Company Formation in UAE Freezone – A Complete Guide!

Freezone company formation in Dubai and across the UAE is booming. DP World’s JAFZA saw a record 30% rise in new companies, while Dubai’s integrated zones reported a 42% jump in operating profit. Even individual zones like IFZA witnessed a massive 177% surge in registrations. These figures highlight the UAE’s free zones as thriving hubs for entrepreneurs.

So, if you are also eager to join this boost and want to do Free zone business setup in Dubai or any other Emirate, then this guide can help you. But, first, let’s look at some benefits! Think about world-class infrastructure and the freedom to own and operate freely. That’s not all! You can also enjoy:

Cost-Effective & Streamlined Setup:

  • Lower Costs: Free zone business setup offer a more affordable and faster way to set up your business compared to the traditional route. Competitive fees, flexible office options  such as remote setups, shared workspace, and private office make it very appealing. Moreover, no minimum capital requirement allows you to start, lean and scale up as you grow. 
  • Mix & Match Business Activities: Diversify your business portfolio and build a resilient enterprise that can withstand market fluctuations. Get access to over 2,500 business activities, enabling you to customize your business, align your vision and capitalize your unique strengths.

Strategic Global Hub:

  • Prime Location & Global Reach: Many free zones boast prime locations near major ports and airports, putting you at the center of regional and international trade.  This strategic positioning allows you to easily reach a wider audience and tap into exciting global markets.
  • 100% Foreign Ownership: You call the shots! Free zones allow full foreign ownership, eliminating the need for a local sponsor and granting you the freedom to make independent decisions for your business.

Tax Haven for Business Growth:

  • Tax-Friendly Environment: Imagine a 0% corporate tax rate! This creates a lucrative environment where your business can flourish without the burden of hefty taxes within the free zone. But note that you can enjoy this benefit only if your taxable income does not exceed 375,000 UAE dirham (AED).
  • No Import/Export Duties: Plus, with no import/export duties, you gain a significant advantage in terms of profitability and competitiveness.

Supportive Ecosystem for Success:

  • World-Class Infrastructure & Support: Free zones provide access to state-of-the-art facilities, advanced IT infrastructure, and dedicated business services to support your operations efficiently.
  • Pro-Business Environment: The UAE government actively encourages business growth through incentives, a focus on innovation, and a diverse and supportive business community.

Intrigued? There’s more!

These are just a few of the key benefits that UAE free zones offer aspiring entrepreneurs.  Are you curious about how a specific free zone setup might benefit your business goals? Let’s explore your options and find the perfect fit!

Here are a few business sectors that find free zones particularly advantageous:

  • E-commerce and Import/Export: The ease of doing business and removal of import/export duties make Free zones a goldmine for companies involved in international trade. 

For example, Dubai CommerCity is the first e-commerce-free zone in the Middle East, North Africa, and South Asia (MENASA). Offers business setup, warehousing, and other e-commerce services. 

  • Crypto & Techies: Several free zones specialize in fostering cutting-edge industries, making them the perfect launchpad for your cryptocurrency, blockchain, or NFT venture. 

For instance, Ras Al Khaimah Digital Asset Oasis (RAK DAO) is designed to foster virtual asset service providers and cutting-edge blockchain ventures, RAK DAO’s recent collaboration with tech giant Tencent Cloud exemplifies the exciting opportunities available in these designated economic zones.  

  • Manufacturing and Logistics Gurus: UAE free zones are ideal hubs for manufacturing and logistics thanks to their top-notch facilities (modern warehouses, easy airport access) and streamlined customs procedures (advanced technology, on-site offices, no duties/taxes within the zone). This makes importing, exporting, and getting licenses a breeze, with flexible storage options to boot.
  • Service Sector: Marketing, IT, consultancy, and business management firms use free zones because of their top-notch infrastructure and global reach to take their services to the next level. 

Choosing the Right Freezone

  • Start with Research:
    • Features & Benefits: Align the Freezone’s offerings with your industry (specialization) and business type (incentives like lower fees).
    • Location & Support: Consider proximity to key infrastructure (airports, seaports) and access to business setup support, networking events, or co-working spaces.
    • Industry Fit: Choose a free zone with a focus on your sector (e.g., industrial zones for manufacturers).
  • Check For Matching Needs:
    • Industry Alignment: Ensure the Freezone permits your specific business activities.
    • Growth Potential: Evaluate if the location and support system foster your long-term vision.
    • Logistics: Prioritize a free zone with convenient transportation links if crucial for your business.

