free zones in the UAE
Free zones in the UAE
The United Arab Emirates (UAE) hosts a significant number of free zones, which are areas within certain of the emirates of the UAE that permit 100% foreign ownership of companies.
The main attraction of establishing an entity in one of the free zones is that there is no requirement for a UAE national or a company wholly-owned by UAE nationals to hold a percentage of shares in a free zone entity. The free zone authorities also generally guarantee investors that they will not be liable for corporate tax for a specific period of time. For example, the Jebel Ali free Zone Authority (JAFZA) guarantees an initial 50 year period of non-taxation, which guarantee is renewable upon the expiration of the initial period. This guarantee will apply regardless of amendments that may be introduced in relation to national tax regulations. In addition, free zone entities are not liable for import or export duties for goods imported into and exported out of the free zone to outside the UAE and they may repatriate 100% of their capital and profits without penalty by the UAE authorities.
The main difficulty for free zone entities is that free zone companies are not permitted to do business outside of the free zone.
Choosing the right free zone for your business will depend primarily on the type of activities to be carried on by the business. Each free zone focuses on particular industries and will only consider applications from businesses that fit within the mandate of the free zone. In addition, each free zone offers office, warehouse and industrial premises in minimum sizes, and the number of visas required for your employees will be dependent on the size of your premises. Finally, the cost of doing business in each free zone will vary, including the cost of leasing premises, the initial share capital required to incorporate and the annual licensing costs.
The UAE free zones have their own laws and regulations which are different to those in non-free zone areas (often referred to as “onshore UAE”). In particular, companies established in the free zones are outside the ambit of the UAE Companies Law and have been expressly excluded from its operation.
One particular free zone, the Dubai International Finance Centre (DIFC), is considered the fastest growing financial centre in the world and remains of great interest to foreign investors looking to establish a presence in Dubai (and the UAE). The DIFC has been set up using the best practices of financial centres across the globe and has ensured that international standards will be applied to the specific market in Dubai and the Middle East region.
The DIFC has a comprehensive set of laws which are based on English common law. The common law system operating in the DIFC distinguishes it from on-shore Dubai (and the UAE) which has in place a civil law system.
