If you’re looking to start a business in the UAE and want to learn about the top advantages of establishing a free zone company, then you’ve come to the right place. But before we delve into the benefits of free zone company formation in the UAE, let’s take a closer look at some important facts about doing business in the UAE.
The UAE government has been actively working to attract foreign investment from around the world for many decades. The country’s economic progress is due to a visionary government, business-friendly policies, and the entrepreneurial spirit of its residents. The government provides foreign investors with tax and other financial benefits, and the UAE market is divided into three business jurisdictions: Mainland, Free zone, and Offshore. When it comes to company formation in the UAE, investors should choose one of these jurisdictions based on their business activity, customers, and goals. Both advantages and drawbacks are associated with forming a company in these jurisdictions. In this article, we will briefly discuss the Free zone jurisdiction and the associated benefits.
What are Free Zones in the UAE?
Free zones are special economic regions or jurisdictions that issue operating licenses for businesses and grant financial and tax exemptions. There are over 40 Free zones in the 7 Emirates, and the government body in charge of a Free zone is called the Free Zone Authority (FZA).
An investor can form three types of business entities in a UAE free zone: a Free zone company (FZC), a Free zone establishment (FZE), or a Branch of a business concern.
Benefits of Forming a Free Zone Company in the UAE
Now let’s get to the heart of the matter. The benefits associated with Free zone company formation are:
Complete foreign ownership – The most significant benefit of forming a free zone company in the UAE is that complete foreign ownership is possible. This means that the foreign investor need not find a UAE national sponsor for company formation.
Absence of currency regulations – There are no currency regulations of any kind in UAE free zones, making financial transactions easier.
Import and Export duty exemption – Import and Export duties are not applicable to the free zone jurisdictions in the UAE, which promotes international trade.
Tax benefits – 100% tax exclusion is applicable for free zone companies, including income tax and corporate tax.
Repatriation benefits – Companies are eligible for full repatriation benefits, including profits and financial assets.
Smooth labour recruitment – Free zone companies can conduct labour recruitment formalities easily and cost-effectively. The companies are allowed to recruit foreign nationals.
Readily available workspaces – Warehouses and office spaces are easily available in Free zone jurisdictions, making them ideal for SMEs and start-ups.
Ease of company Incorporation – The free zone company incorporation procedures are simple and straightforward, with licensing procedures typically taking fewer days than in other jurisdictions.
Trouble-free immigration procedures – Immigration facilities connected with UAE Free zones are efficient and time-saving.
Excellent communication and infrastructure – UAE free zones have the most updated communication systems with impeccable infrastructure. Free zones enjoy cost-effective and plentiful energy.
Drawbacks Associated with UAE Free Zone Jurisdictions
It’s not all about the benefits of forming a free zone company in the UAE. Investors should also be aware of the limitations, including:
Restrictions connected with UAE mainland trade – Direct trading with the UAE local market is strictly prohibited for companies established in the UAE Free zone jurisdictions. If companies formed in the UAE free zone need to trade within the UAE market, the trading is possible only via a local distributor, and the free zone company needs to pay a 5% duty to sell goods or commodities in the UAE local market.
Business activity related restriction – Companies formed in a particular free zone must perform the assigned business activity, meaning that the freedom of business activity is limited.
Limitations of UAE Free Zone Jurisdictions
Forming a free zone company in UAE offers numerous benefits, but it’s essential for investors to be aware of the limitations that come with it. Below are some of the drawbacks associated with UAE free zone jurisdictions:
Restrictions on UAE Mainland Trade: Companies established in the UAE free zone jurisdictions are strictly prohibited from engaging in direct trading with the UAE local market. If a free zone company needs to trade within the UAE market, it can only do so through a local distributor and must pay a 5% duty for selling goods or commodities in the UAE local market.
Business Activity Restrictions: There are also restrictions connected with the type of business activity. Each UAE free zone is assigned with specific business activities or a group of business activities, meaning that the company formed in a particular free zone should only perform the assigned business activity, limiting the freedom of business activity.
Work Location Restrictions: Employees holding a Free zone company visa are required to work within the boundaries of the Free zone.
Costly Formalities: The notarisation and translation expenses associated with a Free zone are a costly affair compared to the Mainland.
Major Free Zones in Dubai
Dubai is currently home to over 30 free zones, with new free zone jurisdictions under construction. The following are the 5 major free zones in Dubai:
Jebel Ali Free Zone (popularly known as JAFZA)
In conclusion, partnering with a business setup consultant like BizVibeZ can help you get your business formation done quickly and seamlessly. BizVibeZ can assist you with company formation in all major Free zones in Dubai and other Emirates. It’s important to note that the legalities and documentation associated with company formation vary with free zone jurisdiction. If you need any assistance with company formation or associated services, get in touch with the BizVibeZ team at the earliest.