Doing Business in Abu Dhabi – Free Zone vs Onshore Company

Over 88% of Abu Dhabi’s population is comprised of those from abroad and multinational influences in Abu Dhabi are ever-present. Expats considering moving to Abu Dhabi need to prepare themselves for this diversity whilst understanding the local culture and customs.  The same is true for businesses looking to expand into the region.

Ranked 22/189 by the World Bank’s Ease of Doing Business Survey for 2015 doing business in the UAE can be complicated and it is important that you get the right advice from the outset.

To do business legally in Abu Dhabi a Trade or Commercial License must be obtained to incorporate and register the company. Regulations, restrictions and commitments vary by jurisdiction, so it’s important to understand them so as to make informed decisions. 

Electing to do business in the UAE takes more than just an idea and a plane ride. You must decide on the type of business activity as well as its suitability. Performing research and a feasibility study is a good idea and you must understanding where you customers are located will help you decide where your business should be located – onshore or free zone.

Onshore or Free zone?

There are 4 free zones in Abu Dhabi with a fifth one scheduled to open in 2015:

1. TWOFOUR54 – the media free zone

2. Kizad – the industrial free zone

3. Masdar City – the renewable energy / green tech free zone

4. Abu Dhabi Airports Company – the logistics free zone

5. Abu Dhabi Global Market (ADGM) – (scheduled to open towards the end of 2015)

Free zone companies in Abu Dhabi

The Free zones offer many benefits to businesses located within and allows free trade of goods and services to other companies with the zone. The key restriction is that the free zone companies must carry out their work within the free zone. Meetings can be arranged outside of the free zone but the Free Zone Company cannot strictly do business with companies or government organisations outside the relevant Free Zone.

Some benefits of Free Zone set up are as follows:

1. 100% corporate and income tax exemptions

2. 100% repatriation of profits

3. 100% foreign ownership

4. Independent regulations

5. No Customs Duties

6. Cheaper quicker to incorporate– but mandatory rents within Freezones tend to be higher

Restrictions of being a free zone company include:

1. Limited to operating within the geographical zone, or overseas

2. DED license required for government tenders and contracts

3. Duty applies to products exported to the mainland

4. Agent required to deal with mainland clients

Taking the time to learn about the benefits of each scenario will assist you in your decision as to where would be the best place to locate your business.  The type of business you bring to the country, the clientele you hope to attract, the size of your business etc. will dictate to a large degree where you should locate. 

PRO Partner Group specialises in providing foreign investors with impartial advice on Company Formation at the early stages, so whether you are looking at Free Zone or Onshore within Abu Dhabi or Dubai you can contact us for further information and advice. 

James Swallow is Commercial Director of PRO Partner Group and can be contacted direct on james@propartnergroup.com.

Some reference point on UAE Law on the matter are below:

The Dubai Government website:

http://www.dtmfza.gov.ae/en/laws-a-regulations.html

Under the UAE Agencies Law, a free zone entity is not permitted to sell their products or services directly to the local UAE market but can do so legally through a locally appointed agent, sales representative, distributor or mother Company, with a license issued by Dubai Economic Department.

Al Tamimi Law Firm

http://www.tamimi.com/en/magazine/law-update/section-6/november-3/doing-business-in-the-mainland-of-dubai-through-a-free-zone-entity.html

Most of the free zones in Dubai, if not all, do not permit a company registered with such free zone to do business outside the free zone in the mainland of Dubai unless such company obtains appropriate license from the local authority i.e. the DED.

Moreover, according to the law no. 13 of 2011 the DED is the only responsible authority for issuing licenses outside the free zones. The said law states that no one is permitted to conduct economic activities in Dubai outside the free zones except through a corporate entity licensed by the DED. Anyone who violates the provisions of this law can be fined up to AED 100,000.

The common legal forms for free zone entities to conduct business in Dubai are civil work company, limited liability company or branch.

For example see RAK Free zone Regulations point 2.1

http://rakftz.com/Portals/3/Download_Documents/Rules_and_Regulations/20081125_rules-and-regulations-nov-25-08.pdf

http://www.emirates247.com/business/corporate/free-zone-firms-need-ded-licence-to-operate-in-dubai-2012-11-20-1.483832?utm_source=dlvr.it&utm_medium=linkedin&goback=%2Egmp_2923309%2Egde_2923309_member_187625441