Company Formation in UAE Free Zones – Service

Page content

1. What is a free zone, and what does it look like in the territory of the UAE?
2. What are the advantages and main features of freezone legal entities?
3. What are companies in free zones, and what types of onshore firms exist in the UAE?
4. In which case does one need a company in the free zone, and in which case does one not?
5. What types of licenses do free zones provide?
6. What is the difference between a company in a free zone and a company in the main territory of the UAE?
7. What support and assistance do authorities in the free zones provide?
8. What are the Mandatory Requirements for a legal entity setup in Dubai free zone?
9. How to get advice on company formation in the UAE free zone?
10. Corporate tax in the UAE free zones
11. Company redomiciliation
12. FAQ

What is a free zone, and what does it look like in the territory of the UAE?

A United Arab Emirates Free Trade Zone (FTZ) is a special area in the territory of the country that has its own rules and procedures that apply to local entrepreneurs. There are almost no restrictions for foreigners, and 100% foreign ownership of a business is allowed. In addition, all bureaucratic and organizational procedures are greatly simplified here. All businesses in the free zone are subject to a 9% corporate income tax rate.

Small startups and small trading enterprises, as well as large industrial corporations and concerns, eagerly register in this country due to the numerous advantages in local FTZs. Such giants as ASUS, BENQ, DHL, FedEx, Red Bull, and Rolls-Royce, for instance, have registered their companies in the DAFZA free zone. From 1 January 2025, the UAE will introduce an additional 15% tax on international companies with global profits exceeding €750 million, in line with OECD rules.

Now there are about 40 free zones throughout the country. Over time, more and more new zones have emerged. Thus, several free zones have appeared almost at once over the past few years: Building Material Zone (building materials), Dubai Energy City (energy resources), and Dubai Aid City (charitable foundations).

What are the advantages and main features of free zone legal entities?

Here is the list of the main advantages and disadvantages that entrepreneurs gain after completing the free zone company formation process.

Advantages of entrepreneurship in FTZs of the United Arab Emirates:

• Low corporate tax rates—9% (0% rate is only available for qualified free zone companies in QFZP);
• A quick registration, minimal bureaucracy;
• 100% ownership of a legal entity;
• No restrictions on the withdrawal of capital abroad;
• Developed infrastructure throughout the country;
• Security and predictability of jurisdiction;
• Low operating costs (compared to other countries);
• Protection of personal information.

Disadvantages/restrictions of entrepreneurship in free zones of the United Arab Emirates:

• Restriction on working in the domestic market (as opposed to a local firm).
• High registration price and expenses for doing business (compared to offshore ones in the country).
• More stringent reporting and auditing requirements (compared to the offshore ones in the country).
• Necessity to pay VAT (as opposed to an offshore one).

In addition, each of the FTZs has its own characteristics that distinguish it from other jurisdictions, for example, its proximity to the airport or port, access to free land for construction, and the presence of a sufficient number of necessary specialists.

Table – Main Features and Advantages of Some of the Free Zones

What are companies in free zones, and what types of onshore firms exist in the UAE?

A firm in a United Arab Emirates free zone company is a special type of organization that has several advantages for foreign investors. You can register the following types of companies in the free zones of the United Arab Emirates:

• FreeZone Establishment (FZE) – an onshore legal entity with one shareholder, a separate organization, and a resident of the country. Such an enterprise can conduct any activities in its free zone or in other countries.
• FreeZone Company (FZ-LLC) – an onshore legal entity with several shareholders, a separate organization, and a resident of the country. Such a firm can conduct any activities in its free zone or in other countries.
• A branch office is a structural subdivision of a parent company that is not a separate legal entity. It can only conduct such activities as provided for in the charter of the parent enterprise.
• Special varieties of companies in free zones. In addition to the above-mentioned, some jurisdictions have their own special types of firms, for example, the Restricted Purposes Company (RPC) in RAK ICC. This is a legal entity intended for use as a special-purpose tool; that is, such an organization has the right to conduct only those tasks that are prescribed in its charter. This protects a firm from unauthorized actions and fraudulent schemes.

In which case does one need a company in the free zone, and in which case does one not?

As a rule, company formation in free zones is considered by those who plan to operate in foreign markets. If your goal is the domestic market of the United Arab Emirates and GCC countries, it is better to register a firm in the main territory of the country. Depending on the goals and tasks of your enterprise, you can choose the best form of a legal entity in the United Arab Emirates.

Table – Choosing the type of company depending on commercial tasks

What types of licenses do free zones provide?

