Free zones in the United Arab Emirates are separate territories within the State that provide the most favourable business incorporation and development conditions. Some free zones are universal, and some focus on specific activities. The most significant number of free zones concentrates in Dubai.
Company formation in Dubai and other Emirates’ free zones has recently become increasingly popular among foreign investors due to the unique regulatory and tax conditions. Below, we will consider the advantages and differences of the leading free zones in the Emirates.
Benefits of free zone company formation in the UAE
- Wide choice: there are more than 40 free zones in various Emirates. They compete with each other for new resident companies, which helps improve the quality of services.
- Being a non-offshore entity, the UAE Free Zone company is a prestigious corporate vehicle with a positive image in international trade.
- A free zone company can be entirely (100%) owned by foreign shareholders. There are no requirements for citizenship or residency of shareholders or directors.
- A free zone company can open a corporate bank account in the UAE.
- There are no restrictions on the repatriation of profits by foreign investors.
- Free zone companies can run business within the relevant zone or outside the UAE. However, a company may also operate in the UAE mainland through a local agent or by obtaining a “dual” license from the free zone and the Emirate’s authorities.
- Free zone companies must have a physical office within the free zone. In some cases, a dedicated workplace is sufficient; in others, a company will need a fully functional office space. Even if some free zones do not require a physical office at the point of registration, it will still be necessary in the future, particularly when opening a local bank account.
- After introducing corporate tax in the UAE in 2023, free zone companies retained the opportunity to enjoy a zero-tax rate. A zero rate is possible for “qualifying free zone persons” receiving “qualifying income”. Otherwise, a company’s profits will be taxed under general rules that also provide lower tax rates (0% on income up to AED 375,000 and 9% on income exceeding the threshold).
- Many free zones (JAFZA, DAFZ, SAIF, FFZ and others) are “designated zones” for the purposes of VAT in the UAE. Goods imported into such zones are not considered imported in the UAE, and VAT does not apply. VAT will also not apply when goods are supplied from one designated zone to another.
- Some free zones (including ADGM, JAFZA, DMCC, RAK FTZ) allow for inward redomiciliation of foreign companies, which means a transfer of a corporate seat of an existing company from abroad to the UAE free zone.
Major free zones in Dubai
DMCC: a universal solution
Dubai Multi Commodities Centre (DMCC) is a large modern free zone in Dubai suitable for registering companies with various activities. At the same time, DMCC is one of the leading free zones for trading commodities, including gold, metals, diamonds, tea, coffee and others.
DMCC companies can be incorporated with a trading, industrial or service license for a one-year term with further renewal. A company can obtain a 3-year license with a discount on registration costs.
The minimum share capital payable on incorporation of a company must be sufficient to carry on the activities permitted under the licence and be not less than the minimum share capital prescribed by the Registrar. Thus, a specific amount of minimum capital is not currently established but is left to the discretion of the Authority. It was previously set at AED 50,000 (around US$ 13,600).
Companies in DMCC must annually prepare audited financial statements in accordance with the International Financial Reporting Standards (IFRS). The auditor auditing a DMCC company’s accounts must be approved and registered with the DMCC Authority.
A real office for a DMCC-incorporated company is mandatory. The required office space depends on the company’s activity and number of employees. The minimum option is a flexi desk – a dedicated workspace that a company can use for a certain number of hours per month.
IFZA: the newest free zone in Dubai
IFZA (International Free Zone Authority) was established in 2018 in the Emirate of Fujairah but transferred its operations to Dubai after a short time. IFZA presents itself as a free zone providing favourable conditions for business, world-class infrastructure and friendly regulations, as well as lower costs of company registration.
A company in IFZA can obtain trading or general trading license, industrial, professional or branch license.
There are two forms of companies in IFZA: FZE (Free Zone Establishment) with a sole shareholder and FZCO (Free Zone Company) with two or more shareholders.
There are no minimum share capital requirements.
Companies are not required to submit financial statements to the authorities, but preparing audited accounts is now mandatory (previously recommended as best practice).
For a company applying for less than three visas, it is not necessary to have a physical office within the IFZA to register a business.
Jebel Ali Free Zone (JAFZA): a logistical ecosystem
Jebel Ali Free Zone in Dubai is historically the first and largest trade, production and logistics territory, providing, among other things, warehouse facilities, production and office space.
