Freelancing vs. sole proprietorship vs. LLC: Which is the best option for you in the UAE?
Looking to start working on your own? These are the permits and licences available
Dubai: If you are looking to start your own business or offer your professional services as a freelancer in the UAE, you might start hearing of various licences and permits that are available to you. But how exactly is a freelance permit different from a sole proprietorship licence? And do you really need to set up an LLC if you are just starting off? It is important to understand what each work permit or business licence brings to the table, for you as an entrepreneur. Here is a breakdown of three most common options available to people looking to start working on their own, to help you decide which route is best suited for your situation.
Freelancing
A freelance permit is essentially a work permit issued by an economic authority – like an economic department of an emirate or a free zone. Freelance permits are offered for specific occupation categories and are ideal for professionals in the media or IT industry or consultants.
As it is a work permit, it only allows the holder to function as an individual who is offering his or her professional services. Also, you cannot take up work contracts from other individuals, and would need to tie up with corporations only.
If your work permit has been issued by a free zone, you are only allowed to operate within that free zone. To read more about what a freelance permit is and all the freelance options available in the UAE, read our guide here.
Sole proprietorship
Sole proprietorship refers to a business licence that allows a single individual to own 100 per cent of a business. As it is a business licence, it allows an individual to work with other businesses as well as individuals.
The UAE offers attractive sole proprietorship options for professionals in the service industry, who may wish to start a small business operation to take advantage of their specific skill set. This includes the option of having a virtual office, which reduces rent costs, and the allocation of a visa quota, which can allow you to hire employees. The set up costs are as low as Dh12,500 per year. However, if you wish to conduct trading activities, which includes the buying and selling of goods, you cannot do so using a sole proprietorship licence. The economic activities that are permitted under the sole proprietorship licence mainly include activities in the service industry.
Also, because the business has a single owner, it also means that you have to assume all the financial responsibilities, and your personal assets can also be used to fulfil any financial liabilities that the establishment may have, which is an important monetary aspect to consider. However, it is still a viable option for certain professionals and start-ups.
LLC
An LLC or a Limited Liability Company is one of the most popular business licences in the UAE. An LLC licence is issued by the economic department of an emirate. As it is a mainland company, it has no restrictions on where it can trade in the UAE (unlike a free zone company). There are also no minimum share capital requirements from stakeholders, which means that as long as you can pay for the business set up and licensing and operation costs, you can set up an LLC with minimal investment. Also, there is no restriction on the number of visas that can be obtained for workers. Additionally, as it is an LLC, the shareholders are protected from personal liability, as only the company’s assets are used to pay off business debts and financial claims.
After recent amendments to the UAE Commercial Companies Law (CCL), foreigners will soon be allowed to own 100 per cent of an LLC for several economic activities, including general trading. Earlier, expats could only own 49 per cent stakes in a business establishment. Read more about how the changes to the law would allow some businesses to have complete ownership here and how you can set up a business in the UAE here.