Already home to tens of thousands of foreign-owned and offshore companies, the free zones in the United Arab Emirates continue to attract enterprises from all parts of the world.
Dubai is particularly popular among foreign investors. Home to Jebel Ali Free Zone (JAFZA), the first free zone in the UAE (circa 1985) and the largest free zone in the world, Dubai continues to set the benchmark for free zone creation and operations in the UAE and globally.
If you’re thinking of setting up a free zone company in Dubai, consider working with a business consulting services company. It will help you decide which free zone in the UAE will best serve your interests, avoid potential company formation pitfalls, and ensure you can maximize the benefits Dubai free zones offer.
What Are Free Zones?
Free zones are free-trade areas in the UAE under the administrative jurisdiction and autonomous governance of free zone authorities. Meanwhile, companies in the UAE mainland (non-free zone areas in the UAE) fall under the purview of the respective emirates’ department of economic development (e.g., the Dubai Department of Economic Development).
Free zones provide an ideal place for many foreign investors to launch or start a business. Since they can enforce their own rules, free zone authorities typically make company formation and operations as easy and painless as possible for entrepreneurs.
There are 46 free zones in the country, 28 of which are in Dubai. Some of the most significant ones are:
- Dubai Airport Free Zone
- Dubai Cars and Automotive Zone (DUCAMZ), also known as the Dubai Auto Zone
- Dubai International Financial Centre
- Dubai Design District
- Dubai International Academic City
- Dubai Knowledge Village
- Dubai Healthcare City
- Dubai Internet City
- Dubai Media City
- Dubai Studio City
- Dubai Production City
- Dubai Gold and Diamond Park
- International Media Production Zone
- Dubai Multi Commodities Centre (DMCC)
- Dubai Silicon Oasis (DSO)
- Jebel Ali Free Zone
- Dubai World Central (Dubai South)
Free zones are usually designed to accommodate a specific category of enterprises. Learning about your target free zone’s features and characteristics is crucial for successful free zone company formation.
For instance, if you plan to launch a network operations center, you may find Dubai Internet City suitable. A digital marketing agency may find Dubai Media City a better option. Meanwhile, a trading company should probably consider Dubai Multi-Commodities Center and JAFZA. Automotive companies will naturally gravitate towards Dubai Cars Automotive Zone.
Why Start a Company in a Dubai Free Zone? 5 Benefits
Because of its tremendous progress and development, Dubai has become an excellent and conducive place for forming a company. More importantly, Dubai’s excellent logistics and transport network puts it within four hours of 33% of the world’s population and eight hours of 66% of the global population.
Moreover, while they have distinct features and characteristics, free zones share these five benefits:
1. Tax Benefits
Free zones typically offer a renewable, 50-year, 0% corporate tax incentive to resident companies. Under the new corporate tax regime in the UAE, however, free zones are now subject to federal corporate income tax.
That said, UAE free zone companies are likely to continue enjoying their 0% corporate tax rate as long as they fulfill specific conditions. These include, among others:
- Continuing to earn qualifying income (non-qualifying income and those that come from excluded activities will be subject to the 9% corporate tax rate)
- Maintaining adequate corporate substance in the UAE (generally means you’re actually conducting and operating a business in the free zone)
- Complying with annual financial reporting requirements
Additionally, corporations enjoy 100% exemption on import and export taxes. Free zone companies only become subject to customs duties when they move goods into the UAE mainland.
2. 100% Foreign Ownership
The 100% foreign ownership benefit is no longer limited to free zone companies. UAE mainland companies also enjoy the same privilege. That said, 100% foreign ownership remains one of the free zones’ most significant benefits.
Free zones are the pioneers of 100% foreign ownership. After all, free zones have been designed for foreign-owned companies that wish to make Dubai their base of operations but don’t necessarily want to sell to businesses and consumers in the UAE mainland.
Operating from Dubai simply lets foreign-owned companies enjoy the emirate’s strategic location and superb logistics services. This facilitates their activities, including marketing and selling their goods and services internationally and to other free zones in the UAE.
3. 100% Capital and Profit Repatriation
Free zone companies can return all their profits to their home country. They can also repatriate 100% of their capital. No currency restrictions apply to curtail free zone companies’ financial transactions.
4. Real Estate or Office Rent Savings
Some believe UAE mainland offices cost less to rent than free zone office spaces. That may well be true, but free zone companies offer flexible office arrangements that can make setting up a business in a free zone more economical or cost-efficient in the long run for certain types of enterprises.
For instance, free zone companies have virtual office options. This allows a small startup to comply with office rental requirements without needing to rent a bigger and more expensive space. It’s the ideal setup for small- to medium-sized companies that don’t require a physical office.
5. Free Employee Residency Visa
Free zone visa applicants undergo a faster, more straightforward process, so free zone companies typically find it easier than UAE mainland companies to obtain residence visas for their employees. Free zone employee visas are generally valid for three years, a year longer than mainland UAE employee residence visas.
That said, free zone companies may have restrictions on the number of employee residence visas they can obtain. Free zone authorities set this limitation according to a company’s license type and nature of operations.
Additionally, foreign workers on a free zone employment residence visa may not work in the UAE mainland without transitioning to a mainland employee residence visa.
Free Zone or Mainland UAE?
Free zone areas in Dubai offer benefits that can help foreign-owned companies maximize the value of company formation in the UAE. However, free zone business setup is not your only option.
As long as you have a business services consultant to help you with UAE government approvals, you can also consider a business setup in the UAE mainland and enjoy the freedom of doing business anywhere in the UAE.
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