James Swallow

What you need to know about Free Zones – company formation in UAE

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For expats, forming a company in Abu Dhabi and Dubai and the rest of the UAE can be a complicated process. Over the past few years many Free Zones have opened to help freelancers, consultants and small businesses get a license to operate in the UAE.

There are many benefits to Free Zones and rules you need to be aware of.

If you are considering company formation in the different Free Zones across Abu Dhabi and Dubai, be sure to ask the right questions. Here are a few of the things you need to know.

Key costs for establishing a company in a Free Zone

Often Free Zones state that you can set up for a very low fee, but the truth is there are several compulsory costs, which can add up:

  • Trade Name Reservation
  • Registration
  • Trade License
  • Office Rental
  • Visas and other ancillary costs

Some are one-off and others annual fees. Typically setting up in a Free Zone will cost upwards of 30,000 AED (based on an individually owned virtual office arrangement with no additional staff).

Trade licences – UAE Free Zone

Company trade license fees range from AED10,000 to AED20,000 per year, depending on the number of activities or type services you want to offer. Typically, the number of activities range from 2-10, and the Free Zone will provide a list of the permitted activities.

Flexi-desk or office?

A flexi desk is a shared desk in a communal office space in a Free Zone. It’s usually the cheapest lease option, but desk numbers can be limited. An office in a Free Zone is reserved exclusively for that company and can be fitted-out to suit your operational requirements. Consider your visa and staff requirements as well, one flexi desk is usually applicable for one or two visas, a larger physical office will be required for more – think about what will be right for you.  Note that the office location will be within that free zone.

The benefits of Free Zone set up

There are a number of advantages – including 100 per cent foreign ownership, repatriation of capital and profits, corporate and personal income tax exemptions and being exempt from all import and export duties (although you cannot import into mainland UAE – you will have to use an ‘onshore’ agent).

Many Free Zones arrange regular training and networking events which are usually free to attend and sharing business opportunities is encouraged.

Business banking

You will need to set up a business bank account before you can apply for a trade license. However, some banks may request to see a copy of your company’s trade license before they will set up the account. You can find out more by seeking advice from your chosen Free Zone first.  It’s worth knowing that in many Free Zones you have to put a deposit into your bank account and prove you have a float of funds before you can finalise your set up.

 

Local partnering

 dubaiYou don’t need one, meaning you can retain 100% ownership of your business. However, a Freezone is not a true ‘onshore’ UAE company and the company normally can only do business within that Freezone.  There are some companies and a lot of government and semi-government organisations that will only do business with Onshore companies not Free Zones. There are some industries where you must have an Onshore license before you can operate, particularly if you need onshore regulatory approvals to operate within the UAE or where you need a physical presence within the UAE itself (not the zone). Within a Free Zone you can also face the issue of counterparty default in the event of an invoice or contractual dispute with an Onshore supplier or client, for example. Free Zones are beneficial for some companies, but not suitable for all.

Free Zone or Onshore?

Think Free Zone is right for you? Find out the questions to ask when forming a company in a Free Zone here (link to existing blogpost).

Prefer to set up an onshore company? Read our blog Business set up information UAE. James Swallow shares his in-depth knowledge of the key steps and considerations surrounding all types of company formation in the UAE.

James Swallow is Director of Middle East based PRO Partner Group, which specialises in Free Zone and Onshore company formation in Abu Dhabi, Dubai, the wider UAE and Oman.

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