Difference between commercial and professional licenses in Dubai

Choosing the right type of license is crucial for the success of any business in the UAE. The UAE offers various types of licenses depending on the nature of the business activities. Two of the most common types are commercial licenses and professional licenses. Understanding the differences between these licenses can help businesses make informed decisions and comply with regulatory requirements.

In this article, we will explore the key differences between commercial and professional licenses in Dubai, their benefits, and how to decide which one is right for your business. Whether you are setting up a new venture or looking to expand your existing operations, this guide will provide you with essential information to navigate the licensing process in the UAE.

Key differences between a commercial and professional license

Definitions

• Commercial license: Issued for businesses that engage in trading activities, including general and specialized trading. This license covers activities such as retail or real estate, and allows importing, exporting and distributing tangible goods inside and outside the UAE.
• Professional license: Issued for service-oriented businesses. This license is granted based on the applicant's expertise and/or educational qualifications. It covers activities such as consultancy and professional services. It is based on some intangible asset such as special skill or advice provided using some tools or without them.

Comparison table

Detailed comparison

Types of activities

Each license permits different types of activities:

— Commercial license:

• General trading
• Specialized trading
• Retail business
• Real estate activities

— Professional license:

• Consultancy services (e.g., management, IT, legal)
• Freelancing in specialized fields
• Artistic and creative services
• Educational and training services
• Others service-based activities

Proof of qualifications

There are different requirements for supporting qualifications for commercial/trade licenses and professional licenses.

• Commercial license: In most cases company owners don’t have to prove their qualifications to get a trade license except for special requirements established by some free zones.
• Professional license: For most professional activities, proof of qualifications such as certificates and/or diplomas are not required. However, certain activities which are considered as premium, e.g legal, engineering, etc. will require a degree in some free zones to justify their competencies.

Government fees

Government fees for the two licenses vary:

• Commercial license: It's largely similar to a professional license, but the fees for a General Trading license are typically higher.
• Professional license: It's largely comparable to a commercial license, though some premium activities may necessitate having an office facility.

Liability

The extent of liability may slightly differ between the two licenses:

• Commercial license: Provides limited liability to the owners, meaning their personal assets are protected in case of business debts. Issued for limited liability companies on the mainland or a free zone limited liability company in the free zone.
• Professional license: Typically involves unlimited liability, where the owner is personally liable for business debts. However, professional companies can also be a Limited Liability Company (LLC).

Common features of commercial and professional licenses

• Ownership: Both types of licenses provide full ownership of business to the owners. A company may choose a local nominee shareholder, but it is optional. Most business activities registered as LLC on the mainland are 100% foreign ownership, no local shareholder required. Companies registered as a sole establishment require a local agent (not shareholder). It is still 100% foreign ownership, but with a local agent on the license.
• Share capital: There are no differences in the size of a minimum share capital required for a trade or a professional license. This depends on the registering authority (on the mainland or in the free zone). Oftentimes, the share capital is not paid up.

Benefits of each trade license

Benefits of a commercial license

• Variety of business activities: Ability to engage in multiple business activities under one license. The maximum number of activities allowed on a license varies from freezone to freezone.
• Corporate structure: Offers various options for the type of company you want to register (e.g., LLC, Branch of a Foreign Company, free zone establishment).
• Employee visas: Eligibility to apply for residence visas for employees and management.
• Banking opportunities: Wider range of banking services provided.

Benefits of a professional license

• Lower set-up costs: As professional licenses in most cases are issued for smaller businesses and solo entrepreneurship, they bear lower expenses to establish business. 
• Employee visas: Ability to apply for visas for employees, similar to commercial licenses.
• Ideal for skilled professionals: Best suited for professionals with specific skills and/or qualifications planning to set up service-oriented businesses.

