Foreign investors have mainly two options for setting up business in Dubai: the mainland and the free zones. Expatriate entrepreneurs and company formation consultants in UAE prefer to set up a business in Dubai’s free zones rather than on the mainland for the ease of business formation procedure, comparatively lower costs, and, most importantly, ownership. Of 100% of the company without the requirement of a local sponsor.
Free zones play an important role in boosting and diversifying Dubai’s economy and creating more job opportunities. With a highly efficient and independent regulatory structure, free zones are the most attractive option for business creation in Dubai for foreign investors.
What is a free zone, and what is it for?
Dubai was the first emirate in the UAE to develop the country-wide free zone model when it founded the Jebel Ali Free Zone (JAFZA) as early as 1985. Free zones are specially fenced geographical areas where goods can land, be handled, produced, or modified. Free zones are designated areas where tax, employment, and trade restrictions differ from the way it applies to jurisdiction on the mainland.
Most free zones are located near seaports or airports to facilitate imports and re-exports, which are the most common business activities in Dubai-free zones. For example, JAFZA is located in the port of Jebel Ali, while DAFZA is close to Dubai International Airport. Furthermore, free zones cannot trade directly in the UAE market unless they appoint a local distributor.
Characteristics that attract investors to start-ups in Dubai Free Zones
Dubai business formation consultants recommend Dubai Free Zone business formation for foreign investors due to its many advantages over business formation on the mainland. The following are the main features of setting up a free zone company in Dubai,
- 100% owned, no local sponsorship
Incorporating a company in Dubai is an attractive option for business start-ups, but requiring a local (UAE national) sponsor to own at least 51% of the company’s shares has been a major hurdle for investors. Foreign investors. Expatriate entrepreneurs whose client base is outside the UAE prefer Dubai free zone company formation due to the highly attractive feature of 100% ownership.
- Most Dubai Free Zones are Industry Specific
Business registration in Dubai Free Zones is preferred by expatriate entrepreneurs, mainly because they have the option of launching their business in a Free Zone dedicated to their industries. An investor in the media business can set up a company in Dubai Media City, or if his goal is to set up an IT company, there is Dubai Silicon Oasis (DSO) and Dubai Internet City. The Dubai Financial Center (DIFC) specializes in the financial sector and fintech companies. Dubai Health City, Dubai Outsourcing City, Dubai Design District, and Dubai Textile City are well-known free zones dedicated to specific sectors.
- Repatriation of 100% of profits and important tax exemptions
Being a company that operates in a free zone of Dubai, the entrepreneur can take the profits obtained to his country. Companies can also enjoy significant tax breaks, as there is no income or corporate tax in the UAE. However, the oil and banking industries fall within the scope of corporate tax. In addition, companies whose taxable supplies exceed the threshold of AED 35,000 must register for the VAT consumption tax. The best company formation consultants in Dubai help companies register for VAT and guide them through the company registration process.
- Independent regulatory bodies
Free zones are designated commercial geographic areas governed by the respective regulatory authorities. The rules and regulations that govern the incorporation of companies in each free zone are determined according to the policies of the respective authorities of the free zone. For example, the regulatory authority for the Dubai Raw Materials Center (DMCC) is the DMCC Authority. The DIFC-free zone is regulated by the DIFC Authority, the DFSA, and the DIFC courts. Separate rules and regulations give investors more flexibility when setting up a company in Dubai Free Zones.
How to choose the right free zone to set up a company in Dubai?
Determining the right free zone for company registration in Dubai is crucial to every investor’s business journey. There are more than forty free zones in the UAE (including the Northern Emirates and Abu Dhabi free zones), and more than thirty are located in Dubai. The best strategy to choose the right free zone is to follow certain factors. Consulting the best business creation consultants in Dubai before starting the business creation process is the best way to identify the right free zones.
- Consider Business Activities in Dubai Free Zones
After deciding to start a business in Dubai, foreign investors should examine the activities listed by free zones to see which free zones offer the activity of their choice. This is a tough task, but investors can call the best business creation consultants in Dubai who will suggest the best free zones that match the investors’ business activity. Investors can choose general-purpose free zones or industry-specific free zones for company incorporation in Dubai.
- Give priority to free zones with the best facilities.
The facilities offered by the free zones vary from each other, and therefore, entrepreneurs should carefully choose the free zone that offers the best facilities that fit their business needs. If the entrepreneur creates a company with less labor, he can rent a co-working space (Flexi Desk) in any free zone in Dubai.
Conversely, office space is the most suitable option if the investor’s business involves many employees or regular meetings with clients. Flexible desks and office spaces in most free zones have state-of-the-art infrastructure. Owners of manufacturing companies should check the availability of land and solid storage facilities.
- Guarantee that the Free Zone is in a strategic location
Since the business installation in the Dubai Free Zone is mainly intended for imports and re-exports, the location plays a crucial role. Investors must ensure that the free zone offers air, sea, and land connectivity. Proximity to international airports and seaports should be the main criterion when choosing a free zone.
- Check the registered capital requirement in Dubai Free Zones.
The registered capital is required to start incorporating the company in Dubai. However, investors should check if international free zone authority dubai have a requirement to deposit registered capital. While most of the Northern Emirates Free Zones are not strict about this requirement, the Dubai Free Zones require the amount of registered capital to be deposited. The amount varies from one free zone to another and hiring the best business creation consultants in Dubai will equip the investors with enough knowledge about this requirement.
