Starting a Consultancy in a UAE Free Zone

To start a consultancy in a UAE free zone, you set up a company with a professional (service) licence, choose a desk or office package, and get an investor visa if you plan to live in the UAE. The licence is often ready within a few working days. Most mistakes, though, happen after setup: who your clients are decides how much Corporate Tax you pay, whether you need to register for VAT, and whether you can work on a client's premises at all. This guide covers both the setup and those rules.

The licence you need

Consultants usually need a professional licence, sometimes called a service licence. It covers advisory and knowledge-based work rather than buying and selling goods. Free zones group consultancy into fields such as management, marketing, HR, IT, engineering or training, and you choose the ones that describe your actual work.

Two points matter at this stage:

• Choose activities that match how you invoice. If your contracts say "software implementation" and your licence only covers "management consultancy", banks and auditors will notice. Pick activities that cover what you really sell, within the number your package allows.
• Regulated advice needs extra approval. Financial, legal, medical, education and some engineering advice are regulated in the UAE. A standard free zone licence alone won't cover them, and some can only be licensed by a specific regulator. Check this before you pay anything.

Our professional licence guide explains how this licence type differs from commercial and industrial licences.

Choosing a free zone for consulting

For a consultancy, the "best" zone depends less on the zone's specialism and more on these five factors:

If most of your clients are overseas and you work remotely, a low-cost zone in Sharjah, Ajman or Ras Al Khaimah is often enough. If you pitch to large Dubai companies or government-linked entities, a Dubai address can help with procurement checks, even though it costs more. See our shortlist of the best free zones for consultancy.

Can you work with mainland clients?

This is a common question for consultants. A free zone company is licensed to operate inside its free zone and internationally. Billing a mainland UAE client for advice delivered remotely is common in practice, but working on-site at a mainland client's premises or opening a mainland branch can need an extra permit or licence.

Dubai has introduced a route for many free zone companies to operate on the mainland through an additional permit. Rules differ by emirate and by activity, so confirm the current position with your free zone before you sign a contract that requires you to be on-site.

Mainland clients also have a big effect on tax, which is covered next.

Corporate Tax: why your client mix matters

A free zone company can pay 0% Corporate Tax on qualifying income if it meets the conditions to be a Qualifying Free Zone Person (QFZP). For consultancies, the key condition is the type of income:

• Income from clients outside the UAE and from other free zone businesses can be qualifying, depending on the activity.
• Consultancy income from mainland UAE clients is generally non-qualifying unless the service falls within the list of qualifying activities set by the Ministry of Finance.
• Non-qualifying income must stay below a de minimis limit: the lower of 5% of total revenue or AED 5 million in a tax period. If you go over it, you lose QFZP status, and the standard 9% rate applies to taxable income above the AED 375,000 threshold.

So a consultant whose main client is a mainland company can easily fail the QFZP test without realising it. QFZPs must also prepare audited financial statements, and they can't use Small Business Relief, the option that lets companies with revenue under AED 3 million be treated as having no taxable income. A small consultancy that mostly serves mainland clients may be better off on the standard regime and claiming Small Business Relief while it applies. Check the current end date of that relief on the Federal Tax Authority's Corporate Tax pages.

Either way, every free zone company must register for Corporate Tax and file a return each year. Our Corporate Tax explainer for free zone companies covers the registration side. For your own client mix, take advice from a registered tax agent before your first year-end.

VAT for consultants

VAT works separately from Corporate Tax. You must register once your taxable supplies in the last 12 months exceed AED 375,000, or if you expect them to exceed it in the next 30 days. You may register voluntarily from AED 187,500. The FTA's VAT registration page sets out the rules.

For consultants, there are three practical points:

• Services to clients abroad can be zero-rated if the conditions are met, but they still count towards the registration threshold.
• Services to UAE clients usually carry 5% VAT once you're registered, including clients in other free zones.
• Keep your contracts and invoices clear about where the client is based. This decides both the VAT treatment and the Corporate Tax position.

First-year budget and setup checklist

A consultancy's first-year costs usually include:

• the licence and desk package;
• the establishment card and your investor visa, medical test and Emirates ID;
• health insurance;
• bookkeeping, plus an audit if you claim QFZP status;
• a business bank account, which usually has a minimum balance.

Prices vary widely by zone, so treat any figure as an estimate and confirm it on a written quote. You can build your own total with the cost calculator, or compare ready-made packages.

Before you apply, check that:

• your consultancy fields don't need a regulator's approval;
• the activities on the licence match how you will invoice;
• you know roughly what share of revenue will come from mainland clients;
• you have a plan for on-site work if a client needs it;
• your budget covers accounting and possibly an audit, not only the licence;
• you have a bank account plan: business plan, sample contracts and proof of funds.

If you'd like a second opinion on which zone and licence fit your clients, message our team on WhatsApp. We'll give you a straight answer, including when you should talk to a tax agent first.