What is Meant by Free Zone in the UAE?

The year 2018 should end on a happy note for foreigners seeking to invest in the UAE. The Emirate’s cabinet has decided to award long-term visas lasting up to 10 years to international businesspersons wishing to launch businesses in the UAE.

Furthermore, they will have the freedom to retain 100% over their enterprise, without having to link up with a local partner, regardless of whether they operate in a free zone or as an onshore LLC.

Then again, the free zones will remain unthreatened by the new law. Obviously, the Emirate hopes to portray itself as the best investor-friendly economy in the region, and in the world too.

However, a special committee under the leadership of the UAE’s Minister of Economy will take decisions on specific industries, which may fall under the purview of 10-year residencies and 100% ownership.

Defining Free Zones

Any international establishment, wishing to make an entry into the UAE’s marketplace, may do so in two ways. One is to set up the business in a free zone anywhere across the UAE. In fact, the country has marked out over 40-45 such zones thus far, with more on the way in future. Alternatively, an establishment may decide to set itself up as an LLC, which is, Limited Liability Company. An LLC may operate anywhere and everywhere in the UAE.

However, what exactly is a free zone?

It refers to a specially designated region within which a business may operate. The benefit is that it will be subject no or minimal taxation. The UAE Government feels that this will help the nation receive a tremendous economic boost, for every free zone has a link to one or more commercial categories.

Therefore, only those organizations, which fall under these categories, may request licenses to do business. The customs authorities will not interfere in the receipt, handling, manufacturing, processing ore re-exporting of goods in these trade-specific free zones. It is the same with the establishments attached to ports that come under the purview of free zones.

Operating in Free Zones

Foreign investment is always useful to improve the economy of any nation. However, expatriates are willing to enter the scene only when they gain access to lucrative business privileges.

  • As mentioned earlier, the UAE offers 100% ownership of the establishment. This is a deviation from the earlier restriction, wherein an overseas businessperson had to link up with a local sponsor. This sponsor would receive 51% of the profits, whereas the original investor would possess just a 49% share.
  • Then again, there are barely any taxes to pay.
  • These investors are exempt from customs duty for exporting and importing goods.
  • It is possible to obtain long-term resident visas now. As a result, employers, the workforce and shareholders all benefit!
  • UAE’s laws make it easy to recruit people, as well as maintain an affordable workforce.
  • The investors have the option of going in for a 25-year lease, wherein they are able to access specific areas for production and assembling, as well as purchase warehouses for storing goods.

International/multinational establishments that see the potentialities of utilizing the UAE as a center for regional manufacturing, or a profitable base for distribution of goods, tend to prosper in free zones.

Every free zone has its own method of registration, paperwork and process of setting up a business. Regardless, certain features are common to all free zones.

  • To begin with, it is imperative to possess a trade license. The local authorities issue this one-year license after perusing relevant documents. It will need annual renewing.
  • There must be a physical office in the selected free zone. The company must renew the lease/rent for this particular space every year.
  • The company’s name should be on prominent display.
  • This authorities view this office as the ‘branch’ of the original headquarters and not as a separate company at all. In fact, the office in the free zone is an extension of the establishment.
  • In case, the establishment does not actually require a physical office, the authorities will permit the setting up of a virtual office. The company cannot function in the absence of an official, registered website.
  • Obviously, the
  • Other compulsions are the hiring of a local manager to function as the establishment’s legal representative, as well as the presence of at least one shareholder.
  • The owner must be ready to go for the minimum share capital requisites. These share requirements may vary from one free zone to another, based upon the purpose of the business concerned.
  • With regard to distribution, only a local person may take it up outside the free zone. Foreign distributors cannot undertake this job.

What should you do

Has the above information convinced you to initiate a business in the UAE? If yes, here are a few considerations that you must keep in mind. For instance, you may opt for an FZE (Free Zone Establishment) with a lone shareholder or an FZC (Free Zone Company) with two or several shareholders.

A third option is to launch a representative office or branch office of your parent company. This parent company may be elsewhere in the UAE or overseas. Whatever is the case, your establishment is a limited liability one, wherein you have to follow specific ‘Free Zone’ rules and regulations. However, you are not obliged to adhere to the provisions of the UAE Commercial Companies Law (CCL).

You may obtain your license to begin operations by providing the following documents.

  • An application form displaying all the relevant details about the to-be-launched company
  • Professional history of the owner or the curriculum vitae
  • Copy of certified passport
  • UAE entry stamp/visa, if residing outside the country.
  • Reference letter from the bank, or professional in nature
  • Two copies of proof of address, which are dated within three months

Sometimes, a free zone may want you to show your business plan. Therefore, have your blueprint ready, along with answers to all questions.

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