Free zone company formation is the most popular form of business setup in the United Arab Emirates today. Free zones offer excellent business opportunities, world-class amenities, and a variety of other benefits for entrepreneurs from all over the world.
What is a free zone?
Free zones are geographical areas, where conditions for business setup and trade are most favorable, particularly for international company founders.
Each free zone is run by an independent free zone authority that is responsible for allocating free zone licenses and providing office space and other amenities. All in all, the free zone company setup is achieved with little bureaucratic effort. Free zones are generally exempt from taxes as well as import and export duties. On the other hand, a free zone company is bound by the regulations of the free zone in which it is based.
The first free zone of the UAE, the Jebel Ali Free Zone (Jafza), was established in the emirate of Dubai in 1985. Since then, the concept of the free zone has become increasingly successful in the United Arab Emirates. Today, the UAE has 45 free zones in total, with more being under construction. Free zones can be found in each of the seven emirates, but Dubai boasts by far the largest share.
Benefits of free zone company formation
The UAE figures among the world’s most favorable locations for the people who plan to set up their own business. Especially for international company founders a Free zone company setup is of great appeal, as it brings many advantages.
The benefits of a free zone company formation include:
- Fast processing times for licensing
- Large variety of activities that can be licensed
- 100% tax-free income
- 100% foreign ownership
- Repatriation of all capital and profits
- No import and export duties
- No annual audit report submissions
- No capital deposit required
- No currency restrictions
- Local banking
- Resident visa
- Possibility to rent office space
- Efficient logistics
Requirements and restrictions
While the advantages of a free zone company setup in the UAE are numerous, there are also some limitations and other aspects to be considered.
Business partners
In general, free zone companies are restricted to doing business with international companies or within the free zone. If you wish to trade with UAE mainland companies or sell products and services to the mainland, a free zone license is not sufficient. You will require a mainland license in this case. Furthermore, certain activities may not be able to be licensed in free zones, but can only be carried out by mainland companies.
Resident visas
Another limitation that free zone businesses are subject to is the number of resident visas that can be issued. These are limited to a handful for a free zone company setup, with the exact number depending on the specific free zone. If you anticipate hiring a larger number of international employees, you will require a mainland license.
Office and warehouse space
The possibility to rent warehouse spaces may be restricted in some free zones. Office spaces or flexi desk options, however, are usually provided by free zones. In general, offices must be set up in the free zone where the business is based.
Nationality of the entrepreneur
In the UAE, there are basically no restrictions on where company founders can originate from. A free zone company formation is possible for businesspeople from all over the world, including persons from so-called “high risk nationalities” such as for example Algeria, Egypt, Iraq, Syria, or Yemen. However, in certain free zones, the issuing of resident visas may be restricted for individuals originating from these high risk countries.
Steps of free zone company formation
A free zone company formation in the United Arab Emirates is relatively easy and fast. In most cases, it takes only several days or a few weeks. The first steps of the free zone company setup can even be undertaken without traveling to the UAE.
Typically, a free zone company formation includes the following stages:
Getting a business license
This first step can often be carried out online from abroad. Once a prospective business owner has chosen a specific free zone and provided all the necessary information and documentation, the free zone administration will take care of issuing the business license. The licenses offered vary from free zone to free zone. The type of license required is determined by the business activity.
The most common types of licenses are:
- Professional license: service-providing businesses, e.g. handicraft companies
- Commercial license: businesses engaging in trading activities
- Industrial license: industrial or manufacturing businesses
- Tourism license: businesses in the tourism sector
- Freelance license
In most cases, business licenses are valid for one year, sometimes also up to three years. If the validity of a free zone business license is coming to an end, it must be renewed. The prices and conditions for issuing and renewing business licenses vary from free zone to free zone and may also change at short notice.
Obtaining a resident visa
A free zone business investor will be granted several resident visas for the UAE. The validity period of the visas can vary, depending on the applicant’s status. In any case, you will need to travel to the United Arab Emirates for the application and issuing of a visa, and you will need to attend some appointments with the local authorities.
Opening a business bank account
It is imperative to open a business bank account in the UAE to handle your company’s money transactions. For this step, you must also be on the ground in the UAE. It is not possible to set up a bank account remotely. Banks will require the presentation of some personal and business related documents. Thus, the free zone license and the resident visa must already be in place at this point.
How to choose the suitable free zone
Free zones are usually formed around a certain core area of activity, for example manufacturing, media, or IT. However, most free zones allow a broad portfolio of activities, so that many conventional types of businesses such as food trading, management consultancy, marketing consultancy, or IT can be found in almost any free zone.
When choosing a suitable location for a free zone company formation, criteria other than the core activity are usually even more important. These include:
- Prices
- Number of resident visas included
- Bank account opening
- Facilities (office space, flexi desk, warehouses)
- Other benefits
Every free zone in the UAE has its own features, limitations, and benefits. Contact us to receive consultation on the various free zones. We help you in identifying the most suitable location for your business activity and help you realize your free zone company formation in no time.