General requirements for obtaining licenses

Required documents

To apply for either a commercial or professional license, you need to prepare the following documents:

• Completed application form
• Passport copies of shareholders
• Visa copies (if applicable)
• No Objection Certificate (NOC) from current sponsor (if applicable)
• Proof of initial approval from relevant authorities
• Memorandum of Association (MOA) for commercial licenses
• Service agent agreement for professional licenses
• Lease agreement for office space
• Proof of qualifications and CVs (required for specific premium activities).

Application process

The application process for obtaining a trade license in the UAE involves several steps:

1. Choose a business activity: Determine the nature of your business and select the appropriate activity from the list provided by the Department of Economic Development (DED) or a free zone.
2. Select a legal structure: Decide on the legal structure of your business (e.g., LLC, sole proprietorship, partnership, branch of the foreign company, or FZE, FZC, FZ-LLC in the free zone)
3. Reserve a trade name: Apply for trade name reservation through the DED or relevant free zone authority.
4. Initial approval: Obtain initial approval from the DED or relevant free zone authority.
5. Prepare documents: Gather and prepare all necessary documents, including MOA, lease agreement, and NOC (if applicable).
6. Submit application: Submit your application along with the required documents to the DED or relevant free zone authority.
7. Pay fees: Pay the applicable licensing and registration fees.
8. Receive license: Once approved, you will receive your trade license, allowing you to commence business operations.

Renewal requirements

Trade licenses in the UAE must be renewed annually. The renewal process includes:

• Submission of renewal application form
• Payment of renewal fees
• Updated lease agreement (if applicable)
• Compliance with any additional requirements set by the DED or relevant free zone authority

Frequently Asked Questions (FAQ)

What is the difference between a commercial and a professional license?

A commercial license is issued for businesses that engage in trading activities such as retail or real estate, while a professional license is granted for service-oriented businesses such as consultancy, legal services, and other professional services.

Can a foreigner own 100% of a business with a commercial license?

Yes. Both in case of trade and professional licenses the foreign entrepreneur will have 100% ownership of the business established in the UAE. No local sponsor is required. There are some business activities on the mainland that require a local shareholder, but they are very few.

What are the minimum share capital requirements for these licenses?

The size of capital requirement does not differ on the basis of commercial or professional licenses. However, some free zones, like DMCC, have different share capital requirements for different activities. For example: Share capital for normal activities is 50,000 AED. Share capital for general trading is 1 Million AED.

Are government fees higher for commercial licenses compared to professional licenses?

Yes, government fees for commercial licenses are generally higher on the mainland of the UAE.

How is liability different between the two licenses?

Commercial licenses provide limited liability to the owners, protecting their personal assets in case of business debts. Professional licenses are also issued as LLC’s.

What documents are required to apply for these licenses?

Common required documents include a completed application form, passport copies of shareholders, visa copies (if applicable), No Objection Certificate (NOC) from the current sponsor (if applicable), proof of initial approval from relevant authorities, Memorandum of Association (MOA) for commercial licenses, service agent agreement for professional licenses, and lease agreement for office space.

What is the process for renewing a trade license in the UAE?

The renewal process involves submission of a renewal application form, payment of renewal fees, an updated lease agreement (if applicable), and compliance with any additional requirements set by the DED or relevant free zone authority.

Can a professional license holder apply for visas for employees?

Yes, both commercial and professional license holders can apply for visas for their employees.

Recommendations for choosing the right license

Choosing the right license depends on several factors including the nature of your business, financial position, liability concerns, and long-term business goals. Here are some recommendations to help you make the best choice:

Business nature and activities

It is crucial to choose the correct type of license and activity. If you make a mistake, you might encounter problems with opening a bank account and obtaining a residence visa. The choice does not always lie on the surface. The license should reflect not what you do, but what you are paid for—this makes it easier for the bank to verify your business experience and reduces questions about your financial transactions.

