Foreign investors mainly have two options of business setup in Dubai: ‘the Mainland’ and ‘Free Zones’. The expat businessmen mostly prefer to set up a business in Dubai free zones over the mainland due to a slew of reasons including easy business setup procedure, comparatively lower costs, and most importantly 100% ownership in the company without the requirement of a local sponsor.
The free zones play an important role in boosting and diversifying Dubai’s economy along with generating more employment opportunities. With a highly efficient and independent regulatory structure, the free zones serve as the most attractive option for company formation in Dubai for foreign investors.
What is a Free Zone and What Purpose Does it Serve?
Dubai was the first emirate in the UAE to develop the free zone model in the entire UAE when it founded the Jebel Ali Free Zone (JAFZA) as early as 1985. Free zones are specially fenced geographical areas in which the goods might land, handles, produced, or modified. The free zones are designated areas where taxes, employment, and restrictions on trade differ from the way it is applied to the jurisdiction in the mainland.
Most of the free zones are located near seaports or airports to facilitate imports and re-exports which are the most common business activities in the free zones in Dubai. For example, JAFZA is located in Jebel Ali port while DAFZA is close to Dubai International Airport. Moreover, free zones are not allowed to trade directly in the UAE market unless and until they appoint a local distributor.
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Features that Attract Investors into Company Formation in Dubai Free Zones
Business setup consultants in Dubai recommend the free zone business setup in Dubai for foreign investors because of the many advantages it has over the mainland business setup. The following are the main features of the free zone company formation in Dubai,
1. 100% Ownership, No Local Sponsor
The mainland company formation in Dubai is an attractive business setup option but the requirement of a local sponsor (UAE National) holding at least 51% shares in the company has been a major pout off for the foreign investors. The expat businessmen whose client base is outside the UAE, therefore, prefer the free zone business setup in Dubai due to the highly attractive 100% ownership feature.
2. Most Free Zones in Dubai are Industry-Specific
Company registration in Dubai free zones is preferred by the expat entrepreneurs mainly because they have the option for launching their business in a free zone that is dedicated to their industries. An investor who is into the media business can set up a company in Dubai Media City or if IT company incorporation is his objective, then there is Dubai Silicon Oasis (DSO) and Dubai Internet City. The Dubai Financial Centre (DIFC) specializes in the finance industry as well as the Fintech businesses. Dubai Healthcare City, Dubai Outsource City, Dubai Design District, Dubai Textile City are other well-known free zones that cater to specific industries.
3. 100% Repatriation of Profits & Significant Tax Exemptions
As a company operating in a Dubai free zone, the entrepreneur will be able to take the profits he earned back home. The companies can also enjoy significant tax exemptions as there is no income tax or corporate tax in the UAE. However, the oil and banking industries come under the scope of the corporate tax. Also, the companies whose taxable supplies cross the threshold of AED 35,000 they need to register for the consumption tax VAT. The best business setup consultants in Dubai assist the companies in registering for VAT in addition to guiding them on the company registration process.
4. Independent Regulatory Bodies
Free Zones are designated geographical trade zones that are governed by the respective regulatory authorities. The rules and regulations that govern the company incorporation in each free zone are determined as per the policies of the respective free zone authorities. For example, the regulatory authority of the Dubai Multi Commodities Centre (DMCC) is DMCC Authority. The DIFC Free Zone is regulated by the DIFC Authority, DFSA, and DIFC Courts. The independent rules and regulations give the investors more flexibility in incorporating a company in Dubai free zones.
How to Choose the Right Free Zone for Company Incorporation in Dubai?
Determining the right free zone for company registration in Dubai is a crucial part of every investor’s business journey. There are more than forty free zones in the UAE (including the free zones in the Northern Emirates and Abu Dhabi) and more than thirty of them are located in Dubai. The best strategy to choose the right free zone is to follow certain factors. Consulting the best business setup consultants in Dubai before starting the process of business setup is the better way to identify the right free zones.
1. Consider the Business Activities in Dubai Free Zones
After making the decision to start a business in Dubai, the foreign investors should browse through the activities listed by the free zones to see which free zones are offering the activity of their choice. This is an arduous task but the investors can dial up the best business setup consultants in Dubai who would suggest the best free zones that match with the investors’ business activity. The investors can choose either the general-purpose free zones or industry-specific free zones for company incorporation in Dubai.
2. Give Priority to the Free Zones with the Best Facilities
The facilities offered by the free zones vary from each other and therefore the entrepreneurs must carefully choose the free zone that provides the best facilities matching with their business requirement. If the entrepreneur is setting up a startup with less labour force, then he can rent a co-working space (Flexi Desk) at any of the free zones in Dubai.
On the contrary to the investor’s business involves a large number of employees or setting up regular meetings with clients then an office space is the most opted choice. The Flexi desks and office spaces at most of the free zones come with state-of-the-art infrastructure. Owners of the manufacturing companies should check the availability of land and robust warehousing facilities.
3. Ensure the Free Zone is at Strategic Location
Since the free zone business setup in Dubai is primarily meant for imports and re-exports, the location plays a crucial role. Investors should ensure that the free zone provides connectivity via air, sea, and land. Proximity to international airports and seaports should be the prime criteria while choosing the free zone.
4. Check the Share Capital Requirement in Dubai Free Zones
A Share capital amount is required for commencing the process of company formation in Dubai. However, the investors should heck whether the free zones mandate the requirement of depositing the share capital amount. While most of the free zones in the Northern Emirates are not strict about this requirement, the free zones in Dubai demand the share capital amount to be deposited. The amount varies from free zone to free zone and hiring the best business setup consultants in Dubai will equip the investors with sufficient knowledge about this requirement.
