The moment you decide to work as a freelancer, you will have to carry out the legalization procedures before the Administration. Therefore, to be able to do freelancing in Dubai, you must know if you are going to register as a Sole Proprietorship or as a Limited Liability Company.
This article will discuss the concepts and differences between being a sole trader freelancer and a limited partnership. In addition, we will cover issues associated with the advantages and disadvantages of both. Let us observe now:
- What are the most important differences between a sole trader and a limited company?
- Advantages of registering as a limited company
- Disadvantages of a limited company
- Advantages of being a sole trader
- Disadvantages of operating as a sole trader
- What are umbrella companies?
- How can we help you determine whether you should be a sole trader or a limited company?
1. What are the most important differences between a sole trader and a limited company?
Deciding to become a freelancer has many legal implications. Additionally, it is vital to be clear about the difference if registering your business as a sole trader or a sole proprietorship.
With either option, you will have the legal structure to operate. In this sense, you will be able to manage your finances as a professional freelancer. However, your workload, your responsibilities, and the way you pay your taxes will be determined according to the way you choose.
Although it may seem a bit complicated, you should not feel discouraged by the decisions you have to make. Therefore, you should research thoroughly before deciding on the structure that will best suit your circumstances.
Therefore, here you can access a summary of the main differences, as well as the pros and cons between a sole trader and a limited company:
1.1 Sole Trader
As a sole trader, you are registered to work in your name. This way your work will be represented by you as the sole proprietor of the company.
It is important to note that this structure is the simpler of the two, as it has no shares or shareholders. Consequently, you will have personal liability for any debts that may arise. All this because there is no legal difference between you and the company. For this case, in which you are a sole trader, your responsibilities fall directly on you.
1.2 Limited Company
Through a limited company structure, by following this route you will be establishing or incorporating a new company through which you will work.
Using this structure, a separate legal entity, with its name, will be formed. In addition, the limited partnership structure is composed of shares and shareholders who ensure the proper development and growth of the company. You will become a shareholder and director of the company and you will be your employee. However, you can also receive a salary together with dividends from the business finances.
Just as its name suggests, a limited partnership has limited liabilities. Therefore, if the partnership becomes indebted, you will not be personally liable. To learn more about the differences between a sole trader and a limited partnership, we have a team for you on Connect Freelance.
2. Advantages of registering as a limited company
Here are some of the reasons why more and more freelancers are choosing to work as a limited liability company:
2.1 Improved tax efficiency
This is probably the greatest benefit since it represents the ability to become more tax efficient. About this, it is worth noting that limited companies pay corporate tax, which has a lower rate on income tax. Thus, as a director, you will receive dividends that are tied to lower rates than traditional profits and you will not pay National Insurance.
Thanks to these differences you will be able to add significant savings over time. This means that when deciding to go freelancing in Dubai, you will have to consider this and the many more benefits that this type of structure offers you.
2.2 You do not risk your assets
When you work under the representation of a limited company, it has many benefits that keep you away from problems such as insolvency. In such a way that, if your company becomes insolvent, and cannot pay what is owed, your losses will only be referred to as the amount you invested in the company.
Consequently, this is a benefit, because even though the company may have financial difficulties at some point, you will have the peace of mind that you will not lose your house or your car as a result of the bad financial times the company is going through.
2.3 Securing investment and financing have never been easier
When you have business expansion in your plans, through this limited partnership structure you also have benefits. That is, this structure allows you to increase your chances of obtaining external financing. In addition, this financing can be done through a bank loan or the sale of part of the shares to an investor.
Contact us for more information about the advantages of registering as a limited company.
3. Disadvantages of a limited company
After having presented all the advantages, we must also be clear that there is a set of disadvantages that come related to the structure of a limited company. In this sense, now we present the disadvantages of a limited company:
3.1 More paperwork at the time of administration
One of the biggest disadvantages that this structure has is that it comes related to the administration involved. This involved administration including the filing of commercial accounts. In this regard, an annual confirmation statement is also included.
In addition to the above, having it registered for VAT will also imply quarterly reports. Therefore, we cannot ignore something as important as VAT as it is a legal requirement that comes with limited companies that have a high income.
This does not end with the above, you must add the monthly payroll configuration of your company. In this sense, you are also an employee that belongs to it. It will also be necessary for you to submit your self-assessment statement. In addition, this self-assessment statement must state your annual earnings, both as an employee and as a director.