Consider the primary activities of your business:

• Commercial license: Suitable for businesses involved in trading, retail, real estate, and other commercial activities. Ideal if you plan to engage in multiple business activities under one license.
• Professional license: Best for service-oriented businesses such as consultancy, legal services, IT services, and other professional services. Suitable if you have specific professional qualifications and intend to offer specialized services.

Registering authority

You can register a business and obtain a license on the mainland, in the free zone, or in the offshore zone. We recommend carefully weighing the pros and cons before choosing the registering authority for your commercial or professional license.

• In free zones, it is easier and cheaper to obtain a professional license for freelancers and remote workers, especially if you need a flexi-desk and do not have any employees.
• If you plan to develop a local business, such as opening a store or a beauty salon, it is better to register on the mainland.
• You need to consider all your business needs: whether you will require large offices or warehouses, the quality of logistics provided by the registering authority (if needed), any limitations on the number of visas for employees, and so on.

Business consultants will provide you with information on these and many other details. We recommend consulting with them if you want to start a business in the UAE.

Long-term business goals

Align your license choice with your long-term business goals:

• Commercial license: Suitable for businesses planning to expand their trading activities and engage in diverse commercial operations. Ideal for businesses with long-term growth and expansion plans.
• Professional license: Best for professionals aiming to establish a reputation in their field and offer specialized services. Suitable for businesses focusing on quality and expertise rather than scale.

Expert consultation

Seek advice from business setup consultants or legal experts:

• Consult with business setup consultants who can provide tailored advice based on your business model and objectives.
• Engage legal experts to understand the implications of different license types and ensure compliance with UAE laws and regulations.

Common mistakes to avoid when choosing a license

Choosing the right license for your business is crucial, but there are common mistakes that entrepreneurs often make. Avoiding these mistakes can save time, money, and legal troubles. Here are some key mistakes to avoid:

Incorrect choice of business activity

Determine what you will be selling—tangible or intangible assets—and identify the sources of funds that will be deposited into your bank account in the UAE. For banks in the UAE, it is crucial that your activity strictly aligns with your source of income. Very often, those planning to engage in trading choose "General Trade" as their business activity, assuming it is the broadest and most universal option, and then try to fit their actual business activities into this category. This is incorrect because it leaves the bank unclear about your specific business focus and what exactly you plan to sell. The more questions bankers have for you, the higher the risk of being denied a bank account. Without a UAE corporate bank account you will not be able to conduct business in the Emirates.

Incorrect choice of registering authority

This mistake can limit the growth of your business. For example, if you register your company in a free zone, and then your business starts to grow, you might find yourself needing to hire more employees. However, if the free zone has specific restrictions on the number of employees and visa allocations, you won't be able to expand further. You would then need to either register a new license and open another company or dissolve your business and move to a different free zone, both of which involve additional costs.

Incorrect choice of location

This mistake can limit the scope of your business activity as each emirate of the UAE has its own requirements regarding nature of activities allowed, nationality, taxes and so on.

Skipping professional advice

Many entrepreneurs attempt to navigate the licensing process without professional help:

• Consulting with business setup experts or legal advisors can provide invaluable insights and prevent costly mistakes.
• Professional advice ensures compliance with all regulatory requirements and helps streamline the licensing process.

Final thoughts: choosing the best license for your UAE business

Choosing the right type of license is a critical step in establishing and operating a business in the UAE. Both commercial and professional licenses offer unique benefits and cater to different types of business activities. By understanding the key differences, advantages, and requirements of each license, entrepreneurs can make informed decisions that align with their business goals and regulatory obligations.

It is essential to consider factors such as the nature of your business, registering authority and location, liability concerns, and long-term objectives when selecting a license. Avoiding common mistakes and seeking professional advice can further streamline the process and ensure compliance with local regulations.

Ultimately, the right license will provide a solid foundation for your business, facilitating growth, stability, and success in the competitive UAE market. Whether you choose a commercial license for trading activities or a professional license for service-oriented enterprises, thorough research and careful planning will be key to your business's prosperity.