Company Formation Process

The UAE has over 40 free zones, each catering to a variety of industries. However, free zone business setup processes vary from zone to zone.

For example, the Sharjah Publishing City Free Zone (SPC Free Zone) offers “Instant Licence Service”, granting business licenses in minutes. Whereas, the Khalifa Port Free Trade Zone takes about a week. On the other hand, some Free Zones may have longer processing times due to various factors such as the complexity of the business activity or additional approvals required.

Nonetheless, all free zones focus on streamlining company formation aligning with the UAE’s vision of becoming a global hub for diverse industries. 

UAE free zone company formation involves several steps:

  1. Research & Choose: Find the best free zone based on your business needs and activities.
  2. Select Company Type: Decide on your legal structure (FZCO, FZE, etc.) based on factors like shareholder count.
  3. Define Activities: Identify your business activities and ensure the chosen zone allows them.
  4. Name & Approval: Propose a unique company name and get free zone authority approval.
  5. Registration & Approvals: Prepare and submit legal documents (MOA, articles of association) for registration. Simultaneously handle:
    • Office Space: Choose a suitable workspace (shared, dedicated office, warehouse).
    • Licenses & Permits: Apply for necessary licenses based on your business activities.
    • Visas: Submit visa applications for employees and investors with required documents.
    • Bank Account: Open a corporate bank account in the UAE.

Overview of Timelines and Costs:

  • Timelines: UAE free zone company formation typically takes about 2 to 4 weeks. This can vary based on the chosen free zone, business activity complexity, and document readiness.
  • Costs: The costs can vary widely depending on the free zone, type of business, and facilities required. It’s best to consult with the specific free zone authority for detailed pricing or free zone business setup consultants like Avyanco. Nonetheless, we have listed the major free zone business setup costs below, for your understanding.
    • Sharjah Media City Freezone (SHAMS): starts at AED 5,500 which is equivalent to GBP 1,210 approx.
    • Dubai Freezone – IFZA: is at AED 12,500 is equivalent to GBP 2,750.
    • Dubai Freezone – DUQE: AED 12,500 is equivalent to GBP 2,750.
    • Dubai Freezone – MEYDAN: AED 12,500 is equivalent to GBP 2,750.
    • RAKEZ Freezone – Business License + 1 Lifetime Visa: is AED 11,900 which is equivalent to GBP 2,618.

Note: The exchange rate is calculated at 1 AED = 0.22 GBP for this conversion. This is an approximate rate and may vary depending on the service you use to make the exchange.

Legal Types of Business Entities

  • Free Zone Limited Liability Company (FZ LLC) or Free Zone Company (FZ Co.): This caters to companies with multiple shareholders, both individual and corporate. Shareholders enjoy limited liability, with their financial responsibility capped at their contributed share capital.
  • Free Zone Establishment (FZE): This streamlined option is ideal for sole proprietors embarking on a new venture. FZEs offer similar benefits to FZ LLCs but are designed for a single shareholder structure.
  • Branch Office:  Established companies can expand their reach by setting up a Branch Office within a free zone. Branch offices conduct business activities similar to their parent company, but do not possess a separate legal identity.

So, how to choose the most suitable business entity?

  • Number and Type of Shareholders: Carefully consider the number of shareholders you anticipate and their legal classifications (individual or corporate) when making your selection.
  • Alignment with Freezone Activities: Ensure your planned business activities are explicitly listed among the Freezone’s approved business sectors.
  • Liability and Capital Investment: Evaluate your risk tolerance and determine the level of liability you are comfortable assuming. Additionally, consider the capital investment requirements associated with each structure.

Taxation Considerations

UAE free zones have always been tax-free, but now have corporate tax implications, implemented since June 2023.  Though, there are two categories of free zone persons:

  1. Qualifying Free Zone Persons (QFZPs) may be eligible for a 0% tax rate on qualifying income.
  2. Non-Qualifying Free Zone Persons (NQFZPs) may not qualify for the same tax benefits and might be taxed at the standard 9% rate.

