What is a Free Zone and why should you consider one?

The UAE has long been an attractive destination for entrepreneurs the world over. Offering low tax, a strategic location at the heart of the world’s largest and fastest emerging markets, and a government committed to nurturing and supporting business, it’s not hard to see why. But while these may be the factors that get the headlines, there’s another major reason why so many flock to the UAE’s shores to do business – free zones. So what is a free zone?

What is a Free Zone?

Also known as free trade zones – Free Zones are essentially economic areas where goods and services can be traded, usually at preferential tax and customs rates. They were originally rolled out to boost international business in the region by offering benefits such as 100% foreign company ownership. There are currently 45 free zones across the UAE.

Over the years, the UAE’s free zones have evolved to offer ever-increasing advantages to the businesses within them. Many free zones cater to specific industries or business types – for example, Dubai Healthcare City serves those in the healthcare industry while JAFZA Free Zone Authority is directly linked to the largest port in the region and is therefore favored by those in the import/export trade.

So why is free zone company setup such an attractive option, and what could it mean for your business?

Setup your business in freezone

Why set up in a Free Zone?

If you’re looking to set up a company in the UAE, there are plenty of reasons to choose a free zone.

Easy setup: The set up process in most free zones is incredibly straightforward. The exact application process will depend on your business activity and chosen free zone but in many cases you are only required to provide some basic documentation such as passport copies and business paperwork.

The whole process often takes just a week or two. Many free zones also offer flexi-desk and virtual packages allowing you to make use of the free zone address and facilities on an ad-hoc basis.

Tax and duty: This is perhaps the most compelling reason to choose a free zone: the tax regime. Set up in a free zone and as well as benefiting from 0% corporate and personal tax, your business will also be exempt from VAT, currently at 5%. And that’s not all. Free zone businesses are exempt from import and export tax too and can trade with no currency restrictions.

Foreign ownership: Another major plus to setting up in a free zone is foreign company ownership. Most entrepreneurs from overseas wanting to set up in the UAE mainland must work with a local partner to do business. This is not the case in the UAE’s free zones – set your business up here and you will retain 100% ownership.

Trading within the UAE: Free zone businesses are not permitted to trade directly with the local market in the UAE, however this is easily overcome. One option is to work with a locally appointed distributor who can put your goods and services to market in return for a fee. Alternatively, it is possible to establish your free zone business and then open branch offices of your free zone company throughout the Emirates at a later date. These branch offices can be used to market your offering and undertake business within the UAE mainland.

Support and assistance: Free zone authorities are on hand to offer support during set up and beyond. Most free zones offer assistance with applying for visas for both shareholders and any applicable dependents such as spouses or domestic staff. Many also assist with opening corporate bank accounts, advising on the best bank to suit your needs and even arranging meetings in-branch for you. In terms of ongoing business support, it is not unusual for free zones to offer business advice and networking services as well as access to startup hubs and growth initiatives to help new businesses get up and running.

How to set up in one?

Step one: Choose your business activity. There are hundreds of business activities to choose from and it is possible to select multiple activities under one license. Your business activities will help to determine both the cost of your license application and the free zone that best suits your needs.

Step two: Finalize your company name. Deciding on a company name can be a challenge anywhere in the world, but here in the UAE – with its specific rules regarding naming conventions – this is a task you’ll want to tick off as early as possible. There are a few things to keep in mind here: offensive language is forbidden, company names cannot contain religious references, or references to any known organizations (anything from ‘FBI’ to ‘Mafia’). As there are a few other quirks to the UAE naming process, it’s best to work with a company formation specialist who can help you decide on a compliant name and check that it is available to register.

Step three: Finalize paperwork and submit your application. Setting up in a UAE free zone usually only requires a few standard documents: completed application form, shareholder passport copies and the like. Some free zones may also require you to provide a business plan. Again, it is a good idea to work with a company formation specialist at this stage who can ensure all is in place before making your application to avoid any unnecessary delays.

Step four: License notification and opening bank account. You’ll be notified as soon as your license application is approved so you can collect your corporate documents and get to work. With this paperwork in hand you can open your corporate bank account and start trading. Your chosen free zone can usually help you with finding a suitable bank, as can a company formation specialist. Alternatively, you’re welcome to approach any financial institution on your own.

Step five: Visa processing. The final step in the business setup process is immigration and visa processing. Free zone authorities or a company formation specialist can manage this process on your behalf – assisting with your application and liaising with relevant government departments.

So, still wondering “what is a free zone?” That’s all there is to it. All that’s required is a few hours of your time and some basic documentation and you could be trading from a UAE free zone – and reaping all the benefits that come with it – in just a couple of weeks.

Setting up your own business has never been easier. DMC takes care of it all so you can focus on what matters – building your business. For more information about company formation in the UAE mainland or free zones, please call us on +971-4-262 40 23