Depending on the nature of their business, companies are issued trade, service, industrial or logistics licenses.
The forms of companies that can be incorporated in JAFZA include
- FZE (Free Zone Establishment) with a sole shareholder;
- FZCO (Free Zone Company) with two or more shareholders;
- PLC (Public Listed Company);
- Branch (of any company incorporated outside JAFZA).
There is currently no minimum share capital prescribed for FZE or FZCO companies, but such capital must be sufficient to carry out the activities for which the company is licensed. Previously, the minimum was set at AED 1 million for FZE and AED 500,000 for each FZCO shareholder.
The preparation and filing of audited financial statements by companies is required. The audit is carried out only by auditors approved by the JAFZA Authority.
A company must have a real office in the free zone, corresponding to its activities and meeting the requirements of JAFZA.
Dubai Airport Free Zone (DAFZ): a dynamic business hub
DAFZ is a free zone operating around Dubai International Airport, which provides direct air connections to countries in Europe, the Middle East, Asia and Africa. DAFZ suits companies in various sectors, especially transport, logistics, trade and services.
DAFZ offers the following types of licenses:
- Trade license (including e-commerce option);
- Service license;
- Industrial license;
- General trading license;
- Dual license from DAFZA and Dubai Department of Economic Development (allows operating outside of DAFZ);
- Talent Pass license (for freelancing individuals).
Three types of companies can be registered in DAFZ: a Freezone Company, a Public Limited Company (PLC) and a branch.
A Freezone company in DAFZ can have 1 to 50 shareholders (individuals or legal entities). The minimum share capital is AED 1,000.
Companies registered with DAFZ must prepare annual financial statements with an auditor’s report. The audit can only be carried out by an auditor approved by DAFZA. As a rule, financial statements are prepared according to IFRS and submitted no later than 90 days after the end of the financial year.
Companies must have a physical office within the DAFZ.
Dubai Internet City: a free zone focused on IT
Dubai Internet City unites IT and Internet companies engaged in software development, IT services, artificial intelligence, cloud-based technologies, network solutions, e-commerce, big data, telecommunications, blockchain, and new media. The free zone is regulated by the Dubai Development Authority (DDA).
Types of licenses available for Dubai Internet City resident companies:
- Internet and multimedia;
- IT services;
- Data centre;
- Advertising & communication;
- Media and marketing services;
- Gaming & e-sports;
The free zone enables businesses to register as a Free Zone Limited Liability Company (FZ-LLC) or a branch of an existing UAE mainland or foreign company.
The minimum paid-up capital for FZ-LLCs is AED 10,000 (approx. US$ 2,700).
Companies in Dubai Internet City and other free zones managed by the DDA must annually prepare and submit audited financial statements through a special electronic portal.
Establishing a free zone company in Dubai Internet City requires a real office space (a workplace in a business centre or a full-fledged office).
Dubai Silicon Oasis (DSO): a technological business park
Dubai Silicon Oasis is a themed free zone in Dubai specializing in high-tech, electronics and engineering.
DSO companies can be registered with service, trade or industrial licenses.
There are three company types in Dubai Silicon Oasis: FZE (with a sole shareholder), FZCO (with two or more shareholders) or a branch (of a UAE or foreign parent company).
The minimum capital requirement for a company in DSO is AED 100,000 for FZE companies and AED 10,000 per share for FSCO companies.
DSO companies must submit audited financial statements annually at the time of license renewal. Audits may only be carried out by audit firms approved by the Dubai Silicon Oasis Authority.
Companies must have a physical office in the DSO.
Free zones in other Emirates
Abu Dhabi Global Market (ADGM): an international financial centre
Abu Dhabi Global Market (ADGM), situated in Abu Dhabi, is open to companies in various industries, including banking and other financial services, financial technologies, asset management, professional services, etc.
Commercial licenses in ADGM contain a list of activities permitted for the company. Regulated activities (financial, legal, accounting, auditing, corporate services) require a special license. Companies can also obtain a license from the Abu Dhabi Department of Economic Development to operate in the main Abu Dhabi area outside of ADGM.
