Start Your Business in Dubai – Differences between LLC and Sole Proprietorship in UAE

It is for quite some time that the UAE has been a popular destination for investors, business people, and entrepreneurs. Logically, the number of options to start your business in the UAE is truly impressive.

In the article below, we will dwell on the 2 most common business forms, namely, sole proprietorship, and LLC.

LLC stands for Limited Liability Company, while sole proprietorship is analogous to a self-employed businessman or an individual undertaker.


What is opening a business in Dubai as a sole proprietorship all about?

A sole proprietorship in Dubai (UAE) is a business with 1 owner only. This business form does not imply a separate legal personality. It means the owner is liable for legal obligations and debts that the business may have while active. Even if the business goes into liquidation in the future, the owner will be liable for the above obligations. They will be obliged to pay the above debts and/or liabilities out of their funds, should this become necessary. 

A sole proprietorship can be seamlessly transformed into a different business type in the future. If the owner decides to partner with another person to run the business together, a sole proprietorship can be transformed into a general partnership. Alternatively, a sole proprietorship can become an LLC, a.k.a. Limited Liability Company in Dubai (UAE).

A sole proprietorship is primarily designed for people acting as individual contractors. They can be freelancers, consultants, private tutors, etc. With the help of sole proprietorship in Dubai, they can start providing services to customers in next to no time. As a bonus, launching a sole proprietorship in Dubai (UAE) is pretty cheap.


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Perks of launching a Dubai business as a sole proprietorship

  • In Dubai, business incorporation procedures are simple and transparent. With minimum effort and little red tape, you will soon become a business owner.
  • Taxes to pay are filed in a personal tax return. With no personal taxes in Dubai (UAE), this is something you don’t have to worry about. 
  • In the UAE, property laws have recently been amended. As a result, there is no need to look for a local sponsor even if you are about to set up a business in the UAE outside local free zones.
  • In the future, you can seamlessly transform your business into another business form after it starts expanding.
  • The UAE government grants certain benefits to business people launching sole proprietorships in Dubai.

Starting a sole proprietorship in Dubai – drawbacks

  • No personal protection from business liabilities. This means the owner will have to pay business debts, claims, and other business liabilities out of personal assets and funds.
  • It is challenging to raise finances for a business, where funds are necessary to repay debts or expand the business. Due to this, business people prefer to eventually transform sole proprietorships into different business forms.
  • Getting bank loans for your business in Dubai (UAE) is an issue. As an alternative option, feel free to take out a loan against personal assets.


How to start a Limited Liability Company in Dubai

A Limited Liability Company or an LLC is a business that has a separate legal personality from the owner(s) thereof. In this situation, the LLC is treated as a separate legal person subject to certain laws and regulations. As a result, LLC owners are not liable for any LLC debts or liabilities.

In Dubai (UAE), the owners’ share in an LLC is proportional to the capital invested by them.

In jurisdictions other than Dubai an LLC may be double-taxed. 

To begin with, the LLC itself pays taxes as a legal person.

Secondly, LLC owners pay taxes when taking their money out of the LLC.

With no personal taxes in the UAE, you can set up an LLC in Dubai and won’t be double-taxed as the owner thereof.

What is more, if your LLC profits are below a certain threshold, you won’t have to pay taxes at all.

If a Dubai  LLC goes into liquidation, its owners will only lose the money they invested therein, while their assets will remain intact. As provided for by the Dubai law, creditors are not authorized to sue LLC owners. They may only lodge a claim against the LLC itself, as the latter is a separate legal person.

Launching a Dubai LLC – benefits 

  • In Dubai (UAE), LLC owners are not liable to business creditors or other persons for any company liabilities or claims against them.
  • LLC creditors have no right to sue LLC owners or seize their assets.
  • It is easy to obtain funding for your business or take out business loans for the LLC.
  • In the UAE, an LLC may have several owners, whose company shares are limited by the invested capital.

Launching a Dubai LLC – drawbacks

  • Setting up an LLC in Dubai (UAE) is associated with greater expenses than a sole proprietorship requires and the incorporation procedure itself is more complex. What is more, additional documents are necessary to establish an LLC in Dubai.
  • Dubai LLCs face more legal requirements than sole proprietorships.

If in search of a suitable business form, you are welcome to message the International Wealth pros and request a free consultation. Our industry experts will assist you with company incorporation as well. What is more, we will eagerly set up a bank account in the UAE and obtain a visa to the UAE for you.

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