Business Setup in Dubai Free Zone is one of the most strategic decisions you could ever make. There are many questions that need to be answered before you could take a final decision on business setup in Dubai Free Zone. What is a Free Trade Zone? How is Dubai Free Zone business different from Non-Free Zone or mainland UAE business setup? What are the advantages of business setup in Dubai Free Zone? There could be many such questions about Free Trade Zones and UAE business setup. This post is trying to answer some of these queries.
Business Setup in Dubai Free Zone | UAE Business Setup
What is a Free Zone?
A free zone is a portion of a clearly defined and isolated land or setting, with a special tax, customs and imports regime, that is different from the mainland area (country).
The main idea of establishing free zones in the United Arab Emirates was for them to serve as a central business hub for companies willing to conduct business with the outer world, not specifically in the United Arab Emirates. Therefore, UAE free zone companies are intended to operate within the corresponding free zone as a hub for the worldwide operations and are not licensed to operate within the rest of the UAE.
During the initial days, most of the free zone companies in Dubai were engaged in import and re-export activities. Ease of company registration and low cost of operations were the main reasons for the success of the Free Zones in UAE. But today, a large majority of such free trade zone companies do business with their clients in UAE and GCC through their local distributors. Business setup in Dubai Free Zone has become a popular mode of establishing the business in the Middle East region. As a result, many new free zones have been formed across UAE.
What are the advantages of business setup in Dubai Free Zone?
A Dubai free zone company enjoy many advantages. Major features of business setup in Dubai Free Zone are the following.
- No personal income or capital gain taxes.
- 100% foreign ownership is allowed in free zone business.
- No corporate taxes.
- No duties on import or export.
- 100% repatriation of capital and profits.
- Modern efficient communications.
- Liberal labor laws and no recruitment problems.
- Attractive working environment.
- No currency restrictions.
- Easy company registration and business setup services.
- Excellent support and business services.
Free Zones in Dubai and in other emirates of UAE offer excellent facilities which are ideal for running business operations:
- Land on lease provided for project setup.
- Pre-built warehouse / factory / office accommodation units for lease.
- Executive office suites in the International Business center for lease.
- Transportation links by air, by sea and by road.
- Abundant and inexpensive energy.
- Favorable cost of living.
What activities are allowed in Dubai Free Zone?
Fundamentally one should understand that the term “Dubai Free Zone” can refer to any one of the many free trade zones in Dubai. Each free trade zone has its own sector preferences and their facilities, rules, regulations etc are formed accordingly.
For example, Jebel Ali Free Zone focuses on activities such as trading, shipping, logistics, manufacturing, import, export, packaging and distribution. Dubai Airport Free Zone targets distribution centres, representative offices, regional headquarters, logistics and light industrial activities. Dubai Healthcare City serves as a hub for healthcare and related businesses. Dubai Media City caters for broadcasting, advertising, and public relations.
Dubai Internet City has facilities for web-based services, IT support, and software development. Depending on the business model of the new company, a suitable location can be selected for business setup in Dubai Free Zone. These free zones offer plenty of options for UAE business setup and company registration.
How to choose a Free Trade Zone for UAE Business Setup?
There are a lot of factors to consider when determining the location for business setup in Dubai Free Zone. These factors include, but not limited to;
- Location of the free trade zone.
- Infrastructure and facilities offered by the free trade zone.
- Business strategy and business model of the new company.
- Licensing process of the proposed activity.
- The prestige and reputation of a particular free trade zone.
- Cost of the business setup in Dubai Free Zone (cost of business formation as well as recurring costs).
- Hidden charges.
- Numerous other factors based on your business requirements etc.
It would be ideal to do a proper research on various options available and initiate the business setup process without any support from third parties. But, you need to satisfy at least two basic criteria to initiate the process by your own. First of all, you need to have enough experience in the region. Second, you should be well aware of the potential factors that may affect UAE business setup. A word of caution; though it may appear all clear and straight forward initially, experience of many investors prove it otherwise.
