Start Your Business In A UAE Free Zone

2nd July 2019

Starting a business in a free zone has long been attractive as its perceived to be quick, easy and cost effective to setup. Have you considered setting up or expanding your international business to one of the numerous free zones in the UAE yet?

What is a free zone?

A free zone is a geographical area which has been designated to encourage economic activity. It is usually a tax free area or has very low tax rates.

Why should you consider a free zone in the UAE?

The first UAE free zone was established in Dubai back in 1985 - Jebel Ali Free Zone (JAFZA). Since that time, as part of the UAE's endeavour to diversify its economy away from its reliance on hydrocarbons, numerous free zones have been established throughout the seven Emirates. Often these are set up as specific sector zones, e.g. in Abu Dhabi there is a media free zone called TWOFOUR54, which caters solely to media-type businesses ranging from advertising and PR companies, to film production and magazines. The purpose of a sector-based free zone is it is anticipated that organisations based within that free zone will often be working amongst themselves. Equally, there are numerous free zones which are very generic and cater numerous industries.

The older, well-established free zones are now thriving economic area with well known international brands. There are also newer free zones competing for business and attracting Foreign Direct Investment (FDI). According to the Khaleej Times on 27th January 2019, non oil foreign trade from free zones accounted for 37% in the first nine months of 2018 and was valued at AED439.2bn. All of them benefit from the UAE's strategic location of access to other Gulf states, ideal for importing and exporting; as well as being a strategic hub for overseas business to the West and East.

What are the benefits of setting up a business in a UAE free zone?

Cost effective incorporation
Speedy incorporation
100% foreign ownership (no local sponsors are necessary)
Choice of structures: an entity with a limited liability or a branch of an overseas parent company
Exemption from corporation tax
Exemption from income tax
Independent regulations
No customs duty
No foreign company restrictions
Repatriation of profits and capital
No physical office requirements
Paid up share capital is not required
Selection of business activities including consultancy, services, trading and industrial
Ability to incorporate holding companies
No requirement to be in-country for the company registration
Ability to apply for UAE visas.

What are the restrictions of starting a business in a free zone?

Restricted to working within the geographic limits of the free zone or with overseas companies
Not possible to work directly with the government
To export goods onto the mainland, customs duty must be paid and an agent appointed.

Is a free zone right for your international business?

To determine whether you should be expanding your business to a UAE free zone there are two key questions to ask:

Who are your customers / intended customers?
Where are those customers based?

If your customers are government or semi-government entities, then a free zone is not the correct jurisdiction for your business and a onshore license will be required from the Emirate where your client is based. However, if your customers are private sector, based within a specific free zone or overseas, then a free zone business setup could be just right for your business.

As hinted above, free zones are really for business within the geographical boundaries of the particular free zone, so if your clients are based on the mainland, you may need to reconsider. However, if you are selling goods, perhaps an e-commerce business, it is possible to sell to the buyer on the mainland, but it would be necessary to appoint either an agent or a logistics company to take the goods onshore for you. You can't deliver the products directly. As the goods move from the free zone to the mainland duty becomes payable too.

Can my UAE free zone company work onshore?

Yes by way of a dual license. A free zone entity can apply for a dual license with the Department of Economic Development . It should be noted, that not all free zones offer dual licensing as a possibility. Furthermore, a dual license can only be applied for in the Emirate in which the free zone is located. E.g. a company set up in Masdar, which is located in Abu Dhabi Emirate can apply for a dual license with the Abu Dhabi Department of Economic Development (ADDED) but it couldn't apply for a dual license in any of the other Emirates. There are restrictions relating to dual licenses, so its best to check this out in advance to be sure it applies to the activities on your free zone license and that your free zone entity meets the requirements.

Free zones are ideal for businesses wanting a regional hub based in the UAE; for businesses stepping into the UAE for the first time and finding their feet; and for companies trading internationally. Free zone companies can be established in a matter of days and also be a cost effective market entry route.

Gateway is experienced in setting up free zone companies and managing their ongoing compliance requirements, such as arranging visas for expatriate staff and the annual license renewals so that our clients can focus on developing their business. To start your business in a UAE free zone Email us: Info@GatewayToAbuDhabi.com