Starting a business in the United Arab Emirates (UAE) requires you to choose the right type of legal entity for your goals, scale, and objectives. Two of the most popular options are Limited Liability Companies (LLCs) and sole proprietorships. These options have different pros and cons that you need to consider before making a decision.
To make it all easier for you, we will compare LLCs and sole proprietorships in terms of their legal requirements, taxation, liability, ownership and control, flexibility, and growth potential.
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What type of companies can a foreigner establish in the Emirates?
Learn about tax and corporate laws in the UAE before choosing a business structure. Contrary to popular belief, doing business in the UAE is not completely tax-free. The UAE government introduced a 9% tax rate for resident enterprises in 2023.
However, foreign companies that operate as LLCs can avoid income taxes if they meet these conditions:
- They are located in one of the UAE free zones.
- They do not earn income from local companies or UAE residents.
- They have no ties or direct involvement with UAE business management circles.
- They are non-resident companies in the Emirates and pay income taxes at source in another country.
Foreign company founders can choose from different business forms in the UAE:
- A local Limited Liability Company (LLC) that operates within the UAE mainland.
- An onshore LLC that operates in one of the UAE free zones, which offer tax and regulatory incentives.
- An offshore company that operates exclusively outside the UAE but is registered in one of the UAE free zones.
- A sole proprietorship that provides services but does not engage in trading activities. This option is limited to a single owner.
FYI: Foreign nationals need a local agent to set up a sole proprietorship in the UAE.
What is a sole proprietorship in the UAE?
A sole proprietorship is a business form with one owner. To start a sole proprietorship in Dubai, you need a professional license from the Department of Economic Development (DED). This license allows you to set up a virtual office and hire employees with visas.
As a sole proprietor, you may offer various professional services in the UAE:
- accounting
- IT
- consulting
- event management
- engineering
- marketing
- legal services, and more.
Sole proprietorships have different options and limitations depending on the owner’s nationality. UAE residents or GCC citizens have the right to run a sole proprietorship that involves trading, exporting, importing, or other ventures, as long as they have the required licenses.
Remote freelancers, including foreigners, may also opt for a sole proprietorship. However, they are not authorized to engage in import, export, trading, or real estate development in the UAE.
Legal requirements for sole proprietorships in the UAE
A sole proprietorship in the UAE is a business owned by one person. You can have full foreign ownership, up to 100%, in this type of business. Here are some other things you should know about sole proprietorships in the Emirates before you make up your mind to start one:
- A trade license is issued in your name as the sole owner.
- You do not face any minimum capital requirements to start a sole proprietorship in the UAE.
- You can set up a virtual office in Dubai or any other emirates.
- You need a local service agent (LSA) to register a sole proprietorship in the UAE if you are a foreigner.
As a sole proprietor, you can enjoy a complete exemption from corporate income tax if you are not a UAE resident and meet certain criteria. UAE resident companies and resident businesses with foreign owners have to pay a 9% income tax if their annual profit exceeds AED 375,000.
Sole proprietorship in the UAE: pros and cons
As a business structure, a sole proprietorship has definite benefits for its owner in the UAE:
- Full Ownership: Open to both residents and non-resident foreigners.
- Sole Profit Recipient: The sole proprietor receives all profits after deducting taxes and expenses.
- Simplified and Affordable Setup: Creating a sole proprietorship in the UAE incurs straightforward and cost-effective expenses, with no capital requirements, and virtual offices are allowed.
- Operations Across All Emirates: You may conduct business activities across all Emirates.
UAE sole proprietorships have their weaknesses as well:
- Personal Liability: The owner assumes personal liability for all business obligations.
- Office Requirement: Having an office is mandatory.
- Difficulty in Selling the Business: Challenges may arise when attempting to sell your business in the Emirates.
In 2023, foreigners can obtain UAE residency through property ownership. Explore current offers from Q Wealth partners in the UAE services catalog.
Sole proprietorship vs LLC in the UAE: basic differences
Sole proprietorships and LLCs are 2 common business forms in the UAE. However, they have significant differences that affect their scale, tax, and profits.
Below, the basic differences between LLCs and sole proprietorships in the UAE are outlined:
| Requirements and opportunities | Sole Proprietorship | LLC |
| No. of owners | 1 | At least 1 director and 1 member |
| Business founders | Natural persons only | Natural persons or legal entities |
| Liability for debt | Owner | All members are liable in proportion to their capital ownership percentage |
| Owning real estate on behalf of the business | No | Yes |
| LLC trading in the UAE | LLC trading in the UAE is allowed for UAE citizens and residents of the Gulf states and forbidden for foreigners. | Operational restrictions are imposed by the available license only. |
| Company profits | Profits belong only to the founder. | Company profits are distributed between LLC members. |
| UAE trading license | A trading license is required. | LLCs in the UAE receive licenses according to their activity types. |
| Bank account | Personal bank account | Corporate bank account |
The registration costs of sole proprietorships and LLCs in the UAE vary widely. Sole proprietorships enjoy low costs (mainly for office space and trading licenses), while in the case of LLCs, expenses are higher.
NB: You can change your sole proprietorship into another business form, such as an LLC, in the UAE. However, you need to take some extra steps, like getting a suitable business license (if needed), opening a corporate account, and preparing the necessary corporate documents
Things to know about sole proprietorships in the UAE
Before you start your sole proprietorship in the UAE, remember these important aspects:
- You need a local agent to register your sole proprietorship in the UAE, no matter where or what you are about to do.
- You can only offer professional services as a foreigner, while locals and GCC citizens have the right to run commercial businesses, including trading.
- You do not have to live in the UAE but you need an office there. A virtual office is enough, and you can get one with the right license.
Wonder what types of businesses you can start in the UAE as a foreigner? At Q Wealth, we have excellent business incorporation ideas for Dubai and other emirates.
How can I register a sole proprietorship in the UAE?
Follow these simple steps to register a sole proprietorship in the UAE:
- Choose the right license type for your business activity.
- Apply for your license at the Department of Economic Development (DED).
- Get an office, which can be a virtual one, and obtain permission to start your business.
Registering a sole proprietorship in the UAE is fast, easy, and affordable. You only need to pay a license fee starting from AED 18,500, and you do not have to share your ownership with anyone, unlike an LLC on the mainland.
If you are a foreigner, you need a local agent to help you with the registration. However, you still own 100% of your sole proprietorship. The local agent only handles administrative tasks for you
Summary
The UAE is a popular destination for business planning among entrepreneurs and investors of all sizes. They can get trading licenses and business visas, contribute to the nation’s growth and innovation, and enjoy tax benefits as well as high returns on investment in one of the world’s best markets with a stable economy. Residence permits for entrepreneurs investing in the UAE are a nice bonus in this situation.
To start a business as an LLC or a sole proprietorship in the UAE, you need to understand the different business structures and get expert advice on tax, banking, and corporate issues.
The Q Wealth team of seasoned experts is here to help you with all your business needs in the UAE and elsewhere. You are welcome to benefit from the top services we offer:
- assistance with corporate, banking, immigration, customs, and other matters
- property purchases in exchange for UAE residency or citizenship through available programs
- bank account openings in the UAE and worldwide, including in EU payment systems and offshore jurisdictions
- free consultations as part of our services.
Would you like to learn about the UAE’s corporate and tax rules, set up an LLC in the region, buy real estate, or get UAE residency? At Q Wealth, we offer a comprehensive range of services tailored to your unique needs. Hurry to apply for what you are interested in and be the first to reap all the benefits!
