FREE ZONES IN THE UNITED ARAB EMIRATES (UAE):

Understanding Free Zone and their advantages.

Introduction.

The United Arab Emirates provides investors with more than 40 specialized free zones in which expatriates and international investors can have full ownership of their businesses. These zones are distinguished by their highly efficient infrastructure and specialized services that permit streamlined operations, thereby saving enterprises significant time and effort.

It was formerly required by law that UAE nationals own at least 51% of a company’s shares before the Foreign Direct Investment Law was passed in late 2018. Therefore, free zones were set up to entice foreign enterprises to the region that wanted complete autonomy over their business operations.

There are three geographical regions in the in the UAE for business purposes: the Mainland, the Free Zone, and the Offshore. However, only Free Zones will be discussed in this article.

What is a Free Zone?

A Free Zone is a self-regulatory body that have jurisdiction over a designated area and issues licenses to businesses seeking to conduct operations within that designated area.

Free Zones are special economic zones that offer customs duty benefits and tax breaks to investors. Each Free Zone is governed by its own set of rules and regulations. They are meant to encourage foreign investment by giving all nationalities 100% ownership and making it easier to start a business. The UAE is home to several free zones, which are geographically separated locations that allow for full foreign ownership of businesses. Many are created with public funding and feature cutting-edge amenities because they were conceived to facilitate strategic transformation in vital industries like finance.

For example, the infrastructure and licenses in Dubai Media City, a free zone in the emirate of Dubai, are set up to meet the needs of the media industry. In a similar way, the Dubai International Financial Centre (DIFC) attracts companies in the financial services sector, such as insurance, financial services, investment, and banking firms that want to grow their international client base.

Consequently, each free zone has its own unique minimum capital requirements, office, or warehouse space, and permissible or approved business activities, as well as the necessary licenses and legislation to foster the growth of its specialized industry.

What are some of the benefits that come with establishing a company in a Free Zone?

As mentioned above, there are more than 40 Free Zones in the UAE, and most of them focus on one or more industries and issue licenses to businesses in those industries, which are mostly trade, services, and manufacturing. The Free Zones in the UAE are spread out all over the country and serve all kinds of businesses, from small start-ups to large multinational corporations and re-exporters. They offer easy access to Dubai’s world-class logistics and supply-chain infrastructure to make it as easy as possible for businesses to sell around the region and the world. Free Zones offer the following advantages:

  • 100% Foreign Ownership.
  • 100% Repatriation of Capital and Profits.
  • 100% Exemption from Corporate and Income Taxes.
  • 100% Exemption from Customs Duty.
  • 100% import and export tax exemption.
  • Independent Laws and Regulations.
  • Easy Regional, Global Market Access.
  • Fast and Easy Business Set-up Procedures.
  • Modern and Sophisticated Infrastructure.
  • Developed Business Communities.
  • Numerous Options at Competitive Costs.
  • All free zones provide a one-stop shop for work visas, facilitating the recruitment of overseas employees.

Setting Up a business in a Free Zone.

Establishing a business in a free zone is comparatively less difficult. The authorities of a free zone need minimal documentation and duration. These are the essential stages for establishing a business in a free zone.

  • Determine the legal entity type
  • Choose a trade name
  • Request a business license.
  • Select an office location
  • Obtain approvals in advance, register your business, and acquire a license.

To start a business, you must first choose a legal structure. You can establish either of these sorts of businesses in a free zone:

  • Free Zone Limited Liability Company (FZ LLC) or Free Zone Company (FZ Co.)
  • Free Zone Establishment (FZE) or Free Zone Limited Liability Establishment (FZ LLC).

The differences are in the number of shareholders and in whether the shareholder is a natural person or a legal person. Both kinds of businesses might not be able to sign up in all free zones. You need to find out from the authorities in each free zone what kind of business they can register. Look at the list of free zones and who oversees them.

Capital Requirement.

At twofour54 Abu Dhabi, you don’t need a certain amount of money to start. In KIZAD, you can set up an LLC with at least AED 150,000 in paid-up capital.