How to Set Up a Business in Dubai Free Zones?
Company incorporation in Dubai free zones is an easy process compared to the mainland business setup. Investors only need to follow the rules and regulations set by the respective free zone authorities. However, there are certain aspects that every investor needs to know before incorporating their businesses in Dubai free zones such as the types of legal structures and licenses, etc:
Types of Companies that can be Set Up in Dubai Free Zones
The types of companies that can be registered in Dubai free zones depend upon the number of shareholders. The following are the major types of legal structures that can be incorporated in the free zones in Dubai
1. Free Zone Establishment
A Free Zone Establishment (FZE) can be formed with only one shareholder. Reputed business setup consultants in Dubai assist the investors by providing the necessary documentation to set up an FZE in Dubai free zones.
2. Free Zone Company
The investors can incorporate a Free Zone Company in Dubai Free Zones with 2-50 shareholders. Consult the best business setup consultants in Dubai to register a free zone company without a hassle.
3. Branch of an Existing Company
There are mainly two types of branch company formation in Dubai free zones: ‘branch of a local company’ and ‘branch of a foreign company’. A foreign company that exists outside the UAE can expand its global presence by opening a branch in a Dubai free zone. Similarly, a company that operates in the UAE is permitted to set up their branch inside the free zones.
Types of Licenses in Dubai Free Zones
The investors can obtain a wide variety of licenses in Dubai free zones that mainly falls under the categories of industrial, commercial, and professional. However, the free zone licenses may appear under different names in different free zones. The following are the major types of free zone licenses available in Dubai:
- General Trading License
- Service / Consultancy License
- Trading / Commercial License
- E-Commerce License
- Education License
- Industrial License
- Freelance Permits
- Manufacturing License
Regulatory Compliance Requirements for Business Setup in Dubai Free Zones
The UAE is an open economy that welcomes foreign investors with an open heart for incorporating their businesses. However, the country introduced certain regulations to make the economy more transparent in line with global standards. The regulations have been welcomed by the investor community as they prefer company incorporation in Dubai’s transparent economy. The investors are required to comply with the following regulations,
a) Economic Substance Regulations in Dubai Free Zones
The Economic Substance Regulations (ESR) has been enacted by the UAE government in a bid to curb the harmful tax practices and effectively end its previous tag of a tax haven. As a result, the free zone, offshore, and mainland companies in Dubai and also across the UAE are required to demonstrate adequate economic substance in the relevant activities they conduct in the UAE. The relevant activities are banking, insurance, Investment Fund Management, Shipping Business, Lease-Finance, Distribution and Service Centre Business, Headquarters Business, Intellectual Property Business, and Holding Company Business.
b) National Economic Register in the UAE
The UAE National Economic Register (NER) is an integrated online platform that enables the integration and sharing of the company data at the national level. Using the UAE NER, any interested party can check the details of the business licenses and economic activities of the existing companies in the UAE. With the introduction of the NER, the banks, government, businessmen, and researchers could gain easy access to comprehensive and accurate information about the companies in the UAE. The NER set the ground for a more transparent environment of company incorporation in Dubai by ending the secrecy haven tag.
c) Anti-Money Laundering Compliance in Dubai
The UAE introduced the Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations to combat the illicit flow of money which has proved to be a threat to the global financial system. The UAE implemented the AML/CFT regulations to comply with the global standards set by the Financial Action Task Force (FATF).
Benefits of Company Registration in Dubai Free Zones
1. Easy and Cost-effective Setup Procedure
The mainland company incorporation in Dubai often appears to be off-putting for foreign investors due to the umpteen requirements and external approvals. However, the free zones are regulated by the respective free zone authorities and their regulations are more flexible compared to the company registration in Dubai mainland. Also, the business setup in Dubai free zone is more cost-effective than the mainland.
2. Strong Labour Force
The free zones offer the opportunity for investors to find and recruit the required workforce at affordable rates. Further, there is no restriction on hiring the expat labour force which is a great blessing for the foreign investors opting for company incorporation in Dubai free zones.
3. Option for Bank Account Opening in Dubai Free Zones
Investors have the option to open a corporate bank account while setting up a company in Dubai free zones. However, the companies need to comply with the due diligence and KYC procedures at the banks during the account opening process.
4. Easy Visa Processing & Sponsoring of Dependents
Once the investor completes the process of company registration in Dubai he gets the visa which confirms his status as a UAE resident. By setting up a business in Dubai free zones, the entrepreneurs get the opportunity to easily sponsor the visas of his family and domestic help. The visa processing will be easily done by the best business setup consultants in Dubai.
Why Choose Jitendra Business Consultants?
Setting up a business in Dubai is a strategic decision as the investors have to face the dilemma of choosing between the mainland and free zones. The free zones are known for benefits such as 100% ownership, 100% repatriation of capital, low-cost, and easy business setup procedures. On the other hand, the mainland company incorporation in Dubai requires the investors to appoint a local sponsor who will hold at least 51% shares in the company. It is in this situation that the professional assistance of reputed business setup consultants in Dubai such as Jitendra Business Setup Consultants (JBC) come handy for the entrepreneurs. JBC has a highly qualified team of business setup consultants in Dubai who guides the investors in every process of company registration. JBC helps the investors in,
- Identifying the right free zone
- Prepare all the company incorporation documents including MoA
- Act as the personal advisor of the investors in all the processes of incorporation
- Assistance in ESR, AML, NER compliance
- Processing of Visa and Sponsoring of dependents etc.
Get Started With Your Free Zone Company Registration in Dubai
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