Else, it is always strongly recommended that you seek the service of one of the top business consultants in Dubai for UAE business setup. Remember – the procedures and regulations keep on changing in certain free zones. So it is important that you seek the service of experienced free zone consultants who can help you with business setup in Dubai Free Zone. Professional business consultants advise on the right choice of a free zone. The right free zone for your business should match your business activities. Your business setup consultant should undertake full responsibility for preparing incorporation documents for the company registration. It may cost a few bucks more, but it is worth spending for they will save you a lot more.
Which free trade zone is more economical for UAE business setup? / Which is the best free zone in Dubai?
Unfortunately, there is no set answer for this question. Each free trade zone has its own business setup cost and procedures. The exact cost of your free zone business setup will depend on many factors:
- Nature and size of your operations.
- Allocated budget.
- Business model and business plan.
- Manpower and visa requirements.
- Size and rent cost of the industrial land/warehouse.
- Office rental.
- Availability of virtual office facility.
- Other specific requirements of the business etc.
For any requirement you have, it is always possible to find an appropriate free zone to establish your company. One size doesn’t fit all.
Can I do business within UAE if my company is registered in Dubai free zone?
Companies registered within a Free Trade Zone can do business in United Arab Emirates only through authorized local companies that are registered in the mainland (majority owned by a UAE national). You can appoint a local dealer or agent and trade with any local company in the UAE after having paid required customs duties. Hence, the business model of the company has to be carefully devised to optimize the business operations.
What is the minimum investment or capital required for business setup in Dubai Free Zone?
Different free zones have different guidelines on the minimum capital requirements for business setup in Dubai Free Zone. This amount may vary according to the type of your business and your requirements. The average minimum investment for a business setup in most free zones is around AED 150,000 (USD 41,000).
Free Trade Zones may not be the best option for all businesses and company registration. The business model of the new company would be an important factor in deciding the location and jurisdiction of UAE business setup.
What would be the tax structure if I opt for a Business Setup in Dubai Free Zone?
As discussed earlier, currently there are no taxes in UAE. Some Free Zones declare a tax free period of 50 years while others just follow the policies of the Federal Government. In either case, there are no taxes in any of the Free Zones in Dubai.
How much is the import and export duties for Dubai Free Zone companies?
A Free Zone company need not pay any import or export duties within UAE. If they sell their products to their customers outside the Free Zone, however, an average customs duty of 5% has to be paid. Moreover, when goods are exported to foreign countries import duties in those countries would be applicable.
What are the major difference between Business Setup in Dubai Free Zone and Non Free Zone?
Difference between a Free Zone Company and Non Free Zone Company in Dubai
|Attributes||Free Zone Company||Non Free Zone Company (Mainland Company)|
|Foreign ownership (Non GCC Nationals)||Up to 100%||Up to 49% only|
|Ownership by GCC Nationals||Up to 100%||Up to 100%|
|Average import duty||0%||5%|
|Average export duty||0%||0%|
|Duty for sales outside the Free Zone in UAE||5%||0%|
|Goods manufactured in UAE||Attracts 5% duty when sold in UAE and local duties when sold in GCC and other foreign countries||0% duty when sold in UAE and GCC countries. Negligible duty when sold in GAFTA countries.|
|Labor law||Laws of the Free Zone||UAE labor law|
What is the procedure for business setup in Dubai Free Zone?
Each Free Zone in UAE has its own set of laws. Most of the businesses in the UAE Free Trade Zones fall under the following broad categories based on their business activities.
- Branch of a foreign company (outside of the United Arab Emirates) or a branch of an offshore company (subject to approval of the free zone authority).
- Free Zone Establishment orCompany (FZE / FZC / FZ LLC).
FZE or FZC are limited liability entities owned by an individual or corporate entity. There are minor differences between the entities. For example, Free Zone Establishment has only one single shareholder. Free Zone Company or FZ LLC can have 2 or more shareholders.
For a detailed information about the process or procedure to form a business in Dubai Free Zone, please read our article on Dubai Free Zone company formation procedure.
About Cross Border Business Consultants
Cross Border Business Consultants (CBBC) is a fast growing new generation business advisory firm head quartered in United Arab Emirates. Dubai Business Blog is the official blog of Cross Border Business Consultants.
As one of the top business consultants in Dubai, UAE, Cross Border Business Consultants have been helping clients with RAK offshore company formation, offshore company formation in Dubai, business setup in Dubai Free Zone and mainland UAE business setup etc.