Each free zone in the country either has its own specialization (medicine, finance, hi-tech, cars, etc.) or does not have a specific specialization and registers trade, industrial, service, and other enterprises. Any legal entity that is registered in the FTZ must obtain a license for certain activities in this jurisdiction. Here is the list of the main types of licenses that are issued in the free zones of the United Arab Emirates:

• A commercial license allows you to trade groups of goods stated in the document or any kind of goods (general trade license).
• Service license. This document gives you the right to provide consulting in legal and marketing services, audit services, medical services, and educational services.
• Industrial license. This type of license gives you the right to produce goods in a free zone. In most cases, only environmental restrictions apply here—production should not have a negative impact on local ecosystems.

What is the difference between a company in a free zone and a company in the main territory of the UAE?

The main difference between firms in FTZs and enterprises in the main territory of the United Arab Emirates is the opportunities and restrictions of each type. Organizations in the FTZ can conduct commercial activities in their jurisdiction, as well as in other countries of the world. They cannot work directly in the rest of the United Arab Emirates (only through local intermediaries). Firms in the main territory of the United Arab Emirates do not have such restrictions in the domestic market.

What support and assistance do authorities in the free zones provide?

The United Arab Emirates as a whole and each of its free zones, in particular, are focused on attracting foreign investment and developing an enterprise in the region. Therefore, they make every possible effort to attract as many investors as possible, providing them with comprehensive support and assistance in the process of registering and starting an enterprise. Each free zone has its own website and customer service center. You can contact a representative of this jurisdiction on any matter of interest to you.

In addition, in some of the FTZs, various events for investors are held, for example, training webinars from DMCC or JAFZA forums.

Some of the free zones have their representative offices outside the United Arab Emirates, for example, in DIFC and RAKEZ.

Data Privacy of Entrepreneurs in Free Zones

Based on the criterion of openness of data on entrepreneurs, jurisdictions can be divided into two types: with an open registry and a closed registry. The open registry provides information on the ultimate beneficiaries of a registered legal entity to anyone who wishes; as a rule, this information is available on the website of the relevant zone. Data from the closed register is disclosed only to a limited circle of people, including law enforcement agencies and tax services, and only upon special request. Beneficial owner information is not publicly available but is subject to disclosure to UAE regulators as part of AML and economic substance requirements (ESR).

What are the mandatory requirements for a legal entity setup in a Dubai free zone?

Each free zone is a separate jurisdiction with its own rules and requirements for entrepreneurs who want to register their firms. These requirements can be found on the corresponding zone's website. In any zone, there are a number of mandatory requirements, including providing complete information about shareholders and the director of a future firm, information on the nature of your activities, the charter/memorandum of a firm, and, if necessary, other documents that form a starting package. In addition, a firm in the FTZ is required to obtain a license for its commercial activities (a specific type of activity should be provided for by the rules of the free zone).

Business incorporation in the Dubai free zone. How much does it cost?

The Dubai free zone company setup cost includes state registration fees (paid once) and the price for a license (paid once a year when renewed). Resident visas for an investor are paid for separately.

Depending on the specific jurisdiction, the free zone company formation fee ranges from about 4,500 dirhams to about 30,000 dirhams. The price for a license depends on the specific area and type of commercial activities. In the simplest case, a general trade license fee ranges from 17,000 dirhams to about 50,000 dirhams.

When calculating the free zone company setup cost, it is important to remember that in many free zones (not all of them), there are minimum capital requirements from a symbolic 1,000 AEDs to an impressive 300,000 AEDs in Dubai South Free Zone and Umm Al Quwain FTZ. Some free zones require the payment of a charter capital into a bank account, while others do not. All relevant information on this subject can be obtained on the free zone website or from your consultant.

How to get advice on company formation in the UAE free zone?

Any foreigner can go through the whole process of company setup in a Dubai free zone (or any other Emirate) independently, but it will be much faster and more efficient to use the services of a consulting firm. As a matter of practice, it looks like this: you contact one of the consulting firms in the United Arab Emirates (do not forget to check the licenses and certificates of the selected firm first) and describe what kind of activities you plan to conduct in the United Arab Emirates and how. Further, consultants help you choose the best FTZ for your goals and then act as an intermediary between you and the authorities of the chosen jurisdiction, taking all necessary steps to register and start an organization. After that, a consulting service may continue communicating with the local authorities on your behalf. Assistance in opening a bank account and obtaining a license and a visa is also included in the list of services of local consulting providers.

Corporate tax in the UAE free zones

According to the Federal Law-Decree No. 47 of 2022, free zone companies in the UAE have to pay 9% income tax, although under certain conditions, they can benefit from 0% corporate tax on qualifying income, provided that the conditions under the Corporate Tax Law are met. So, here's how it works:

A free zone company can qualify as a Qualified Free Zone Person (QFZP) if it meets the following requirements:

• Maintain appropriate substance in the UAE (e.g., offices, personnel, core activities).
• Derive from qualified income.
• Comply with transfer pricing requirements.
• Has not chosen to be taxed at the general corporate tax rate (9%).
• Has prepared and audited financial statements.

