A free zone is a designated area in UAE where specific rules and regulations are applied. There are currently around 40 free zones within the United Arab Emirates with more expected to come into existence as time goes by. A free zone permits full (100%) foreign ownership but restricts you from directly doing business outside the free zone. It is possible to deal in business activities outside the free zone but this is only through the use of a local agent or local distributor.
If you are considering physically moving (part of) your business to the UAE, a Free Zone company is the obvious choice. You will have a local presence and do business from the booming UAE. You can rent an office space and obtain visas for you and your staff easily.
The main advantages of setting up in one of the free zones in the UAE are:
- 100% foreign ownership is allowed
- Renting of offices and flexi desks
- Obtaining residence visas
- No tax
- Easy to hire the staff you need
- Guarantee for 15-50 years against the future imposition of corporation tax
- Import duty free (duty is 5% on most goods), if the goods are not supplied to the local market
The free zones each have their own free zone authority. These are profit making entities; their main source of income is often derived from renting office space, collecting license fees, and providing services to the companies operating in the free zone. All share the features outlined above but differ along the following lines:
- Focus of the free zone; often attracting businesses from a particular sector although there is considerable flexibility
- Office rent; rents outside Dubai are significantly lower
- Minimum office space required
- Support facilities provided by the free zone
- Annual license fees
- Paperwork involved in forming the business
- Capital requirement
- Number of visas allocated per square meter office space
The main disadvantages as compared to operating as a local business are that there is higher rent than outside the free zones and it is not possible to supply goods directly to the local market. Goods can be supplied to the local market through a local commercial agency which has to be wholly owned by a UAE national and after paying the import duty, usually 5 percent. Note that the practice is to allow the provision of services through a free zone entity to the local market as long a significant proportion of the turnover is realized abroad.
Almost in all free zones, financial statements need to be submitted to the free zone authorities annually.
Below you will find an overview of the main free zone companies we advise our clients to use.
If there is no need to sell goods directly to the local market, but office space and local staff are required, then setting up in a free zone is often more attractive than using a local company. Free zone companies also meet the growing necessity in international tax planning of having necessary substance. This is often impossible to deliver from the traditional offshore jurisdictions since they typically only offer an IBC regime.
The main advantages of setting up in one of the free zones in the UAE are as follows:
- 100 percent foreign ownership is allowed
- guarantee for 15-50 years against the future imposition of corporation tax. It is not clear whether
- the guarantee would provide exemption against an imposition of VAT as well
- import of goods duty free, provided the goods are not supplied to the local market
- streamlined procedures: all formalities are typically dealt with through the free zone authorities
- instead of the various government departments
- no restrictions on hiring expatriates
Fujairah Free Zone Company
