If you’re operating a business in Dubai, or if you want to start a business in Dubai, you must be aware about the special economic zones called the ‘Free Zones’. UAE has around 50 Free zones. The first concept of Free Zones was started in 1985, with Jebel Ali Free Zone (JAFZA) to eliminate certain restrictions for commencing a business and to encourage nationals as well as foreigners to open a business in their country. Free Zones allow duty free, tax free and liberalize certain restraints put on businesses otherwise located outside the Free Zones. But, one should not keep aside their common sense and opt for a Free Zone, just because it assures ‘Free’. There are various things to account for before deciding if Free Zone indeed is an ideal place for your business. Here are the 9 most important facts about Free Zones, which will help you reach your decision.
- 100% Ownership & Repatriation of Profits: If you’re a foreign national opening up a business in Dubai, you’ll need a local partner with 51% stake in your business. This would weaken your control. But Free Zones exonerate you from that requirement. Free Zones allow you 100% of ownership of your business. Apart from ownership, Free Zones also allow you to repatriate 100% of your capital and profits back to your home country.
- Taxation advantages: Free Zone companies enjoy zero or in some cases, limited tax profits and capital gains. These companies attract 0% corporate tax rate and duties on import and export. This is the biggest advantage for the companies in Free Zones and has been the most attracting factor to locate a business in a Free Zone.
- Isolated locations: Free Zones are often established around major seaports and international airports — areas with many geographic advantages for international trade. Hence if your business requires access to the locals of Dubai, locating your business in a Free Zone would not be advisable. However if your business has significant amount of import-export and inter-state transportation, an airport located or a sea-port located Free Zone would be ideal.
- Laws and Approvals: Labor laws that are enforceable in the mainland are liberal in the Free Zones. Hence it become easier and quicker to recruit staff. You can register a New Company, Subsidiary or a Branch in a Free Zone. However A Branch Company registered in a UAE Free Zone can only have the same name and same activity as the Parent Company, provided that this activity is available in a Free Zone. The same doesn’t apply to a Subsidiary Company with a corporate shareholder, which can choose an independent activity and a different company name.
- Wholesale Business: A Free Zone company may not directly retail goods to the local market. A Free Zone company is permitted to trade on a wholesale basis only. But some exceptions are pertinent, as for example in Dubai Design District (D3) Free Zone, where you can find retail shops, showrooms, salons and restaurants.
- Rent: Although Free Zones promise a lot perks regarding taxation and ownership, it compensates them by charging higher prices for renting, leasing or buying a space in them. The costs are significantly higher than that in mainland. Although Free Zones offers the best of modernized facilities and sophisticated amenities for the investors, it is not advisable for a small or a medium enterprise to start their business there.
- Industry specific zones: Each Free Zone has its own focused policies for specific business types. Some of the Free Zones specialize in particular activities. For example, Dubai Internet City provides activities related to IT, Software, and the Internet. Dubai Design District is specialized in activities related to fashion and design. DMCC operates across commodities, tea, gold, diamond, pearl, metals, minerals, cotton and more.
- Restrictions to mainland: If you want to set up a Trading company in a Free Zone you can only import and re-export to other countries. Goods are restricted to the UAE mainland unless they are cleared through a Limited Liability Company (Trading) or a logistics provider. Hence again, if you want to serve local audience through your business, Free Zone might not be a good idea for you.
- Visas: As an investor who owns a Free Zone company, you are eligible for the UAE Residence Visa for 2-3 years. You can also sponsor your family members and domestic helpers and provide them UAE Residence Visas. The number of Investor or Employment Visas under the company depends on the type of facility you rent under your Free Zone company. Flexi desk/smart desk provides a limited number of visas (can vary depending on each Free Zone). The physical office provides quota for 1 visa per 10 square meters.
Not all the Free Zones operate on same terms. Hence it is always advisable to get help from a local company who can help you decide whether Free Zone is the right option for you and if it is, the which out of the 50 Zones should you go with.
Reach out to us, for any queries about Free Zones. We will be happy to help you.