Licensing & Franchising in the UAE

Expanding a business in the United Arab Emirates (UAE) through licensing or franchising presents lucrative opportunities, allowing businesses to scale efficiently while leveraging established brand recognition and market presence. However, structuring a licensing or franchising agreement requires careful legal, financial, and regulatory planning to ensure compliance with UAE laws and international best practices.

Key Considerations for Licensing & Franchising in the UAE

✅ Understanding Licensing & Franchising Models

• Licensing: Grants rights to use intellectual property (IP), trademarks, or business models under specific conditions, typically for a fee or royalty.

• Franchising: A structured model where a franchisor provides the brand, business model, and operational support to a franchisee in exchange for royalty fees and compliance with brand standards.

✅ Legal & Regulatory Framework

• UAE Commercial Companies Law (Federal Law No. 32 of 2021) governs licensing agreements and corporate structures.

• UAE Agency Law (Federal Law No. 3 of 2022) regulates franchising, particularly for exclusive distribution rights.

• Trademark & Intellectual Property (IP) Protection ensures the safeguarding of brand assets under Federal Law No. 36 of 2021.

• Economic Substance Regulations (ESR) apply if the licensed/franchised entity generates royalty income.

✅ Corporate Tax & VAT Considerations

• Corporate Tax (9%) applies to franchises and licensed businesses exceeding the AED 375,000 taxable income threshold.

• VAT (5%) is applicable on franchise fees, royalties, and licensing agreements.

• Transfer pricing rules may apply to cross-border licensing and franchising agreements.

✅ Market Entry Options

• Mainland Business Setup: Requires a license from the Department of Economic Development (DED) for operating in the local UAE market.

• Free Zone Entities: Offer 100% foreign ownership, tax benefits, and operational flexibility, but may have restrictions on mainland trade.

• Offshore Structures: Ideal for holding IP rights and royalty collection for global expansion.

✅ Drafting a Strong Franchise or Licensing Agreement

• Clearly define territorial rights, fees, branding, quality control, renewal terms, and exit strategies.

• Ensure agreements align with UAE contract law and franchise disclosure requirements.

• Protect intellectual property through trademark registration and enforceable legal agreements.

✅ Financial & Compliance Obligations

• Maintain transparent financial records for VAT, corporate tax, and franchise fee reporting.

• Adhere to anti-money laundering (AML) and ultimate beneficial ownership (UBO) regulations for financial transactions.

• Ensure compliance with UAE labor laws if hiring employees under the franchise.

Best Practices for Licensing & Franchising in the UAE

✔ Conduct Market Research – Evaluate demand, competition, and regulatory factors.
✔ Choose the Right Licensing/Franchising Model – Structure agreements for long-term scalability.
✔ Ensure Legal & Tax Compliance – Align contracts with UAE commercial and IP laws.
✔ Protect Intellectual Property – Secure trademark rights and enforce brand protection strategies.
✔ Develop Operational Standards – Maintain quality control and brand consistency across franchisees.
✔ Optimize for Tax Efficiency – Structure fees and royalties to minimize tax liabilities.