ADGM registers companies in one of the following legal forms:
- Public company limited by shares;
- Private company limited by shares (the most popular option);
- Private company limited by guarantee;
- Private company unlimited (with or without shares);
- Branch of foreign company.
Partnerships (limited liability, general or limited) and foreign companies’ branches are also available.
The minimum share capital for public companies starts from US$ 50,000. No minimum capital is established for other companies.
ADGM obliges companies to submit audited financial statements to the registration authority annually. The audit can only be carried out by an audit firm recognized by ADGM. Small companies file simplified statements (an unaudited balance sheet).
Companies must have a physical office on Al Maryah Island, i.e., a dedicated workspace or office space (options with temporary access are not allowed). Newly registered free zone companies in ADGM confirm the presence of an office by a lease agreement.
Sharjah Airport International Free Zone: a multifunctional airport area
Sharjah Airport International Free Zone (SAIF) in the Emirate of Sharjah is focused on transport, logistics, trade and production activities.
Companies may obtain trade, service or industrial licenses.
There are three types of companies in the SAIF free zone: FZE (sole shareholder), FZCO (two or more shareholders) and a branch (of a local or foreign company).
The minimum share capital required when establishing an FZE or FZCO company is AED 150,000.
A free zone company in SAIF must prepare and file audited financial statements within six months of the end of its financial year. Financial reporting is submitted online.
For companies applying for up to three visas, having a physical office within SAIF is optional.
Ras Al Khaimah Economic Zone: an industrial free zone with a wide range of services
Ras Al Khaimah Economic Zone (RAKEZ), situated in the similarly-named Emirate, is a general-purpose free zone with an emphasis on production, trade and logistics.
RAKEZ issues various licenses, including commercial, general trading, e-commerce, professional, service, industrial, media, educational, and freelance permits.
The main company form in RAKEZ is a free zone limited liability company (FZ-LLC). The free zone also allows the establishment of branches of UAE or foreign companies.
The minimum share capital for FZ-LLCs is AED 10,000. Some activities require a larger capital, for example, AED 100,000 for logistics and transport, AED 150,000 for manufacturing, AED 500,000 for real estate agents, and AED 1 million for developers.
Companies in RAKEZ submit audited financial statements within six months of the end of their financial year. Like in other free zones, financial statements must be audited by an audit firm approved by the RAKEZ Authority.
Companies established in the RAKEZ (except for freelancers) must have a physical office space within the free zone.
Fujairah Free Zone (FFZ): access to global and regional markets
Fujairah Free Zone is a general free zone with the priority of trade, including export and import, manufacturing and logistics. Companies operating in FFZ have direct access to ports of the Gulf countries, shipping routes to Europe, India, the Far East, and Fujairah International Airport. FFZ positions itself as an investor-oriented free zone with low tariffs and time savings for setting up a business.
A company in the Fujairah Free Zone can obtain a trade, general trade, service, consulting, industrial or warehousing license.
A company in FFZ can be registered as a Free Zone Establishment or FZE (with a sole 100% owner, either individual or corporate), Free Zone Company or FZC (with more than two owners) and a branch (belonging to a foreign or local UAE company).
The minimum amount of share capital is not established.
Annual preparation of audited financial statements is required.
Companies must have a physical office within the FFZ, which must be organized before the company starts its business.
How to choose a free zone in the UAE?
The choice of the most suitable free zone in the UAE depends on the purposes of a company, its activities, the cost of incorporation and maintenance, and the need for specific infrastructure. The leading free zones in Dubai and Abu Dhabi are the most reliable options.
It isn’t easy to accurately estimate all the costs of setting up a company in advance. The cost of registering a free zone company in the UAE usually includes:
- registration fees (for consideration of the application, registration, issuance of the Articles);
- license fee (depends on the type of license and proposed activities; payable annually);
- administrative fees;
- contributing share capital (where necessary);
- other components (lease of office space, visa applications) subject to client needs and free zone tariffs;
- fees of a corporate service provider for preparing and submitting an application, drafting documents, liaising with government authorities, and client support.
The registration of a new free zone company (from submitting documents to the completion of registration and visa procedures) takes around one month.
If you want to open a company in the UAE or need advice on choosing a suitable free zone in the Emirates, please do not hesitate to contact the Uniwide team.