The qualifying income includes:

• Transactions from other Free Zone Persons (if they are QFZPs);
• Goods and services exported outside the UAE
• Certain qualifying activities, such as manufacturing and processing; holding shares; treasury and financial services; and some others.

However, income from mainland UAE customers is usually subject to a 9% tax, except for income related to a specific qualifying activity.

If the conditions are not met, the QFZP status is lost, and the standard rate of 9% applies for the next 4 tax periods (5 years).

Company redomiciliation

The UAE does not allow the direct transfer of business licenses from one free zone to another. Licenses are only valid within the jurisdiction issuing them.

Here are the available alternative options for business transition between free zones:

• Form a Branch in the New Free Zone: The existing company can form a branch in another jurisdiction—the chosen free zone. It can help you keep operations in both zones without dissolving your current entity.
• Liquidate and re-establish: If you want to move your entire business, you will have to liquidate the registered entity in the initial free zone and register a new company in the target free zone. That includes canceling the current license, paying off any debts, closing all the stops that need to be closed, and only then starting the new setup.

Generally, free zone companies can operate only within their free zone or internationally. To undertake business within the UAE mainland often involves partnering up with a local agent or distributor.

A license must be obtained to lease an office in another free zone. For example, a business (license holder) must have a RAKEZ license or a branch in RAKEZ to lease office space in RAKEZ.

So, in any case, it is a good idea to consult our managers to find out more about transferring and doing business in the UAE free zones.

FAQ

How much does a consultation cost?

An initial consultation is free. You will get a basic idea of what opportunities you have in the United Arab Emirates and will be able to decide if you want to set up a firm here.

How to save money on company formation in FTZs?

Our consultants will help you choose the best option for you in terms of the "price-opportunity" ratio. You pay a minimum and get the maximum for your money. You will receive a guaranteed solution for yourself.

Can a company in a free zone conduct any activities in the United Arab Emirates?

A free zone company is authorized to operate within its jurisdiction and outside the UAE. Operating in the mainland requires obtaining additional permission or establishing a branch/mainland structure.

What free zone to choose?

The choice of the best jurisdiction depends on various factors such as access to infrastructure facilities (ports, airports, warehouses, free land for development, etc.), access to labor and other resources (in Dubai there are more, in other Emirates less), and desired level of expenses (Dubai free zone company formation is, as a rule, more expensive compared to other Emirates). To choose the best solution, you need to consider all the factors that matter specifically for your enterprise.

How to speed up the process of company formation in the Dubai Free Zone?

Depending on the nature of your activities and the specific free zone, the whole process takes from 6 to 35 days. But this is only if you know exactly what needs to be done and where to go. The best solution, in this case, is to use the services of consulting firms, as they have the necessary experience and proven schemes.

What is the cheapest way for a free zone company?

There is no single answer to this question. As a rule, a lower price is associated with limited opportunities in terms of infrastructure, markets, etc. Here, it is more appropriate to talk about the minimum fee for your particular case. It is better to use the services of a specialist to determine this.

What if a company in the FTZ is no longer required?

In this case, it would be best to close your organization. If you do not renew the license, it will be automatically canceled, but your enterprise will still exist; it may be charged fines, for example, by your bank, so it’s better to take care of closing your company. This way, you will protect yourself from potential problems. If the termination of your activities is temporary, in some of the zones, for example, in the DMCC, you can suspend your license and fire employees without closing your firm and get the status of a "dormant enterprise.”

Is it possible to transfer a company from one free zone to another?

Redomiciliation of onshore companies to UAE free zones is permitted, but only in certain areas (DIFC, ADGM, RAKEZ, DMCC, JAFZA) and under certain conditions. It's best and easier to choose the right jurisdiction during the registration process.

What are the most popular free zones in the United Arab Emirates?

The most popular free zones are those where the majority of the firms are registered. Among the most popular, one can distinguish the following: JAFZA, DAFZA, DMCC (Dubai), RAKFTZ (Ras al-Khaimah), ADAFZ (Abu Dhabi).

How long does it take to set up a company in the Dubai free zone?

It depends on the specific free zone and the nature of your commercial activities. An ordinary trading firm will be registered for 6 to 15 days, while it may take up to 40 days to create an industrial, financial, or medical enterprise.

Do I need to fly to the Emirates to set up a company in a free zone, or can I do everything remotely?

With the help of a consulting enterprise, you can perform all operations remotely. It will be necessary to come to the United Arab Emirates only once to sign documents.

List of Free Zones in the United Arab Emirates