Do you want to know the cost or pros and cons of starting a business in Dubai FTZ? If YES, here is a quick guide to doing business in Dubai Free Trade Zone.
Dubai is one of the Arab nations that have been flourishing business-wise in the past couple of years due to government reforms.
One of those government reforms that led to the massive transformations that marked Dubai as a world business center is the free trade zones. The Dubai government started the Free Trade Zones with an aim to capitalize the UAE market and to transform the economic structure, and it worked.
The first free trade zone that was set up experimentally was the Jebel Ali Free Trade Zone, and it changed the industrial climate in the entire UAE. With the success of this free trade zone, Dubai went ahead to aggressively source foreign investors and offer them several inducements for them to come invest in the country, particularly set up a business in the free trade zones.
From then on, Dubai has set up multiple free trade zones in the city. The scheme was such that every significant business sector has a jurisdiction of its own, so that it can maximize the profitability of such sector. Apart from this, the enormous benefits of setting up a business in a free trade zone in form of less taxation, complete ownership, and least constraints made it more appealing for entrepreneurs that want to set up a company in Dubai.
Here are a few things you need to know about Dubai free trade zones, including the pros, cons and costs of starting a business in the zones.
Table of Content
- What is a Free Zone?
- Free Zones in the UAE
- How Free Trade Zones Operate
- Pros of starting a business in a free trade zone
- Cons of setting up a business in the free trade zone
- Cost of Setting up a Business in Dubai Free Trade Zone
- 4 Things to Know Before Starting a Business in a Dubai Free Trade Zone
- Authorities Regulating Free Trade Zone Activities
- 8 Steps to Start a Company in a Dubai Free Zone
What is a Free Zone?
A free zone is a designated area within the country of Dubai in which businesses are subject to minimal or no taxation in order to boost economic activity and encourage investment. Free zones that are trade specific are allowed to receive, handle, manufacture, process, or re-export goods without the intervention of customs authorities.
Free zones are specifically designed to encourage foreign investment by allowing 100% business ownership by expatriates and a variety of business incentives are given to streamline efficient business practices for companies set up within the free zone. In the UAE, free zones may be industry specific or may be attached to a port, and they are quite a number of them.
So, in Dubai, you can set up your business as a Limited Liability Company with a license to operate anywhere within the UAE, or you can set up in a free trade zone.
Free Zones in the UAE
There are 38 Free Zones in the country and each free zone is specialized to handle a particular type of business. For example, Dubai media city is known for providing advanced infrastructure, supportive environment and strategic location to the media businesses.
One of the largest is the DMCC Free Zone (12000+ registered companies), which registers about 170 companies a month and almost all are new to Dubai. DMCC or Dubai Multi Commodities Centre has one of the best locations, i.e., Jumeirah Lake Towers. It allows a full range of activities, which includes business set up in gold, diamonds and precious metals. It has been awarded as the Global Free Zone of the year by Financial Times Magazine.
The other competitive Free Zones similar to DMCC are Jebel Ali (6400+ companies) and RAK Free Trade Zone, which boast 7000+ clients in Ras Al Khaimah.
How Free Trade Zones Operate
Companies set up in free zones are usually treated as offshore companies. Free zones are best suited to companies that intend to use the UAE for regional manufacturing or as a distribution base with the bulk of their business outside the UAE.
Although the registration, setup process, and paperwork vary for different free zones, the basic requirements for eligibility are the same, and they include:
- A free zone company must have a trade license in the intended activity of its free zone. This license needs to be renewed annually or according to requirements of the authorities.
- The free zone company must have an office with its business name within the free zone. Rent for this space is annually renewable.
- The company must hire a manager to act as its legal representative.
- Minimum share capital requirements apply for setting up a free zone business
- The company must have at least one shareholder.
- The company is not allowed to trade outside the free zone without hiring a local distributor.
Pros and Cons of Setting Up a Free Zone Business
Free zones in Dubai have been designed to provide an efficient and supportive business environment for their registered companies with the direct goal of attracting greater direct foreign investment. With this goal in mind, free zones offer companies a range of very lucrative benefits.
Pros of starting a business in a free trade zone
- 100% foreign ownership: Foreigners with free zone companies are allowed full ownership of their businesses without the requirement of having a local partner, as seen in other types of business set up. With a Dubai Limited Liability Company, owners are allowed a maximum stake of 49% with the majority holding belonging to a local partner or sponsor.
