Free zones, commonly known as free trade zones, are designated areas within a country that offer businesses unique regulatory and tax advantages to attract foreign investment, enhance trade, and promote economic growth. In the United Arab Emirates (UAE), these zones are particularly appealing due to their strategic locations, advanced infrastructure, and comprehensive support services.
Establishing a company within a UAE free zone offers a multitude of benefits, including 100% foreign ownership, the absence of personal income taxes, and the full repatriation of profits and capital. These zones are strategically situated near major seaports, airports, and key trading hubs, facilitating seamless access to international markets. Furthermore, the company setup process is streamlined, characterized by minimal bureaucracy and expedited administrative procedures, thereby presenting an efficient option for businesses seeking to expand their operations.
Benefits of Setting Up a Free Zone Company in UAE
Setting up a business in one of UAE’s free zones presents several distinct advantages for entrepreneurs and corporations:
1. Complete Ownership of Business
One of the most significant benefits of establishing a free zone company in UAE is the allowance for 100% foreign ownership across all business activities. This provision affords greater control and flexibility to business owners.
2. Profit Repatriation
Enterprises operating within free zones are permitted to repatriate their profits without restrictions, enabling the full transfer of capital to their country of origin.
3. Corporate Tax
According to UAE regulations, companies with revenues below AED 375,000 are exempt from corporate tax. For businesses exceeding this threshold, a corporate tax rate of 9% is applicable. Notably, qualifying activities conducted within free zones may be eligible for a 0% corporate tax, subject to fulfilling certain criteria and consitions.
4. Strategic Geographic Positioning
Free zones in UAE are advantageously located in proximity to seaports, airports, and national borders, which facilitates expedited delivery times, reduces shipping costs, and enhances supply chain efficiency.
Criteria for Selecting an Appropriate Free Zone
Selecting the appropriate free zone for company establishment is a crucial decision that can significantly affect the success of a business. Initial consideration should be given to the specific needs and nature of the intended business activities, as different free zones cater to various sectors, including technology, media, healthcare, and trade.
Furthermore, assess the strategic location of the free zone to ensure it provides convenient access to essential transport networks. Evaluate the infrastructure and facilities available, such as office spaces, warehouses, and support services to confirm they align with operational requirements.
A Comprehensive Guide to Setting Up a Company in a Free Zone
1. Determine the Type of Free Zone Entity
The initial step is to select the legal structure for your business. In the UAE, you can choose from the following entities:
Free Zone Limited Liability Company (FZ LLC) or Free Zone Company (FZCO): These entities can accommodate multiple shareholders. Shareholders may include individuals, corporations, or a mix of both.
Free Zone Establishment (FZE): This entity permits only one shareholder.
Branch of a Company: A branch serves as an extension of an existing local or foreign company, operating under the same name and carrying out the same activities as the parent organization.
Financial free zones like ADGM and DIFC also offer different legal structures, such as Special Purpose Vehicles (SPVs), Tech Startup entities, Prescribed Companies, and family offices to meet various business needs.
2. Name Your Free Zone Company
Selecting a suitable name for your free zone company is vital. The name must adhere to the following criteria:
- Align with your business activities and legal structure.
- Include a suffix that indicates the legal form (e.g., FZE for Free Zone Establishment).
- Avoid references to religion or anything that may contravene public order.
- Not include the names of any UAE emirates or governmental bodies.
- Be distinctive and uphold societal values.
3. Apply for a Trade License
The type of trade license required depends on your business activities. Licenses can be categorized as professional, commercial, industrial, Services or a combination thereof. Some free zones, such as IFZA in Dubai, offer combined licenses that cover multiple activities, along with options for multi-year license packages.
4. Choose Office Space or Flexi-desk
Free zones provide a range of office space options tailored to your budget, workforce size, and operational requirements. Options include:
Flexi-desk facilities: Often included free with the license.
Fixed desks: Dedicated workspaces.
Offices: For those requiring more permanent arrangements.
Workshops, warehouses, and storage spaces: Suitable for businesses with specific operational needs.
5. Register Your Company and Obtain the Trade License
The final step involves registering your business and acquiring the trade license. While the required documents and procedures may differ across free zones, the general process includes the submission of:
- Completed application forms
- Passport copies of shareholders
- Passport, Residence Visa and Emirates Id copies of Manager
- Proof of address of shareholder and Manager
- Business plan
- Articles of Association and Resolutions
- MOFA Attested Certificate of Incorporation, MOA and Board Resolution for Corporate Shareholders
- Corporate Structure and Shareholding pattern for Corporate Shareholder
- Passport copies of Ultimate Beneficial Owner for Corporate Shareholder
Upon review and approval of the submitted documents, the free zone authority will issue your trade license, enabling you to commence operations.
6. Open a Bank Account
Establish a corporate bank account in the name of your free zone company. You will need the company’s legal documents and trade license to complete this process.
7. Employee Visas and Establishment Cards
Apply for free zone visas and Establishment cards for your employees/Management/Investor/Partner Visa. Most free zones facilitate this process, simplifying the hiring of foreign nationals.
8. Commence Operations
Once all formalities have been completed, you can begin your business operations. Ensure compliance with the regulations of the free zone to avoid any legal complications.
