We already mentioned on several occasions that any business activity in the United Arab Emirates is subject to licensing and the license is a primary corporate document in the country for UAE-based businesses.
When planning to engage in trade, before registering a legal entity you have a choice between a commercial and a general trading license. Both these licenses allow you to deal with import, export, and re-export, but unlike the general trading license, commercial license involves trading in limited groups of goods. We already discussed very much in detail the process of adding various business activities or groups of products onto your license in the first module. If you skipped it for some reason or already forgot what we discussed there, just revisit Module 1's chapter on business activities.
At first glance, the general trading license has distinct advantages over the commercial license, because if you suddenly decide to sell headphones instead of sanitary ware, you do not have to make changes to the license by changing the activities indicated on it.
However, there is also an alternate side to this argument that is not always made public, so before you decide in favor of a general trading license, we want your choice to be conscious and we want to help you to take into consideration all aspects related to holding a general trading license.
Firstly, the cost of the general trading license is significantly higher than that of the commercial license, and accordingly, the fee for the annual renewal will be also higher, as compared to a commercial license.
Secondly, just take a moment and imagine the following situation. You have decided on the free zone in which you will register your company. You have chosen to rent a flexi-desk facility to reduce the costs of maintaining the business. You have gotten a general trading license, went to the bank to open an account and your request has been denied. You are now unable to open your corporate bank account. The only solution at this point is a change in license, meaning, even more, costs and time to set up your business.
This situation is occurring more and more frequently. To make the conditions for doing business as comfortable as possible, entrepreneurs often forget to think about how the bank will look at the company they registered.
Today, UAE banks view general trading license as a high-risk license, and banks' internal departments as well as compliance look at the documents of such companies with particular details. If your legal entity does not have a physical presence in the UAE (most often a warehouse), if you do not have sufficient experience in the entrepreneurial activity, if there are no other operating companie of yours, you are unable to provide samples of contracts with your clients and much more, all of this can be the reason why you may get refused by the bank.
If this situation does occur, the only possible option is to change your license, downgrade it to a commercial one and specify the exact groups of products you will be trading with. To do this, you will need to submit a relevant application to the registration authority, where your company is incorporated, make respective payment of government fees and allow several working days for the change to take place.
This situation is evolving if you have a rented warehouse, where you will operate out of in the UAE; there is documentary evidence of cooperation with suppliers and customers, there is a clear business model, the experience of the entrepreneurial activity, a clear source of income and the management is residing and holding UAE resident visas. These are some of the demanding requirements that need to be met for the bank to consider the approval of a corporate account for a company with a general trading license.
If you know in advance, that you will not be able to meet the conditions, we just enumerated, then the best option for you will be to choose a commercial license at the stage of company registration and trade in particular groups of goods. Such a licenses are trusted by the banks in the UAE.
In general, you may want to meet with the bank before you open a company and discuss your plans with respect to applying for a general trading license. This will also allow you to get the current bank's prospective on the general trading licenses.
If it turns out that you have to apply for a commercial license, you do not have to worry about being completely restricted in terms of the range of goods for trade. It is worth reminding that some free zones allow you to add 3 to 10 groups of products to a commercial license, so you most of the time can fit everything you plan to sell into the license.
General trading license still remains hugely popular among business people. Entrepreneurs find it advantageous that general trading license with a flexi-desk rent provides you with a larger visa quota, as compared to commercial license, if we talk about free zones. But still, when it comes to increasing the number of visas for both general trading and commercial licenses, you again need to remember, that there is a corresponding requirement for an increase in the size of commercial space that you need to lease. More details on visa allocation can be found in the module on resident visas in the chapter related to visa quota allocation and visa quota calculation.
In conclusion, it should be noted that the choice of license must be thoroughly thought through in advance to assess the possible risks associated with opening a corporate bank account for your company in the UAE. At the end, it is only after your company's bank account is open, that you can start transacting with your suppliers and clients, especially, if many of them are also based outside of the UAE. The right approach with respect to choosing a general trading license vs. commercial one, will allow you to save precious time and money in the long run, and do not miss on any great trade deals.
If you want to know more about Dubai freezone company formation, feel free to get in touch with our professional consultant team and we would be delighted to assist you and help you to compare Dubai freezone company setup costs and help you to find that free zone, which would suit your business needs the most.
Disclaimer: Business Boutique UAE-Consultants.com is not affiliated with any particular government or legal entity. Business Boutique does not give professional legal advice nor any other professional advice subject to a public office in the government. This article merely sets out a simple and basic idea as to the reasons of Dubai freezone company setup and Dubai free zone company formation cost. Business Boutique in no way holds nor imposes any official governmental or legal authority and the article herein is only to be taken as a guide. All further governmental or legal issues should be addressed to the corresponding authorities.
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