Why Are So Many UAE SMEs Non-Compliant Without Realising It

A common mistake among UAE SMEs is assuming that once the trade license is issued, they are fully compliant. In practice, the real compliance work only begins after obtaining a trade license. For the entrepreneurs who understand this, it’s still a headache to navigate their way through the flood of inconsistent online information.

Most non-compliance is completely unintentional and slowly occurs due to outdated advice, assumptions from other jurisdictions, or simple unawareness of post-licensing obligations.

1. Missing or Delayed Post-Licensing Approvals

After the trade license is issued, many activities still require sector-specific approvals before the business is fully compliant. These include municipal permits, industry regulator clearances, professional registrations, and various free zone confirmations.

These steps are often overlooked because the business is already operating and nothing appears immediately wrong. The problem usually surfaces later when a bank, regulator, or counterparty requests proof of these approvals. By then, the company may face delays, penalties, or unexpected administrative difficulties. In some cases, the licensing authority may even place a hold on the next license renewal until all outstanding approvals are completed.

2. UBO Filings Are Ignored or Outdated

An Ultimate Beneficial Owner (UBO) is the individual who ultimately owns or controls a company, even if they are not named on the trade license. This may be a shareholder, partner, or anyone with significant influence over the business. UAE regulations require all companies, across both mainland and free zones, to record and report their UBOs to maintain transparency and prevent improper use of corporate structures.

UBO details must be updated whenever there are changes in company ownership, including share transfers between existing shareholders, changes to a UBO’s passport details, or changes to their UAE residency status.

3. goAML

Activities such as real estate brokerage, corporate service providers, auditors, and dealers in precious metals or stones can fall under the DNFBP category.

If a business is classified as a DNFBP, it must register on goAML, conduct internal risk assessments, and maintain documented AML policies and KYC procedures. Failure to register or comply can result in substantial administrative penalties and inspections from the competent authority.

4. Corporate Tax and VAT Registration Requirements

Tax obligations apply earlier than most new businesses expect. Corporate Tax registration must be completed within 90 days of license issuance, even if the company has not started operating. The 9 percent tax applies only once the annual profit exceeds AED 375,000.

For VAT, registration becomes mandatory when taxable supplies reach AED 375,000 in a 12-month period, or are expected to reach that level soon. Businesses can also opt for voluntary VAT registration from AED 187,500, which is useful for recovering input VAT.

Once registered for either Corporate Tax or VAT, companies must submit returns on time. Corporate Tax is filed annually, while VAT is filed quarterly or monthly, depending on the FTA cycle.

5. Economic Substance Regulations (ESR)

The Economic Substance Regulations (ESR) apply to mainland and free zone companies that carry out specific “Relevant Activities” such as holding company business, headquarters functions, distribution and service centre activities, IP management, and several regulated financial activities. If a business falls under any of these categories, it must file an annual ESR notification and, in some cases, an ESR report showing that the company has adequate operations and decision-making taking place inside the UAE.

A common issue is that many SMEs assume ESR applies only to large corporations, when in fact even simple holding structures or advisory setups can fall within scope. Another frequent gap is failing to file an ESR notification because the company believes it is “not active,” which does not exempt it from the requirement to notify.

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Most SMEs in the UAE want to stay compliant, but the rules move fast, and the gap between what founders think they need to do and what is actually required grows wider each year. Understanding the obligations that apply after obtaining a license is often the difference between smooth renewals and unexpected penalties. With the right guidance and regular checkups, staying compliant becomes manageable, practical, and far less costly than fixing issues later.