Trade license is not renewed, beware of the penalties

If you have not renewed your trade license, beware of the penalties.

If you are doing business in UAE or have a valid license for doing trade or services in UAE, you should make sure the license is valid and not expired. A business license in UAE means it is a permit to conduct the business activities like trading or services in UAE.  If you don’t renew the license on time, you will have to pay huge penalties. Let‘s discuss more about the various penalties for the failure to renew your license.

Business license renewal in UAE

All the trade license and service license which comes under Free Zone or Mainland in UAE have to be renewed at least 30 days from the date of expiry. Otherwise, free zone authorities or economic dept will impose penalties/fines for not renewing the license.  Although there is a large number of issues that can be raised because of the non-renewal of a business license, the main three issues are as mentioned below:

Financial penalties

The Dubai Department of Economic Development (DED) has now introduced an online and SMS renewal system for renewing trade licenses that are issued under the Dubai Department of Economic Development. If the companies do not renew their licenses on time, they are penalized with forfeitures. If the company does trading or service activities without a license could face a fine of AED 5,000. The authority is providing 30 day grace period for renewing the license from the date of expiry.  Also, failure of renewing the existing license within the specified time limit could cost AED 250.

Blacklisting the company

When businesses continue their business activity without renewing their trade license, there is a possibility to blacklist those companies. Blacklisting is the most severe form of punishment that the authorities can authorize. If the company is blacklisted or suspended by the authority, the company can not do any all types of operations, such as:

The company will not be permitted to participate in any business procedure such as trading or services activity. Those companies cannot apply for visas and also all the existing visas can be revoked with a travel ban. In some cases, the owner, managers, shareholders, and directors could even be deported from the UAE.
But,  still, as we mentioned the Govt authority is providing a 30 days grace period to renew the license even if the license is expired. Yet, if you still fail to comply with the requirements and end up on the blacklist– you will find yourself in a challenging situation. 

If you are not renewing your license, you should not keep it as it is. The best option is to close the company or liquidate the company properly. 
Liquidation typically happens when a company doesn't have the funds to cover its remaining debt. When the company’s service ends, the properties/assets of the company are generally allocated to creditors and shareholders based on their priority claims.

The shareholders will pass a board resolution in front of the notary public related to closing the company. On that board resolution, the shareholders will mention who will be the liquidator.  The liquidator shall be named by the court or the company’s shareholders, depending on the type of liquidation.

There are mainly two times of liquidation in the UAE. They are;

• Voluntary liquidation. 
• Compulsory liquidation. 

1. Voluntary liquidation

In a voluntary liquidation, the company owners will attempt to close the company because they do not have enough funds to pay the creditors and meet the daily expenses to run the business. In the voluntary liquidation process, priority is provided to creditors. 

2. Compulsory liquidation

Compulsory liquidation is the form of liquidation of the company that is put out by a court order. Here, the company’s properties are allocated to creditors and contributors based on priority claims.

Why the Company must be liquidated?

The following are some of the reasons for the liquidation of a company:
The company decided to liquidate/close because the company does not have any liquidity or cash to fund its existence. The company is unable to get any form of revenue or business. The company gets revenue, but the losses are too heavy. So, in case you are not renewing the license, the best option is close or liquidate the company properly with the help of a liquidator. 

Well, now that you have all this information at hand, do keep in mind the timelines and deadlines mentioned above. Also, make sure your license is valid by checking its validity period. As we said before – Dubai Business License is mandatory for most of the business activities in Dubai‘s Free Zone areas like Jebel Ali, DWC, Meydan, etc. This means if you plan to start a new business or want to expand your existing one without any hassle, be sure to get it done on time.

We also know how it feels when an important date comes closer, and you do not have your license renewed! That’s why we offer services that can help avoid such situations from arising further down the line.

Business License Renewal and Company Liquidation Support

Mr. Ragesh Mattummal, Partner
+971 50 3578031