Free Zone Areas in UAE for Company Formation

What is a Free Zone Company in UAE?

A company which has a legal entity established in any of the free trade zone of UAE. The most common structure for a company used in Free Trade Zone is the Free Zone Establishment. There is only one shareholder in a FZE company. Whereas, if there are more than one shareholder then the company will be registered as a Free Zone Company.

 

Provinces of UAE

In UAE there are 7 provinces which consists of various free zone areas for incorporation of a company.

  •      Dubai
  •      Abu Dhabi
  •      Ras Al Khaimah
  •      Ajman
  •      Fujairah
  •      Sharjah
  •      Umm-Al-Quwain

 

The cost range for incorporating a company in any of the free zone areas of the provinces goes from 5000 AED to 25000 AED.

 

Free Zones & Tax Benefits

There are various benefits in terms of business if a company is registered as a Free Zone Company. Free zone companies are onshore companies that fulfil the criteria to trade across the world and also within the country.

Free Trade Zones in UAE are considered to be advantageous for foreign investors in terms of tax savings. Free Zones in UAE offer different licenses for company formation to the investors based on their business activity.

 

Benefits of Free Zones Areas in UAE

  •      There is a 100% foreign ownership of business
  •      The corporate tax is 0%
  •      No import or export tax
  •          Strategic location
  •      Connectivity with the world
  •      There are no currency restrictions

 

Procedure for Setting up a Company in Free Zone Areas

         Legal Structure

The owner shall decide the category of the company like limited liability company, subsidiary, sole proprietorship, or any other. This could also depend on factors whether

          Trade Name

Once the structure of the company is finalized a different and appropriate trade name for your company that has compliance with major regulations made by the authority.

          Apply for License

After you get the trademark done for your company name, apply for the business license to the relevant authority of free zone area. When you have obtained the business license it will clear out the activities for your company to get engaged in and are important for conducting the business.

          Selection of Office Space

When you acquired the business license for your company, depending upon the regulations mentioned for particular free zone areas you need to select an office space within the jurisdiction of free zone area.

          Obtaining the Pre-Approvals from Authority

 

When all the steps are done and finalized you need to obtain pre-approvals from the free zone authority. The process can involve submission of necessary documents, details of the director/shareholders, etc.

Free Zone Areas in UAE for Company Formation

 

Comparison: Free Zone vs Mainland Company Formation

While Free Zones offer compelling advantages, businesses must weigh their suitability against mainland company formation in the UAE. Mainland companies, governed by the UAE’s federal law, offer their own unique benefits and challenges.

Ownership

  • Free Zones: Allow 100% foreign ownership without the need for a local sponsor.
  • Mainland: Traditionally, businesses required a UAE national partner with 51% ownership, but reforms now allow 100% foreign ownership in many sectors.

Scope of Operations

  • Free Zones: Companies can operate within the Free Zone and internationally. However, conducting business in the UAE market requires appointing a local distributor or agent.
  • Mainland: Companies can freely trade across the UAE without restrictions.

Taxation

  • Free Zones: Businesses are exempt from corporate and income taxes for a specified period, often extendable. VAT (5%) applies to certain activities.
  • Mainland: Subject to corporate taxes (for large firms above the taxable threshold) and VAT.

Business Activities

  • Free Zones: Often industry-specific, with regulations catering to particular sectors.
  • Mainland: More versatile, allowing businesses to engage in a broader range of activities.

Cost of Formation

  • Free Zones: Typically, lower costs for licensing and office space.
  • Mainland: Higher initial costs due to licensing fees, office requirements, and potential sponsor fees.

Regulatory Framework

  • Free Zones: Governed by the respective Free Zone authority, which provides customized regulations and support.
  • Mainland: Subject to UAE federal law, ensuring adherence to broader legal frameworks.

Employment and Visas

  • Free Zones: Provide a flexible quota for visas based on office space leased.
  • Mainland: Visa quotas depend on the company size and office area.

Future Prospects for Free Zone Businesses in the UAE

The UAE has consistently demonstrated a forward-thinking approach to economic development, and Free Zones play a central role in its diversification strategy. Several factors contribute to the promising future of Free Zone businesses:

  1. Diversification Beyond Oil

The UAE’s long-term economic vision, as outlined in initiatives like UAE Vision 2030, emphasizes reducing dependence on oil revenues. Free Zones are vital in attracting investment in non-oil sectors, such as technology, renewable energy, healthcare, and logistics.

  1. Technological Innovation and Smart Cities

The UAE has positioned itself as a global leader in technological innovation. With initiatives like Smart Dubai and investments in artificial intelligence (AI), blockchain, and 5G networks, Free Zones focused on technology, such as Dubai Internet City and Dubai Silicon Oasis, are expected to thrive.

  1. Strategic Trade Hub

The UAE’s strategic location at the crossroads of Europe, Asia, and Africa makes it an ideal global trade hub. Free Zones like JAFZA and Khalifa Industrial Zone Abu Dhabi (KIZAD) benefit from world-class logistics infrastructure, including ports, airports, and rail networks, enhancing their appeal to international traders.

  1. Financial and Regulatory Reforms

Recent reforms, including the introduction of golden visas, 100% foreign ownership, and ease of doing business measures, have made the UAE a more attractive destination for entrepreneurs. Free Zones, already known for streamlined regulations, are set to benefit further from these reforms.

  1. Sustainability and Renewable Energy

The UAE is investing heavily in renewable energy projects, such as Masdar City, a Free Zone dedicated to sustainable development and clean technology. As global demand for sustainability grows, Free Zones aligned with these goals will attract substantial investments.

  1. Global Events and Tourism

The legacy of Expo 2020 Dubai continues to boost the UAE’s global profile, attracting businesses and tourists alike. Free Zones catering to media, hospitality, and tourism industries, such as Dubai Media City, are well-positioned to capitalize on this momentum.

  1. SMEs and Startups

The UAE has implemented several initiatives to support small and medium-sized enterprises (SMEs) and startups, including access to funding, mentorship programs, and incubation facilities. Free Zones like Sharjah Research, Technology, and Innovation Park (SRTIP) cater specifically to startups and innovation-driven businesses.

  1. Integration with the Global Economy

With free trade agreements, such as the Comprehensive Economic Partnership Agreements (CEPA) with India and other nations, the UAE provides businesses in Free Zones unparalleled access to global markets.

 

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