How to Choose the Best Free Zone for Your Business in UAE

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Yarab A, Aug-03-2020

Free trade zone is an area designed to promote the international business in UAE by providing 100% foreign enterprise ownership. Free zones are designed to offer a bunch of attractive incentives such as no requirement for a UAE national as a local partner/shareholder, tax exemptions on duties and taxes and much more.

With the introduction of Vat in UAE, most of the free zones are referred to as designated zone offering Vat exemptions to the businesses located in these zones. Take a look at the list of designated zones in UAE

If you are non-UAE national looking to start a business in UAE, free zones are the best place. While this looks obvious, it isn’t an easy one. Each emirate in UAE has a designated area as a free zone and put together, there are more than 35 free zones spread across the UAE. Each of these free zones is regulated by different authorities and has varying guidelines that need to be adhered by the business.

The differing operational guidelines imply that all free zones are not suitable for all type of business in UAE. If you are starting a business in UAE, you need to look for a zone that best supports the nature of business you would like to start.

With this in focus, we are sharing you the factors that will help you choose the best free zone for your business in UAE

Type of business activity

Each free zone in UAE has different guidelines related to business activities that can be performed within the zone. Dubai Multi Commodities Centre (DMCC), a free zone in Dubai, you can choose from over 600 business activities ranging from over 20 sectors such as energy, commodities, gold and diamonds, technology, constructions, FMCG etc. In Dubai International Financial Centre (DIFC), you can conduct financial and non-financial businesses. While the Dubai Multi Commodities Centre (DMCC) allows only single-family offices

You need to carefully access the nature of your business activities and accordingly choose a free zone that permits you to conduct required business activities.

License requirements

This factor is directly connected with the nature of business activities. Depending on the primary activity of your business, you need to apply for a suitable license. Commercial license, service license, production license, general trading license etc. are some of the common license types.

Depending on the number of business activities, you may have to apply for more than one license and each license comes at a cost.

It is important to note that the number of activities your business will be allowed to perform under the single license differs from zone to zone. Dubai Multi Commodities Centre (DMCC) Free Zone allows to perform six business activities under the same type of license and others may require you to have a separate license for each activity.

Capital requirement

To register a company in UAE, you need to deposit the share capital. The minimum capital requirements for each zone differs. Each zone has a defined threshold for minimum capital that a business needs to deposit. Before registering, you need to know the minimum capital requirements for the zones that you have shortlisted.

Some zone like twofour54 in Abu Dhabi does not have a minimum capital requirement. In Dubai Airport Free Zone, you can form an FZ Co. with a minimum share capital of AED 1000. Each share should be in the denomination of AED 1000. Likewise, other zones too have their guidelines for the minimum capital requirement.

Office space

You can either buy or lease office spaces in free zones. Office requirements depend on the number of employees and type of business activity that your company intends to do.

In DMCC, you can choose from a flexi desk of 20-30 sq. m., 200-265 sq. m., or offices running through multiple floors totalling up to 2,000 sq. m. each.

In Dubai Airport Free Zone, you can choose between different office packages designed by the authority. Hamriyah free zone authority provides over 100 executive offices suites ranging in size from 15 m2 to 42 m2 with conferencing and internet facilities.

Based on number employee and business activities, choose a free zone that best fits you.

UAE residence visas

UAE residence visas are issued by the designated authority to foreign national who wants to work, start a business etc. The number of a residence visas a business can get depends upon the office facility type. Each office facility type comes with a limited number of visas that can be obtained. This again differs from one zone to another.

In a free zone, you can set up your business as ‘Free Zone Limited Liability Company (FZ LLC)’ also known as Free Zone Company (FZ Co.) or Free Zone Establishment (FZE).  The type of legal entity you choose will have limitations on the number of shareholders that a company can have. This also depends upon whether a shareholder is a natural person or a legal person.

Each free zone authority has its own guidelines on the type of legal entity that they can register. For example, the Dubai Multi Commodities Centre (DMCC) allows forming a limited liability company, which could be a newly formed entity with single or multiple shareholders or a wholly-owned subsidiary of local or foreign company.

Now that you know the key factors to choose the best free zone for your business, next you need to know the VAT treatment on Designated Zone in UAE. In addition to obtaining the license and other legal requirements, you should apply for Vat registration. Once you have registered under Vat, you need to issue a VAT invoice for taxable supplies and periodically file Vat return.