Understanding the specific activities, you plan to conduct and meeting the QFZP criteria is crucial to maximizing tax benefits in a UAE free zone.

Tax Advantages of Freezones:

  • Freezone companies typically enjoy exemptions from import/export duties, personal income tax, and corporate tax for a specified period (renewable) – often ranging from 15 to 50 years.
  • 100% foreign ownership and full profit repatriation are additional benefits for Freezone businesses, with no extra charges.
  • SME Relief: The UAE offers tax relief for small and medium businesses (SMEs) through two programs, but the best option depends on your business location and income source. The mainland Small Business Relief Regime (SBRR) offers a complete exemption from corporate tax for businesses with a turnover of AED 3 million or less. This is a simple and straightforward option, ideal for companies primarily focused on operations within the UAE mainland. While Free Zones typically boast a 0% corporate tax advantage, they can’t directly access the mainland SBRR. However, Free Zone companies can achieve a similar benefit by obtaining Qualifying Free Zone Person (QFZP) status.  This requires demonstrating a physical presence and adhering to transfer pricing regulations. The catch? QFZPs only pay 0% tax on “Qualifying Income,” which is still being defined but likely excludes mainland UAE sales and passive income. They will still be taxed 9% on any income that does not qualify.

Value Added Tax (VAT):

While Free zones offer tax benefits, they are not entirely exempt from VAT. The UAE levies a 5% VAT on goods and services. ‘Designated Zones’ within Free zones have special VAT treatment. Goods transferred between these zones are generally not subject to VAT, but specific conditions apply.

Staying Informed, Staying Compliant:

Tax regulations can evolve. So, stay updated on the latest developments to optimize your tax obligations. Consulting with tax professionals or the UAE Ministry of Finance is highly advisable for detailed guidance.

Post-Formation Considerations

  • Secure visas for yourself, your employees, and their dependents to work and live in the UAE. 
  • Open corporate bank accounts to manage your business finances. 
  • Lease an office or facilities that perfectly suit your business operations.
  • Staying compliant by meeting free zone’s requirements, renewing licenses and permits on time, and staying informed about any policy changes. 

Why Avyanco UK – Supporting you every step of the way.

  • We help you connect with other businesses within the free zone. Collaborations and partnerships can unlock exciting opportunities.
  • We continuously analyze market trends to adapt your offerings and innovate for long-term success.
  • We help you explore and expand your business into new markets or consider diversifying your services.
  • Our team of professionals is readily available to answer your questions and navigate any challenges.
  • We don’t offer a one-size-fits-all approach.  We work with you to develop a personalized strategy aligned with your specific needs.

Ready to Launch & Grow?

Contact Avyanco UK today for Company Registration in Dubai. Let’s turn your vision into a thriving reality in the dynamic world of UAE free zones.

FAQs SUGGESTIONS

1 – What is a free zone in the UAE, and why should I consider it for company formation?

A free zone in the UAE is a designated geographic area where foreign companies can establish a presence with simplified business setup procedures, 100% foreign ownership, tax benefits, and other incentives. It’s advantageous due to its streamlined processes and various business-friendly regulations.

2 – What are the main advantages of setting up a company in a UAE free zone compared to other business structures?

The main advantages include 100% foreign ownership, zero corporate or personal income tax, full repatriation of profits and capital, no currency restrictions, simplified import and export procedures, state-of-the-art infrastructure, and business-friendly regulations.

3 – What are the typical steps involved in the company formation process in a UAE free zone?

The steps usually include selecting a business activity and trade name, applying for a license, leasing office space, submitting required documentation (such as passport copies, business plan, etc.), obtaining approvals from relevant authorities, and opening a corporate bank account.

4 – Can foreign nationals own 100% of a company established in a UAE free zone?

Yes, foreign nationals can own 100% of a company established in most UAE free zones. This allows for full control and autonomy over the business operations without the need for a local sponsor or partner.

5 – What are the key factors to consider when selecting the right UAE free zone for my business?

Factors to consider include the type of business activity permitted in the free zone, geographical location, infrastructure and facilities offered, license costs and fees, ownership structure, eligibility for visas, and any specific industry regulations or incentives offered within the chosen free zone.