How to create a company in the free zones of Dubai?
Incorporating a company in the Dubai mainland free zone is easier than starting one on the mainland. Investors only have to follow the rules and regulations established by the respective authorities of the free zones. However, there are certain aspects that every investor should know before setting up their company in the Dubai free zones, such as the types of legal structures and licenses, etc.:
Types of companies that can be established in the Dubai Free Zones
The types of companies that can be registered in the Dubai Free Zones depend on the number of shareholders. The main types of legal arrangements that can be set up in Dubai Free Zones are listed below
- Establishment of the Free Zone
A Free Trade Zone Establishment (FZE) can be established with a single shareholder. Reputable Dubai company formation consultants help investors by providing the necessary documentation to create an FZE in the Dubai Free Zones.
- Free Zone Company
Investors can set up a Free Zone Company in the Dubai Free Zones with 2-50 shareholders. Consult the best company formation consultants in Dubai to register a free zone company without hassle.
- Branch of an existing company
There are mainly two types of branch formation in Dubai Free Zones: “local company branch” and “foreign company branch.” A foreign company that exists outside the UAE can expand its global presence by opening a branch in a free zone in Dubai. Similarly, a company operating in the UAE can establish its branch within the free zones.
Types of licenses in Dubai Free Zones
Investors can obtain various licenses in the Dubai Free Zones, which mainly fall under the industrial, commercial, and professional categories. However, free zone licenses may appear under different names in different free zones. Here are the main types of free zone licenses available in Dubai:
- General Business License
- Service/consulting license
- Commercial/commercial license
- e-commerce license
- education license
- industry license
- Self-employed permits
- manufacturing license
Regulatory compliance requirements for the installation of companies in the free zones of Dubai
The UAE is an open economy that welcomes foreign investors with open hearts to incorporate their businesses. However, the country has introduced certain regulations to make the economy more transparent and in line with global standards. The investment community has welcomed this regulation as they prefer to incorporate companies in the transparent economy of Dubai. Investors are required to comply with the following rules,
- Regulations on Economic Substances in Dubai Free Zones
The UAE Government has enacted the Economic Substance Regulations (ESR) to curb harmful tax practices and end its previous tax haven label. As a result, Free Zone, Offshore, and Inland companies in Dubai and the UAE are required to demonstrate adequate economic substance in the relevant activities they carry out in the UAE. The relevant activities are banking, insurance, investment fund management, shipping business, financial leasing, service and distribution center business, headquarters business, intellectual property business, and partnership business.
- UAE National Economic Register
The UAE National Economic Registry (NER) is an integrated online platform that enables the integration and sharing of business data at the national level. Through the UAE NER, any interested party can check the business license details and economic activities of existing companies in the UAE. With the introduction of the NER, banks, government, entrepreneurs and researchers can easily access complete and accurate information on UAE companies. The NER laid the foundation for a more transparent environment for business formation in Dubai, ending the secret haven label.
- Compliance with anti-money laundering regulations in Dubai
The UAE introduced anti-money laundering (AML) and anti-terrorist financing (CTF) regulations to combat the illicit flow of money that has proven to threaten the global financial system. The UAE implemented AML/CFT regulations to comply with global standards set by the Financial Action Task Force (FATF).
Advantages of business registration in Dubai Free Zones
Easy and cost-effective installation procedure
Incorporating a company in mainland Dubai often seems daunting for foreign investors due to the myriad of external requirements and approvals. However, free zones are regulated by the respective free zone authorities, and their regulations are more flexible than business registration in mainland Dubai. In addition, business creation in the Dubai Free Zone is more profitable than on the mainland.
Free zones allow investors to find and hire the necessary workforce at affordable prices. In addition, there are no restrictions on hiring expatriate labor, which is a great boon for foreign investors who choose to set up companies in Dubai’s free zones.
Option to open a bank account in the free zones of Dubai
Investors can open a corporate bank account when setting up a company in the Dubai Free Zones. However, companies must comply with due diligence and KYC procedures at banks during the account opening process.
Ease in processing visas and sponsorship of dependents
Once the investor completes registering the company in Dubai, they obtain the visa confirming their resident status in the UAE. By setting up a business in Dubai Free Zones, entrepreneurs can easily sponsor visas for their family and domestic staff. The visa processing will be easily carried out by the best business creation consultants in Dubai.
Why choose Jitendra Business Consultants?
Establishing a business in Dubai is a strategic decision, as investors are faced with choosing between the mainland and the free zones. Free zones are known for their advantages, such as 100% ownership, 100% capital repatriation, low cost, and ease of business creation procedures. On the other hand, incorporating a mainland company in Dubai requires investors to appoint a local sponsor who owns at least 51% of the company’s shares. In this situation, the professional assistance of reputed business start-up consultants in Dubai, such as Jitendra Business Setup Consultants (JBC), comes in handy for entrepreneurs. JBC has a highly-skilled team of business creation consultants in Dubai who guide investors through every company registration process. JBC helps investors in,
- Identify the right free zone
- Prepare all company incorporation documents, including a memorandum of agreement
- Act as personal advisor to investors in all incorporation processes
- ESR, AML, NER compliance assistance