Author: Ayushi Doegar
Published: June 7, 2022
The UAE is one of the most business-friendly countries in the world, offering a variety of business setup options for budding entrepreneurs. When establishing a business in the UAE, entrepreneurs must decide whether to set up on the mainland or in one of the UAE's free zones, and they must also choose a specific business entity type. This comprehensive guide explores one of the most common business entities in the UAE – the sole establishment (also known as sole proprietorship).
A sole establishment (also described as sole proprietorship) is a business entity owned by one individual with a trade license issued in his or her name. Unlike other business entities offered in the UAE, a company or corporate body cannot own a sole establishment – only an individual can own this type of business.
You can form a sole establishment in the UAE regardless of whether you are a UAE national, Gulf Cooperation Council (GCC) national, or foreign national. However, specific criteria and conditions apply based on nationality.
UAE nationals and GCC nationals have more options when establishing sole proprietorship. They can form any type of sole establishment in most fields, including:
Foreign nationals applying for sole proprietorship can only acquire a professional license. Foreign nationals can offer professional services such as:
Foreign nationals are not eligible to do business in:
UAE laws require foreign nationals to appoint a Local Service Agent (LSA) to liaise between the company and government entities. The Local Service Agent can be either an individual or a company. This agent handles liaison activities but does not necessarily have actual involvement in managing the business.
While sole proprietorship might appear more limiting for foreign nationals, it offers considerable opportunities and advantages:
Foreign professionals can retain 100% ownership of their business without shareholders, enabling total control of business operations.
Business owners retain 100% of their profits.
Setting up a sole establishment involves lower startup costs and no business capital requirements, making it a more affordable option for entrepreneurs.
The business setup process for sole establishment is easier and quicker to complete.
The business can legally practice professional services anywhere in the UAE. There are no restrictions on office premises locations.
Securing sole proprietorship is not without its challenges and disadvantages:
A sole proprietor is personally liable for business debts. The company is inseparable from the individual, meaning personal assets are at risk.
Unlike a free zone company, sole establishment requires office space to incorporate the company. Virtual offices are not recognized by the Department of Economic Development (DED).
The sale of a sole establishment also means the sale of debt, making it more challenging to transfer ownership.
Sole establishment and Limited Liability Company (LLC) are two popular business entities in the UAE with important differences.
| Feature | Sole Establishment | LLC |
|---|---|---|
| Ownership Structure | Can only be owned by one person | Must be owned by several individuals and corporate bodies; an individual cannot own an LLC |
| Personal Liability | Owner is personally liable for business debts | Business owners are not personally responsible for business debts; liability is limited to shareholder's investment in company capital |
| Account Separation | N/A | Must keep business and personal accounts separated; violation can result in losing limited liability protection |
| Minimum Share Capital | No minimum share capital requirements | No minimum share capital requirements |
| Visa Restrictions | N/A | Able to obtain a number of visas without restrictions |
| Real Estate Purchase | N/A | Can purchase real estate without restrictions |
Setting up a sole establishment is easier and faster than you think, providing you have all documents in order and follow the proper procedures.
The Department of Economic Development (DED) needs to first acknowledge that they have no objection to your business. Once this is approved, you'll need to submit three trade name options, of which at least one must be approved to progress to the next stage.
Once the DED has acknowledged your intent and approved your trade name, you can sign an agreement with a Local Service Agent (LSA).
All sole establishments legally require an office space. Once you've secured your desired space, you must submit the tenancy contract.
Depending on your specific circumstances, there may be additional approvals required.
When everything is approved, you will receive a payment voucher to make your payment. Then, you'll be able to collect your license for your sole establishment.
While the steps for securing sole proprietorship are straightforward, professional support can be valuable. SPC Free Zone's business advisors provide market, industry, and legal knowledge to help individuals secure their sole proprietorship.
Establishing a sole establishment in the UAE is relatively easy and fast, provided you meet the following conditions:
Service Type Restriction: Foreign nationals or expatriates can only start sole establishments that provide professional services, including:
Qualifications: The owner of a sole establishment that provides certain services should obtain educational qualifications to get the needed licenses, as well as previous experience in the domain.
Local Service Agent: Foreigner-owned sole establishments need to have an NSA (National Service Agent) – an entity or local UAE national who carries out all liaison activities like getting licenses and permits, but not necessarily has actual involvement in managing the business.
SPC Free Zone offers a wide range of business setup packages that start from AED 6,875.
The total price of your general trade license will vary depending on several factors:
At SPC Free Zone, business setup packages start from AED 6,875.
Yes, in most cases. Though there may be conditions depending on the type of business you wish to start, your nationality, and the country of your tax residence.
In terms of costs, you should anticipate paying anywhere from AED 6,875 and above depending on your requirements. Registering in a free zone is the most popular, cost-effective option.
A host of activities can be conducted under an Establishment or Sole Proprietorship including consulting, IT, legal, engineering and marketing.
Yes. A sole proprietor can open a business bank account.
Yes, you may sponsor your dependants' visa applications.
While renting an office is optional, a sole proprietor must at least have a flexi-desk or co-working space. This also helps the sole proprietor when applying for a bank account.
SPC Free Zone offers fast and flexible business setup in the UAE with the following features:
SPC Free Zone's market-leading experts provide comprehensive support for entrepreneurs looking to start a business in the UAE.
Related Topics: #sole-establishment #sole-proprietorship #spc-free-zone
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