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Which UAE freezone is the right one for your business?

With its world-class infrastructure, strategic location and business-friendly environment, the United Arab Emirates (UAE) offers an attractive and flexible framework for international trade and investments. It is well established as the prime destination for multinationals to set up a regional base and serve the high growth markets in the Middle East, Africa and South Asia. It is also the perfect location for new start-ups across multiple and diverse sectors.

The key attractions and advantages of the UAE include:

  • No personal or corporation tax, no capital gains tax, no withholding tax and no inheritance or wealth tax
  • An extensive network of tax treaties, with 83 in force and a further 32 in various stages of negotiation, signature or ratification
  • Extensive foreign trade network with no foreign exchange controls, trade barriers or quotas
  • Political and economic stability, and excellent standard of living
  • Highly developed infrastructure for banking, business, entertainment and tourism

However the UAE Commercial Companies Law (CCL) requires that UAE nationals or their wholly owned companies must hold a minimum of 51% of the shares of all companies established in the UAE. Foreign investors that wish to retain 100% ownership without the involvement of a UAE sponsor or service agent, regardless of the type of business, will therefore need to opt for a licence through one of the UAE’s many free zones.

There are no foreign ownership restrictions in the free zones and the UAE Commercial Companies Law (CCL) does not apply. Companies are instead governed by an independent Free Zone Authority (FZA), which is responsible for issuing operating licences and regulating the activities of companies within that free zone.

There are over 40 free zones currently operating across the UAE, with more under construction. Each free zone is designed around one or more commercial categories and licences can only be granted to companies that are active in those categories. Once a legal presence has been established in a free zone, the business will need to lease premises or land and acquire an operating licence from the relevant FZA.

It can be difficult for foreign investors to determine which free zone will be best suited to their business.  Sovereign has established companies in all free zones and is well placed to advise on licence type, cost, office space, visas and time scale. Often clients have a preconceived notion that they wish to establish in a particular free zone but discover, after consulting with Sovereign, that there is a more suitable or more cost effective option. Below is a brief guide to the general options available for different business sectors.

Trade and logistics

Dubai South (formerly Dubai World Central) supports a number of activities including logistics, aviation, commercial, exhibition, humanitarian, residential and other related businesses around Al Maktoum International Airport. It has come to market with a pricing and facility strategy to rival the cheaper free zones in the UAE such as Ajman and Ras Al Khaimah and allows both a flexi-desk setup as well as the ability to provide physical office space and warehouse facilities if required. It is further recommended as the best free zone in which to establish for the upcoming World Expo 2020 with the majority of the events being based in this area.

Jebel Ali Free Zone (JAFZA) established in 1985 is the oldest and largest free zone in the UAE. With excellent infrastructure and built around Jebel Ali Port, one of the busiest ports globally, JAFZA is linked to the new Al Maktoum Airport and is due to be connected into the Etihad national freight and passenger railway network providing easy cargo transport across the UAE, Saudi Arabia and Oman. JAFZA hosts more than 7,000 firms, including over 100 of the Fortune Global 500 companies, and accounts for almost 32% of total FDI flow into the UAE.

Dubai Airport Free Zone (DAFZA) is situated in close proximity to Dubai International Airport DXB and is among the UAE’s largest free zones. DAFZA specialises in three types of licence: Trade, which entitles the holder to import, export, distribute and store specified items; Service, which entitles the holder to carry out specified services; Industrial, which entitles the holder to carry light industrial activities, packaging and assembling. DAFZA is currently home to 1,600 companies from across the world covering a vast number of key industry sectors including electronic and electrical, IT and telecommunications, pharmaceutical and cosmetics, engineering and building materials, aerospace and aviation, logistics and freight, food and beverage, jewelry and precious stones as well as luxury items.

Financial Services

The Dubai International Financial Centre (DIFC) is a major global financial hub for the Middle East, Africa and South Asia (MEASA) markets. It focuses on corporate and private banking services, investment and capital markets, asset management and fund registration, insurance services, Islamic finance and other professional financial services. It offers a dollar-denominated environment and an international stock exchange with primary and secondary listings of debt and equity instruments (Nasdaq Dubai). The DIFC is governed by a common-law framework distinct from the UAE legal system with laws and regulations issued in English. DIFC offers clients a 50-year guarantee of zero taxes on corporate income and profits complemented by the UAE’s network of double tax treaties.

The Abu Dhabi Global Market (ADGM) free zone has recently been established to rival the DIFC and is the most significant new free zone to be established in the UAE in recent years. Spanning the entirety of Al Maryah Island, ADGM was launched in 2015 as a broad-based international financial centre for local, regional and international institutions. ADGM is centred on three key sectors – Private Banking, Wealth Management and Asset Management – but its legal and operational platform is also attractive for a broad range of professional and business services. Like the DIFC it provides a distinct law system based around English Common Law. Sovereign Corporate Services was the first ‘corporate service provider’ to be licensed in the free zone and has opened an office in the ADGM.

Media and IT

Dubai Media City (DMC) was launched in 2001 to boost UAE’s media foothold and has become a regional hub for media organisations including news agencies, publishing, online media, advertising, production, and broadcast facilities. Global and regional media giants like BBC, Thomson Reuters, Bertelsmann, CNBC, DowJones, Ame Info, CNN, Forbes, MBC, Reuters, Showtime and Sony have all established regional headquarters in DMC.

Dubai Internet City (DIC) was launched in October 2000 to provide a knowledge economy ecosystem to facilitate the business development of Internet and Communications Technology (ICT) companies. It is the Middle East’s biggest ICT infrastructure, comprising companies from sectors like software development, business services, e-commerce, consultancy and sales and marketing. DIC has attracted global ICT giants like Microsoft, Oracle Corporation, HP, IBM, Dell, Siemens, Canon, Logica, Sony Ericsson and Cisco, as well as many small and medium enterprises and entrepreneurial ventures.

Commodities trading

Dubai Multi Commodities Centre (DMCC) is one of the largest free zone developments in Dubai. Initially established in 2002 with a mandate to provide the physical, market and financial infrastructure required to establish Dubai as a marketplace for trading international commodities such as gold, diamonds and other precious stones, the DMCC has developed and expanded into a freehold community for a range of businesses from shipping to trade, recruitment, to IT and advertising, through to restaurants, retail stores, gyms, nurseries, luxury brands, universities and more in the business and residential community based in Jumeirah Lakes Towers, Dubai.

For further information on free zone set-up in the UAE, please contact:

 

Ashley Yates

Practitioner | Corporate Advisory & Structuring - Sovereign Corporate Services UAE

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Tel: +350 200 76173