According to World Bank Data, it takes an average of 10 days to set up a company in the world’s high-income countries. However, the United Arab Emirates has a shorter average time-to-setup.
According to the country’s Ministry of Economy (MOEC), business setup in the UAE through the Department of Economic Development takes only four days. It gets even shorter when a business applies online or via the Basher online platform, where setup takes approximately 15 minutes.
The ease of starting a business in the UAE makes it attractive to foreign investors. Do you want to establish your own UAE company? The first step is to decide where to apply for business registration: a UAE free zone or the UAE mainland.
Free Zones
The UAE has many free zones – areas with less stringent requirements and special privileges for business owners. These zones are under the jurisdiction of their respective free zone authorities. For instance, Dubai Internet City, Dubai Media City, Dubai Production City, and Dubai Studio City (among others) fall under the purview of the Dubai Development Authority.
Free zones are intended for foreign investors who want a UAE business address or wish to operate from the UAE. The UAE is geographically well-situated – an excellent jumping-off point to Europe, Africa, and other parts of Asia. The world-class logistics and transportation services and facilities in the UAE, moreover, enable companies to maximize the utility and value of this geographical advantage.
Free zone companies serve other free zones and international markets, not the UAE, although they can work around this by establishing a mainland branch. Put simply, a shoe distributor operating from a free zone can sell shoes to Singapore, South Africa, France, other parts of the world, and other free zones in the UAE, but not the UAE mainland (i.e., non-free zone areas).
Free zone companies enjoy many privileges, including 100% foreign ownership, which was particularly important when UAE mainland companies limited foreign ownership to 49%. Today, UAE mainland businesses in over a thousand (but not all) economic activities may be 100% foreign-owned.
The 0% corporate income tax rate is another significant advantage enjoyed by free zone companies in the UAE, especially in light of the new 9% flat-rate federal corporate tax enforced across the UAE. Under the new corporate income tax regime, free zone companies are required to register for the corporate tax. However, the 0%, not the 9%, tax rate applies to the qualifying income of qualifying free zone persons. For all intents and purposes, the income of free zone companies remains tax-free.
Free zone companies also enjoy the following additional benefits:
- 100% repatriation of capital and profits: Liquidate investments in the UAE, convert them into the currency they initially used when investing, and return the entirety of that and any profits earned to their home country.
- 100% exemption from customs duty: Import and export equipment, supplies, and products into the free zone without import and export duties and additional restrictions, as long as they do not bring them into the UAE mainland.
- 100% exemption from personal income tax: Free zone personnel are exempt from paying personal income taxes, although this is a benefit enjoyed everywhere in the country, not just in the free zones.
- Simpler compliance requirements: Free zone authorities typically have simple startup, reporting, and filing requirements for free zone companies.
The UAE Mainland
The mainland is any part of the UAE that is not in the free zone. It is for domestic and foreign companies doing business in the UAE.
If a foreign shoe brand wants to supply shoes to department stores in Dubai or open a shoe shop in Umm Al Quwain, it must have a mainland business license. Only abusiness setup in Dubai or any of the emirates via the Department of Economic Development is authorized to sell goods, provide services, and do business in the UAE mainland.
In the past, doing business in the UAE mainland was limited only to companies in which the majority (51%) shareholders were UAE nationals. The delineation was clear: UAE mainland business activities were limited to companies wholly or primarily owned by UAE nationals.
However, the amended UAE Companies Law has lifted this particular restriction. Consequently, 100% foreign ownership is now permitted even in the UAE mainland except for those engaged in economic activities with strategic impact (e.g., military, banking, and insurance).
That said, even though 100% foreign ownership is effectively permitted both in the mainland and free zones, the distinction in market focus between these jurisdictions remains. Free zone companies can do business only in free zones and use the UAE only as a base for their international operations. Meanwhile, mainland companies can do business everywhere in the UAE and venture outside the country.
Aside from having no geographical restrictions in their business operations, mainland companies also enjoy the following additional advantages:
- Choice of address and office type: A company registered in Dubai has no restrictions on where to set up its headquarters and what type of office to get. Free zone companies have more limited options.
- Diversity of business activities: There are thousands of economic activities companies can choose to do in the mainland.
- Access to opportunities: Mainland companies can submit bids for and win government contracts. Free zone companies are prohibited from operating in the mainland, so they cannot bid on government projects.
- Unlimited visas: Free zone companies have visa quotas. Mainland companies don’t have such restrictions, although they do have to comply with the regulations set by various government agencies, such as the Ministry of Human Resources & Emiratisation (MoHRE), which has jurisdiction over approving work permits.
Deciding Between a Free Zone or the UAE Mainland
Where should you establish your UAE business? It primarily depends on your focus. Doing business in the UAE mainland? Start a mainland business. Need the UAE only as a base for international operations? Start a free zone company.
Of course, it’s not a black-and-white decision, and many factors can come into play. If you don’t know which option is more appropriate, consult a business setup consultant in the UAE.
This post was originally published on here
