Free Zones Background
Registering a free economic zone (“free zone”) company in the United Arab Emirates is a widespread practice. It is pretty challenging to determine the exact number of free zones in the U.A.E. as they regularly evolve, develop, transform and merge. While some official U.A.E. sources claim the country offers company set-up in 36 free zones, others refer to 41+ depending on the criteria used to group these free zones.
Initially, free zones catered to the needs of specific industries. For example, to register a company focusing on healthcare, one would have to go to one particular free zone. As free zones’ infrastructure matured, the need arose to attract businesses from other sectors to serve the members of the free zone community. As such, today, for example, you can open a medical practice almost in any free zone in the U.A.E.
Regulatory and Legal Framework
Each free zone in the U.A.E. has its regulatory authority (“Authority”). Its role is to issue regulations governing operations in that free zone, license businesses, and ensure all registered companies comply with implemented rules and regulations.
Unlike a local company registered with the Department of Economic Development, where a business may choose from multiple legal forms, free zone companies are always limited liability entities. Depending on the free zone of registration and number of shareholders, free zone limited liability companies may be called a Free Zone Limited Liability Company, a Free Zone Company (FZC), or a Free Zone Establishment (FZE).
How Free Zone Companies Are Used
One can use a free zone company in the U.A.E. to:
- provide services from the comfort of one’s home or office (e.g., online marketing services, bookkeeping services, etc.);
- visit clients physically at their location to deliver goods or services if this location is within the boundaries of the free zone where a free zone entity is registered (e.g., IT networks installation and maintenance services);
- operate a store or other facility where clients would be coming to you versus you visiting clients at their locations outside of the free zone;
- do e-commerce business, where goods are stored at the free zone premises, and courier services are utilized to deliver goods to end-customers versus free zone company delivering goods to the customers directly.
To summarize, one can use a free zone company to do almost any business, provided you deliver services from the comfort of your business premises or deliver goods outside the free zone via courier companies. Lastly, the final condition is a free zone to have a business activity you wish to exercise.
Benefits of a Free Zone Company Registration
- Low maintenance costs, especially in the northern emirates of the U.A.E.
- Option to start in the first year with flexi-desk vs. renting an office.
- One-stop-shop for business needs, as a free zone Authority interacts with Immigration, Ministry of Labor, and other authorities on behalf of the business.
- Special VAT treatment if a company registered in a free zone is included in the list of Designated Zones.
- 100% foreign ownership.
How Free ZHow Free Zones Differ one Companies Are Used
Key free zone differences can be summarized as follows:
Share capital. Free zone Authorities have different approaches. Required share capital amount varies from AED 50,000.00 to AED 300,000.00, with some free zones requesting depositing of funds into a company’s bank account.
Reporting. A significant number of free zone Authorities require companies to submit annual audit reports, while some free zones issue recommendations to maintain bookkeeping records only.
Company’s Officers. Free zone Authorities may have different requirements for the maximum number of directors and managers.
Business activities. Free zone Authorities in Dubai have long unified their business activity lists. However, free zones outside of Dubai often have different names for the same activities.
Costs. Free zone Authorities determine their pricing policy independently. They also make their own decisions to run or not run promotions and when they should do so.
