be prohibited brand names, it must not indicate the names of political organization or religious sect for example ‘FBI’ ‘The Mafia’
  • The chosen trade name shall not include punctuation or characters or commas and the like such as ‘,’ , ‘/’
  • DED has the right to count the difference in fees for the past years in case of choosing the name incorrectly
  • In case the trade name is similar with an existing name or used, DED has the right to cancel or change the name.
  • The company name and the business activity must be related i.e. should your business activity be Interior Decoration the company name should end with the business activity name for example “ABC Interior Decorators”
  • If the activity is not related to the name, it can be rejected at a later stage and additional fees may be incurred

 

CHECKING FOR ADDITIONAL APPROVALS

Check for Additional Approvals and Requirements for the Initial Approval of your Business Activity (DED or Chamber of Commerce)

As all of the licenses have several layers of approvals, prior to investing a lot of money in your office and infrastructure there is an initial approval process which is undertaken. The level of requirements & due diligence for the initial approval is dependent on the categorization on the four main risk factors, evaluated on the basis of whether the business activity is harmful to human beings, harmful to animal life, harmful to plants, or harmful to the environment.

The higher the business activity risk is considered, the longer the initial approval process from the different Ministries. The timeframes for the different approval processes will be quoted upon delivery of your proposal for incorporation.

Business activities in Dubai have been categorized as No-Risk, Low Risk, Medium Risk and High-Risk for the sake of evaluating the risk component.

The Low-Risk category includes chemical plants and similar industrial operations that require pre-approvals from various authorities including Dubai Municipality and Civil Defence. These facilities have stringent standards often embedded in their design and they go through years of preparation and inspections. Hence, there is no risk in issuing them a license. It will in fact allow them to complete procedures like testing and hiring before starting actual operations,

 

Approval Timeframes:

Category Type of Risk Duration for Approval
1 No 2-3 days
2 Low 3-7 days
3 Medium Quoted upon application
4 High Quoted upon application

 

COMPLIANCE & DUE DILLIGENCE

Today, companies face relentless pressure to grow their business and remain competitive. At the same time, how they operate is scrutinised like never before and governed by numerous regulations that differ from one sector of activity to another. Some companies may encounter difficulties when embedding or adhering to new principles or regulations in their operations covering a wide spectrum, from immigration and labour law, to environmental and customer protection rights, especially if new to the UAE.

This is where our consultants at How2uae can help. We approach all companies from a due diligence standpoint, ensuring a company’s compliancy is linked to its top and bottom line. We have broad experience in this respect and have developed a range of useful and practical tools, such as a sound compliance check-list.