- Significant tax exemptions: Businesses within a free zone are exempt from paying taxes for anywhere from 10-15 years, and this exemption can be extended at the end of that period. While all major countries are revamping their tax laws, Dubai is offering a tax-exempted environment, letting you invest your money and rope in maximum profits and benefits.
- 100% repatriation of capital and profits: This is one of the biggest advantage of setting up a business in a free trade zone as all the profits earned from the business can be repatriated back to your home country if so desired.
- Excellent administrative and business services: Companies set up within free zones are provided with excellent amenities and infrastructure, providing them with the perfect platform from which to conduct their business.
- Energy within free zones is abundant and inexpensive: Recruitment procedures are efficient, ensuring the availability of a skilled and experienced workforce. Additionally, free zones receive a lot of government support including a high level of administrative support as well.
- 24-hour operation – Free zone companies can operate 24 hours a day. This helps to increase their efficiency.
- Ownership and lease options: As an entrepreneur who operates a business in the free trade zone, you are eligible for additional perks that include 25 years of lease options. You also get assembling and production facilities and warehouse facilities.
- Indulge more than one activity: If you are looking to set up your business in one of the Dubai free trade zones, another advantage you will get is that you are not restricted to carry out just one business-related activity. You are free to expand your business options but it must be within the ambits of the law.
Cons of setting up a business in the free trade zone
- Trade restrictions: One drawback you get to face if you set up your business in a free trade zone is trade restrictions. A free zone company is restricted to conducting its business within the free zone itself, and cannot expand into other markets within the UAE. They can undertake local business only through appointed local distributors. Custom duty of 5% is applicable to all goods brought in for the local business. This is a huge restriction particularly if the business intent is to service the entire UAE market.
- Restriction on type of business: Another glaring restriction you have to face is that you cannot run any type of business in this area. Free zones are trade or industry specific and cater to a particular type of business.
Therefore, the business activities of a free zone registered company are confined to the type of free zone in which the company has been set up. For example, a business set up in Dubai Internet City, one of the emirate’s leading technology hubs will need to restrict its activities to technology based activities. You are not allowed to operate beyond that boundary.
Free Trade Zones in Dubai and Businesses You Can Start There
The principal Free Zones in Dubai and their license activities are as follows:
- Dubai Multi Commodities Centre (DMCC): This center coordinates Commodities Trade and Exchanges
- Jebel Ali Free Zone (JAFZA): This center coordinates Trading, General Trading, Service, Logistics and Industrial
- Dubai International Financial Centre (DIFC): This center coordinates Banking, Financial Services as well as legal services
- Dubai World Central (DWC): This center coordinates Aviation, Logistics, Light industry and Ancillary Services
- Dubai Knowledge Park (DKP): This center coordinates businesses relating to Human Resources Management, Training and Personal Development
- Dubai Internet City (DIC): This center coordinates businesses relating to Internet and Communications Technology
- Dubai Media City (DMC): This center coordinates businesses relating to Media related activities
- Dubai Silicon Oasis (DSO): This center coordinates businesses relating to Information Technology, Telecom, Electronic and Engineering
- Dubai Healthcare City (DHCC): This center coordinates businesses relating to Healthcare, Medical Education and Research, Pharmaceuticals and Medical Equipment
- Ras Al-Khaimah (RAK): This center coordinates businesses relating to Trading, General Trading, Service, Industrial and Educational services
- Fujairah Creative City (FCC): This center coordinates businesses relating to Media, Consulting, Communications, Design and Technology.
Cost of Setting up a Business in Dubai Free Trade Zone
For setting up a business in Dubai Free zones, Dubai South has been said to be the best and the cheapest freezone. Ras-al-Khaimah freezone makes a value proposition for investors to take advantage of UAE’s free zone benefits. Ajman Freezone is also another relatively cheaper option.
Let’s explore how much it cost to set up a new business in a Dubai free trade zone.
Activity and cost (in AED)
- Registration and License – 2,000
- Address Services – 9,500
- Flexi Desk – 16,000
- E-Channel Registration Deposit – 7,150 ( AED 5,000 Refundable deposit inclusive)
Total – 34,650
- Other charges
- Residence Visa for one person – 4,000 (approx.)