With a minimum share capital of AED 1,000, you can start a FZ Co. in Dubai Airport Free Zone. Each share should be worth 1000 AED.

For a free zone company to be formed in DMCC, the minimum share capital is AED 50,000 per company and AED 10,000 per shareholder. For a company to get a General Trading License, it needs to have a share capital of at least AED 1 million.

In Hamriya Free Zone, you can form a FZE with a share capital of AED 150,000.

However, in most cases, investors aren’t required to deposit the necessary amount in the bank or present any proof of the same before applying for the license.

Business Activities.

In the United Arab Emirates, each region, whether Mainland, Free Zone, or Offshore, offers a selection of business activities. You need not reinvent the wheel, as any activity not on the approved list will not be permitted. The sort of business licence you will apply for depends on the core activity of your business.

For example, in twofour54, you can carry out the following businesses:

  • Content production
  • Advertising
  • Animation
  • Corporate Film production
  • Corporate Print Material
  • Digital content production (e.g. CGI, 3D etc)
  • Educational content material
  • Film production
  • Gaming development
  • Graphic design
  • Illustration
  • Mobile media (e.g. content for interactive media services on mobile phones)
  • Music production and recording
  • Music videos
  • Online electronic content production (e.g. websites, e-books, travel guides etc.)
  • Performing arts and theatre
  • Photography/videography
  • Print content production (e.g. magazines, journals, periodicals, newsletters, guides, and handbooks etc.)
  • Radio content production
  • Script writing
  • Software development (e.g. applications)
  • Song writing and composing
  • TV production
  • Web design and development (e.g. portal, search engine, community site, web production, online library)

DMCC offers over 600 business activities spanning over 20 industries, including energy, commodities, gold and diamonds, technology, construction, fast-moving consumer goods, healthcare, aviation, shipping, education, media, professional services, financial services, and personal and community services.

In DIFC, both financial and non-financial firms are permitted. Banks, insurance, wealth management, and capital markets are all examples of financial enterprises. Retail stores, restaurants, five-star hotels, art galleries, and academic institutions are examples of nonfinancial enterprises.

Accordingly, some types of business licences are:

  • Commercial/trade
  • Consultancy/services
  • Industrial
  • Educational
  • Media
  • eCommerce
  • Offshore
  • Freelancer
  • Warehousing
  • Manufacturing.

Getting an Office Space.

Office spaces in free zones can either be purchased outright or rented monthly. The number of employees at your firm as well as the kind of the commercial activities it engages in will determine the requirements for the office. In general, there are no precise mandatory requirements for obtaining office space, as obtaining office space is mostly dependent on the type of business and the nature of its operations.

In DMCC, you can select between a flexi desk of 20 to 30 sq. m., a flexi office of 200 to 265 sq. m., or offices spanning multiple floors and measuring up to 2,000 sq. m. each.

In Dubai Airport Free Zone, there are Office Packages, Smart Desk Office Packages, and Executive Office Packages available.

The Hamriyah Free Zone Authority offers approximately 100 executive office suites ranging in size from 15 square meters to 42 square meters and equipped with internet and conferencing amenities.

Approval and Registration.

Companies based in free zones are controlled by the local free zone’s regulations. To obtain the relevant approvals, you must apply with the required documentation. The list of documents varies according to the type of commercial activity, the type of firm, and the free zone authority’s criteria. Listed below is a general outline of the actions and paperwork required for approvals.

For initial approval, you will need:

  • Completed application form
  • Business plan
  • Copy of existing trade licence/registration certificate (if you are an existing company, applicable for local company only)
  • Coloured passport copies of the company’s shareholder/s and the appointed Manager/Director for the new company
  • Specimen signature of the company’s shareholder/s and the appointed Manager/Director for the new company
  • 2 years’ audited financial reports for corporate entity or certificate of reference from a personal bank of the individual shareholder
  • NOC from current sponsor (for individuals)
  • Unit title deed
  • Letter of Intent
  • Registry Identification Code Form (RIC) for Manager/Director (Original and notarised)

Freelancers need to submit fewer documents. In most cases, they need to submit:

  • Application for registration
  • CV
  • Bank reference letter
  • Registry Identification Code Form (RIC) (Original and notarised)

For registration:

After receiving the initial approval, registration and license costs must be paid. The fees vary depending on the required license type. Then, you must also provide:

  • Completed application for registration
  • Board Resolution appointing Manager/Director (Notarised and attested)
  • Power of Attorney given to Manager/Director (Notarised and attested)
  • Memorandum and Articles of Association (Notarised and attested)
  • Specimen signature of Manager/Director (Notarised and attested)
  • Passport-size photo of Manager/Director against white background
  • Share capital information

Note that external authorities may need to approve some operations.

Now that we understand what Free Zones are, here are some Free Zones and the authorities regulating them.

Abu Dhabi

Dubai

Under Dubai Creative Clusters Authority, we have.

Under Dubai Multi Commodities Centre Authority:

Others:

Sharjah

Ras Al Khaimah

Ajman

Umm Al Quwain

Fujairah

Special cases

Apart from the respective free zone authorities, certain industries/sectors of businesses are additionally governed by other government entities. Some of them are mentioned below.

Media

The following entities govern media organisations in the UAE:

Food and beverage

The following entities govern food and beverage businesses in the UAE:

Why Free Zones?

Registering a company in a UAE free zone offers several benefits and advantages. Here are some reasons why you may consider registering your company in a UAE free zone:

  1. 100% Foreign Ownership: One of the primary advantages is that free zones in the UAE allow for 100% foreign ownership. Unlike in the mainland, where a local service agent is required, free zones provide the opportunity for complete ownership and control of your business.
  2. Tax Benefits: Free zones typically offer attractive tax incentives and benefits. Most free zones provide companies with exemption from corporate and personal income taxes for a specified period. This can significantly reduce your company’s tax burden and increase profitability.
  3. Customs Duty Exemption: Companies registered in free zones enjoy exemption from import and export duties. This allows for cost savings on importing goods and materials, making it favourable for businesses involved in international trade and logistics.
  4. Simplified Company Setup: Free zones offer a streamlined and efficient company formation process. The registration procedures are generally faster and more straightforward compared to the mainland. This expedites the setup time and allows you to start operations quickly.
  5. Infrastructure and Facilities: UAE free zones provide world-class infrastructure and state-of-the-art facilities. They are equipped with modern offices, warehouses, industrial parks, and transportation networks, enabling businesses to operate smoothly and efficiently.
  6. Repatriation of Capital and Profits: Free zones allow 100% repatriation of capital and profits. You can transfer your company’s funds and earnings back to your home country without restrictions, ensuring greater financial flexibility.
  7. Business Support Services: Free zones offer a range of business support services, including legal and administrative assistance, access to banking facilities, visa and immigration services, and networking opportunities. These services help facilitate business operations and growth.
  8. Industry-Specific Zones: The UAE has a wide range of free zones tailored to specific industries such as technology, media, healthcare, finance, and logistics. These industry-focused free zones provide sector-specific benefits, networking opportunities, and a supportive ecosystem.
  9. Strategic Location: The UAE is strategically located between Europe, Asia, and Africa, making it an ideal hub for international business. Being based in a free zone provides access to global markets, trade routes, and a diverse customer base.
  10. Business Flexibility: Free zones offer flexibility in terms of business activities and structure. They allow companies to engage in various activities without the need for additional licenses or approvals. Additionally, free zones often have fewer restrictions on the hiring of foreign employees.

It’s important to note that while free zones offer numerous advantages, they also come with specific regulations and limitations. It is advisable to research and consult with a legal professional to understand the specific requirements and regulations of the chosen free zone and to ensure compliance with all relevant laws and regulations.

Visit our website at www.cryptoverselawyers.io or send us an email at legal@cryptoverselawyers.io if you are interested in learning more about our firm and the legal services that we provide.

Disclaimer.

This article is for informational purposes only and does not constitute legal advice. It is essential to counsel a qualified attorney for specific legal advice tailored to your particular circumstances.

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