The company formation procedure varies from free zone to free zone. If you are reading this article, chances are that you are planning to set up a business in Dubai and would like to know more about Dubai Free Zone company formation procedure. In this article we will try to describe the general procedure for company formation in Dubai Free Zone. Though we mention Dubai Free Zone for the ease of understanding, please note the following;
- The term Dubai Free Zone is used to represent all the Free Zones in Dubai.
- There is no individual entity called Dubai Free Zone (at least at the time of writing this article).
- Free Zones in UAE, in general, follow similar procedures for company formation, with some differences between the Free Zones.
For a foreign company or person, Dubai Free Zone company formation is one of the most preferred options for business setup in UAE. By setting up a business in one of the Free Zones, they can take advantage of the various benefits offered to a Free Zone business.
General Preparation for Dubai Free Zone Company Formation.
As for when of any start up business, we assume that you have done your preparations well before proceeding with company formation. Essential steps of your preparation for Dubai Free Zone company formation should include the following.
- Market Research.
- Confirm your business requirements.
- Identifying the best site that meet your business requirements.
- Evaluating the various Free Zones in UAE.
- Business plan for your new venture etc.
Each Free Trade Zone has its own rules, regulations and procedure. In general, the procedure to set up a Free Trade Zone company in UAE can be summarized in the following steps (please note that some of these steps may not be required in certain Free Zones).
Dubai Free Zone Company Formation Procedure
- Determine the free zone license type.
- Confirm the activities.
- Legal structure of the company.
- Confirm the business facilities required.
- Verify the fees and other charges.
- Submit the application form and other documents.
- Secure the preliminary approvals.
- Payment of the fees.
- Sign the agreements and other legal documents.
- Receive your business license and other certificates or documents.
Now let us have a close look at the above steps for Dubai Free Zone company formation procedure.
1. Determine the Free Zone license type.
The very first step in Dubai free zone company formation procedure is to decide the license type that allows your business activity. In general, Free Zones offer the following types of business license;
Free Zone Trading License.
A trading license allows you to carry out trading activities (buying, selling, import & export) of limited number of goods and commodities. Most of the Free Zones allow trading in around 3 (closely related) categories of items under a trading license.
Free Zone General Trading License.
A General Trading license allows you to deal with almost all types of goods with the obvious exemption of banned goods and products that need special approvals. Normally the general trading license is relatively more expensive than the trading license.
Free Zone Consultancy / Service License.
Service businesses such as consultancy, accountancy, legal firms etc may choose a consultancy license.
Free Zone Industrial License.
Activities such as manufacturing, processing, packaging and assembling fall under the Industrial License.
Free Zone Commercial License.
Business activities such as repairing, workshops etc would need a commercial license.
2. Confirm the business activities.
Not all Free Zones allow all activities. Some Free Zones specializes in certain activities. So it is important that you confirm that your intended activities are permitted by the Free Zone of your choice. Moreover, there are restrictions over the number activities allowed.
3. Determine the legal structure of the company.
The legal structure of the company varies according to the number and nature of the partners involved. Documentation required, costs etc also change depending on the legal structure of the company. Documents required for a corporate partner (or a branch entity) would be different from those required for an individual shareholder.
4. Confirm the business facilities.
Do not assume that all Free Zones offer all types of business facilities. Though most of the Free Zones in UAE offer office space, warehouse etc availability can be a limiting factor. So you need to assess the availability of the essential facilities provided by the Free Zone before committing to setup the business with them.
5. Verify the fees and other charges.
This is the most important step in Dubai Free Zone company formation procedure. Many investors who wish to register their company in one of the Free Zones in UAE go for the cheapest option available based on the obvious costs. They do not understand the hidden charges and extra fees to be paid for the services that are essential for the survival of their businesses. The total cost of your Free Zone business can be categorized into two.
- First year cost for Dubai Free Zone company formation
- Yearly renewal costs
Some Free Zones offer packages that are cheaper than the normal company formation costs. Investors fall prey to these packages offered by certain Free Zones and business consultants without realizing that they have to pay the package charges every year. The normal yearly renewal charges could be cheaper than the cost of the packages. Moreover, most of these packages include only a business license and not office space. This may not be very useful if you are serious about your business and investment. On the positive side, your efforts to decide the real cost of free zone company formation is very limited in the case of company formation packages.
If you are ready to spend some time and resources to collect the data, unearth the hidden charges and test the real costs for Dubai Free Zone company formation procedure, you can have significant savings on your investment. It may take much resources, including multiple visits to various Free Zones, asking the right questions, understanding the procedure followed by the Free Zones, collecting the cost details etc. The most difficult part would be to uncover the hidden charges. For starters, it would be ideal to appoint a professional business consultant in Dubai to do this job for you.
6. Submit the application form and other documents to the Free Zone.
The application form and other legal documents are necessary to start the real application procedure. Depending on the nature of the business (branch /subsidiary, establishment /partnership, trading /industrial /services), the documents required may vary. In general you would need the following documents.
- Free Zone application form.
- Passport copy.
- Visa copy (if you have an existing UAE visa).
- Business plan.
- Bank statements (to prove the capital amount).
- No objection certificate from the current sponsor (for UAE residents).
To set up a branch or subsidiary of a foreign company in UAE Free Zones, extra documents would be required. We feel that the importance of a business plan need to be highlighted here. Many of the new start ups make the mistake of not preparing a business plan for their projects. A business plan helps you to set your business targets and milestones. A proper business plan assists you to keep track of the performance of your business. So a business plan is a must not only for meeting the requirements of Dubai Free Zone company formation procedure, but also for efficient running of your business.
7. Secure the preliminary approvals.
Currently some Free Zones in UAE may demand prior approvals from other regulatory departments to start the free zone company formation process. These approvals could be from;
- Immigration Department: Some Free Zones process this request for the clients; some requires the client to process it by themselves where some Free Zones do not need this approval at all. Though it helps to make sure that your visa application would not face any major issues after the company formation, it would delay the entire process by a few weeks.
- Environment Department: For certain activities, especially industrial activities, clearance certificate from the Environment Department is necessary.
- Ministry of Health: Some Free Zones demand certificate from the Department of Health to carry out activities related to pharmaceuticals, food products etc.
Now you are ready to make the payments. With some Free Zones, you have the option of making the payments in installments, however, pay attention to the total cost in this case could be higher than the normal charges by a minimum of 10% and up to 50%.
9. Sign the agreements and other legal documents.
After you make the payments, the concerned Free Zone authority would prepare the relevant legal documents and you would be asked to sign them in the presence of an executive/official of the Free Zone.
10. Receive your Free Zone Business License and other documents.
Here you are! It is time to receive your Free Zone Business License. Along with the business license, some Free Zones give associated documents such as share certificates, certificate of incorporation etc. Deciding on the best free trade zone in UAE for your business requirements depends on many factors. So it is important that you spend quality time on evaluating the options available for your business requirements. For certain business activities it would be ideal to form a business outside the Free Trade Zone (mainland / local business).
Let us reiterate the point that the Dubai Free Zone company formation procedure varies. Different Free Zones in UAE follow different approaches. We hope that the above steps could be useful as a guideline for you. Please feel free to share your thoughts and comments here.