- Global Resources Professional Fees – 6,000
NB: 5% VAT Applies on all costs
- Documents required
First of all, you need to open a bank account in any bank in the UAE. You also need to provide these requirements;
- 3 proposed names for the entity to be incorporated (in the order of preference)
- Clear Color Scanned copy of Passport.
- Visa copy or UAE Entry Stamp (if any)
Therefore, on the average, it costs AED 44650 and it’s 5% VAT to start a business in a Dubai free trade zone.
Requirements for Starting a Business in a Free Trade Zone
To be able to start a business in a free trade zone, investors can either register a new company in the form of a Free Zone Establishment (FZE) or a Free Zone Company (FZC) – an FZE has one shareholder and an FZC has two or more – or simply establish a branch or representative office of their existing or parent company based within the UAE or abroad.
An FZE or FZC is a limited liability company governed by the rules and regulations of the Free Zone in which it is established. The provisions of the UAE Commercial Companies Law (CCL) do not apply. In order to begin the process of setting up a Free Zone Company, you will require the following documentation and due diligence from all shareholders/directors of the proposed new company:
- Certified Passport Copy and UAE Visa/UAE entry stamp (if non-resident)
- 2 x Proofs of Address (dated within 3 months)
- Bank or Professional Reference Letter
- Curriculum Vitae (summary of professional history)
- Company Application Form (which we will provide)
Please note that some Free Zones may request a detailed business plan, depending on the business activity of the proposed new company.
Once a legal presence has been established in a Free Zone, the business will need to lease premises or land and acquire an operating license from the FZA. Different types of licenses apply in the different types of free zone. Companies with trade and industrial licenses can only conduct business within the Free Zone or abroad.
To sell products in the UAE, a UAE official agent is required, and a joint venture needs to be formed. If you are a foreigner, you should also try to sort out your visa requirements for setting up a business.
4 Things to Know Before Starting a Business in a Dubai Free Trade Zone
Here are a few things you ought to have in mind if you intend to start a business in a Dubai free trade zone;
a. You must have a good knowledge of the region. It goes without saying that you must be knowledgeable about the area you want to start a business in. You must be prepared to undertake extensive research into the business sector you aim to operate within. You must have a viable business plan which includes a study of the market conditions, the competition and your forecast results.
You must be prepared to find the necessary investment from your own resources or through your bank and preferably by other means than applying locally, particularly if you’re new to the region and without a track record. A credible plan might attract local support, possibly government support, so you need to make an effort when writing your business plan.
b. You need a local partner: Another thing you need to keep in mind if you want to start and run a business in a Dubai free trade zone is that you need a local partner. The law requires that you have a local partner who holds the majority interest and can therefore control the business, which includes closing it if necessary. The partner will own 51% of the company, therefore being able to call all the shots regarding it.
Be it a company or an individual, the local partner doesn’t need to contribute to the start-up investment or participate financially at all. As with self-employment, there are various ways that a partner can be remunerated. The local partner requirement is currently under review in some states, however, in order to encourage foreign investment.
c. You must show evidence that you have the money to run the business: When the business is registered, you must show the Ministry of Commerce that you have a substantial sum of money to invest into the business in the early stages. The required sum varies between the states (it’s between $10,000/£6,500 and $50,000/£33,500 in most cases) and is regarded as a guarantee against liabilities, although you may withdraw the money shortly afterwards.
d. The process is complex: In order to start your business, you must be aware that the process is complex and financially risky, meaning that local knowledge is crucial. You must also consult a good lawyer from the outset. An experienced lawyer will guide you through the registration complexities and his help will be vital in protecting your interests.
This applies whether you’re opening a modest shop or a major enterprise. As is the case all over the world, there are unofficial businesses operating in the region, but if anything goes wrong or you’re ripped off, you have no legal recourse whatsoever.