Deciding to handle the administration yourself can add up to a heavy workload. In any case, you should take into account what it represents. Because if you hire an accountant to do this job for you, this would mean additional expenses.
It is up to you to assume the characteristics of how you will carry out your freelancer work. Moreover, considering that freelancing in Dubai has so many benefits, you will not hesitate to make the decisions that best suit you. Therefore, go ahead and use your freelance visa in Dubai wisely.
3.2 Drastically decrease your commercial privacy
By being a limited partnership, you will have your business accounts publicly available. In such a way, they will be available in the Companies House registry, and they will be public knowledge and access.
Consequently, anyone who wants to will be able to know how much your company is earning with a quick Google search.
You must take these aspects into account when structuring your business. Freelancing in Dubai has more benefits than negatives, but if you like to keep your accounts private, this is an important aspect to consider.
3.3 Legal responsibilities attached to your status
You must give proper importance to this aspect. Therefore, you will now have legal duties to the company that you would not have as a sole trader.
You will have to make decisions that benefit the company only. Also, your decisions must be above any personal desires that may go against the development and growth of the company. Your interests must be focused on the benefit of the company. Thus, you must avoid any aspect that represents a conflict of interest.
Certainly, directors may face serious sanctions if they are related to any case of abuse of power.
4. Advantages of being a sole trader
At this point, we present the advantages of operating as a sole trader freelancing in Dubai:
4.1 It drastically decreases the amount of paperwork and administration
It is amazing how simple it is to operate as a sole trader. In this sense, this is an aspect that we can only observe when compared to the structure of a limited company.
Therefore, we can see how you can easily register online and you will not have to pay any fees. On the contrary, with the management of a limited company, you will have to pay mandatory fees to register.
Likewise, your ongoing administrative burden will be much less and this is a very positive aspect. Consequently, you will not have to worry about continuous evaluations and your only evaluation will be annual.
It all ends up that, thanks to the facilities that sole trader management offers, sole traders, end up handling their accounting matters themselves. This means that there is a saving on the significant expense of hiring an accountant.
5. Disadvantages of operating as a sole trader
We cannot overlook the disadvantages of working as a sole trader:
5.1 It increases your liability
If you find yourself insolvent, you will have to personally deal with your debts.
In this sense, the difficulties you have in settling your debts will have to be dealt with personally, i.e. as a sole trader. As a result, from now on these debts will be your responsibility.
This is why it is so important to be clear when you are freelancing in Dubai, and anywhere else you do freelance work, about the form and structure upon which you will be carrying out your work. Because falling into financial problems related to default can have catastrophic implications, such as losing your vehicle or your house, if you do not have the money to pay off your debts.
6. What are umbrella companies?
An umbrella company can be a decision that facilitates many related aspects that are sometimes difficult to address.
In this sense, an umbrella company acts as your employer, to take on independent contracts. In addition, umbrella companies take care of invoices with clients, payment of taxes, and even national insurance. Likewise, through the umbrella company, you can manage your contracts, while having the benefit of being paid at the end of the month.
Likewise, the umbrella company can work if you want to try out freelance work before making any long-term work commitments.
Thanks to their ability to eliminate all administrative burdens, umbrella companies can give you the peace of mind you need. This way, you will feel that you have everything under control, and you will have the necessary free time to concentrate on your work. You should also keep in mind that you will pay this company a fixed fee, or a percentage of your earnings.
At the same time, do not overlook the fact that you will not have any tax benefits related to being a sole trader or an anonymous company.
7. How can we help you determine whether you should be a sole trader or a limited company?
Whether you choose to work as a sole trader or a limited company, either option can provide you with a legal structure that allows you to manage your finances and operate naturally by freelancing in Dubai. However, you should keep in mind that the path you choose will affect your workload, your responsibilities, and the way you will handle your taxes.
For more information about how can we help you determine whether you should be a sole trader or a limited company; we have an ideal team-oriented to help you in whatever you want. In addition, we can provide you with related information about freelance activities in Dubai.
To learn more about our various related services and information about freelancing in Dubai, please contact us. Call us at +971 43316688. You can also reach us via email, just send us all of your questions through contact@connectfreelance.ae.
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