Authorities Regulating Free Trade Zone Activities
The emirate of Abu Dhabi
- Abu Dhabi Airport Business City
- Abu Dhabi Media Free Zone – (Media Zone Authority)
- Masdar City
- Khalifa Industrial Zone Abu Dhabi ( KIZAD)
The emirate of Dubai
Under Dubai Creative Clusters Authority :
- Dubai Internet City
- Dubai Media City
- Dubai Production City
- Dubai Studio City
- Dubai Outsource City
- Dubai Knowledge Park
- Dubai International Academic City
- Dubai Science Park
- Dubai Design District
Under Dubai Multi Commodities Centre Authority:
- Dubai Multi Commodities Centre (DMCC)
- Jumeirah Lakes Towers (it is now part of DMCC)
- Jebel Ali Free Zone (Jebel Ali Free Zone Authority)
- Dubai Airport Free Zone (Dubai Airport Free Zone Authority)
- Dubai Silicon Oasis – (Dubai Silicon Oasis Authority)
- Dubai HealthCare City – (Dubai Healthcare City Authority)
- International Humanitarian City
- Dubai Maritime City – (Dubai Maritime City Authority)
- Gold and Diamond Park
- Dubai South
- Dubai International Financial Centre
- National Industries Park (TechnoPark)
The emirate of Sharjah
- Sharjah Airport International Free Zone (Sharjah Airport International Free Zone Authority)
- Hamriyah Free Zone (Hamriyah Free Zone Authority)
- Sharjah Media City Free Zone (announced)
The emirate of Ras Al Khaimah
- RAK Free Trade Zone
The emirate of Ajman
- Ajman Free Zone (Ajman Free Zone Authority)
- Ajman Media Free Zone (announced)
The emirate of Umm Al Quwain
- Umm Al Quwain Free Trade Zone (Umm Al Quwain Free Trade Zone Authority)
The emirate of Fujairah
- Fujairah Free Zone (Fujairah Free Zone Authority)
- Creative City
8 Steps to Start a Company in a Dubai Free Zone
The following are common steps to set up a business in a Dubai free trade zone;
i. Decide the type of entity
Deciding on the type of entity you want to run is the first thing you ought to do if you are thinking of setting up a company in the free zone. In the free zone, you can start any one of the following two kinds of firms. They are;
- FZE (Free Zone Establishment)
- FZ Co (Free Zone Company)
The shareholder numbers will vary from one type of company to another. FZE needs one shareholder and FZ Co requires more than one shareholder. All kinds of free zones do not register both the two types of business.
ii. Decide on your share capital
This is the minimum amount required to start-up a business, and in some free zones, this amount may be per shareholder or the total amount for the company.
iii. Select your trade name
Choosing a trade name is the second step for setting up your business in the free zone. In most instance, you can ensure that the selected name is already registered or not with free zone authority. You need to do your research to find this out.
iv. Select your business activity
In a free trade zone, you can select from more than three thousand business activities that range from more than hundred sectors like shipping, diamonds, gold, commodities, aviation, and energy, professional services, financial services, personal services, community services, FMCG, constructions, technology, media, education and much more. This is to ensure that you are not limited in the kind of business you want to run.
v. Decide on who your manager will be
The person that will manage the business for you is one of the first things you are required to decide on because his name will appear on the trade license.
vi. Acquire initial approval
The business form in every free zone is actually following the rules and regulations of the respective free zone. For acquiring the approvals, you need to apply with the required documents. The documents list differs from one kind of business activity and company type as well as needs of free zone authority. You need to note this when gathering your documents.
vii. Select the office space
It is always helpful to know the Dubai free zone company start up cost before leasing or buying a business space in the free zone. You can select the office space based on the number of works and kind of business activity you want to undertake. If you have a limited budget, you can go towards free trade zones in Dubai.
viii. Submit an application
Submit an application for the name and desired activity for the company to the free zone authority, along with passport copies of the shareholder(s) and the manager.
A preliminary approval will be granted and a letter to open a bank account will be issued so that the investor capital can be deposited into the account. This capital needs to be retained until the License is issued.
Once the capital has been deposited, the bank will issue a letter which needs to be submitted to the free zone authority to complete the legalities for the registration process. This will include paying the fees for the License and registration, signing a lease deed for the office space, paying the rent, and signing a Memorandum of Association for the new company, etc.
ix. Acquire the license
The final step is to get the approval from the authorities. After that, you should then pay the stipulated license and registration fees. If you already know what setting up a business in Dubai cost, you can avoid many unwanted hassles. These are simple steps for UAE free zone company formation. By following the steps, you can set up your business in a free zone without facing much difficulties.
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