What are the benefits to establishing a company in a Free Zone?
Forming a company in Abu Dhabi and Dubai and the rest of the UAE can be a complex task for expats. Over the past few years many Free Zones have opened up to help freelancers, consultants and small businesses get a license to operate here in the UAE. Despite the benefits of Free Zones, there are a number of crucial factors to be aware of. When considering company formation in the different Free Zones across Abu Dhabi and Dubai, be sure to ask the following questions.
1. What are the key costs when establishing a company in a Free Zone?
Often Free Zones state that you can set up for a very low fee, but the truth is there are a number of compulsory costs, which soon add up.
Within any Free Zone there are five key costs to consider;
- Trade Name Reservation
- Trade License
- Office Rental
- Visas and other ancillary costs
These can be further categorised into one-off fees and annual fees. While the registration fees are fairly low, once all the other costs are added in, it is hard to setup in any Freezone for less than 30,000 AED (based on a virtual office arrangement).
2. How much is the trade license?
Company trade licenses range from AED10,000 to AED20,000 per annum depending on the number of activities or services that you wish to offer. Typically the number of activities range from 2-10, and the Free Zone will provide a list of the permitted activities. Costs vary marginally between the different free zones, but not by much.
3. What’s the difference between a flexi desk and an office?
A flexi desk is the simplest and smallest form of office space within a Free Zone, and in simple terms is a shared desk in a communal office space. Whilst this is normally the cheapest lease option, the number of flexi desks is limited, and as such many Free Zones will apply a maximum time limit to a flexi desk space.
In contrast, an office in a Free Zone is reserved exclusively for that company and can be fit-out to suit operational requirements.
One of the most important things to consider when deciding on the lease type for your business is your visa requirements. One flexi desk is normally applicable for one or two visas, so depending on the number of visas that you require, leasing an office may work out to be the best value option in the longer run.
The AED 30,000 minimal set up estimate in a Freezone is based on a flexidesk arrangement, once you require a physical office and/or more that 1 or 2 visas then costs increase significantly.
Normally the Freezone will charge you per person/per visa for your office space and will normally require you to have between 7-10 sqmeters per visa against the licence. In some cases the Freezones have a minimal volume of small size offices so check beforehand as you may end up graduating from a AED 15,000 virtual space straight to a AED 80,000 per year 4 person office with no steps in between.
It is worth noting that the office space process onshore is much more flexible, you do need a minimum 200 sqft space for a licence (a ‘virtual office’ is not possible) but you can obtain more visas against this space if you can show job titles for staff that do not need to be sat in the office – e.g. Sales, or Technical staff for example. Please ask us for further information on this.
4. What are the benefits to establishing a company in a Free Zone?
There are a number of advantages to establishing a company in a Free Zone, including:
- 100% foreign ownership
- 100% repatriation of capital and profits
- 100% corporate and personal income tax exemptions
- Exemption from all import and export duties (but you cannot import into mainland UAE)
There are also some additional benefits of trading within a Free Zone. Many Free Zones arrange regular training and networking events which are usually free to attend. Most have meeting rooms available to hire privately for a fee, and many will encourage members to share business opportunities within that Free Zone.
5. Do I need to set up a company bank account?
Normally each company is required to set up a business bank account before they can apply for their trade license. However, some banks may request to see a copy of the company’s trade license before they will set up the account. To avoid this chicken and egg scenario, always seek advice from your chosen Free Zone first - they will have assisted numerous companies to set up their business and as such will be able to recommend the most efficient banks. It is also possible in certain cases to ‘soft open’ the company bank account with the just the initial documents, the account will then be open fully once you have the final Trade Licence.
6. Do I need to demonstrate a cash lump sum?
In many Free Zones you have to put a deposit into the bank account and prove you have a float of funds before you can finalise your set up.
7. Do I need a local partner?
Arguably the most significant difference between setting up a company in a Free Zone compared to on-shore is the fact that you do not require a local partner. This means that you are able to retain 100% ownership of your business. But this has draw backs too. There are some companies and a lot of Government and Semi Government organisations that will only do business with Onshore companies not Freezones. Specifically there are some industries where you must have an Onshore license before you can operate, particularly if you need onshore regulatory approvals to operate within the UAE. Within a Freezone you can also face the issue of counterparty default in the event of an invoice or contractual dispute with an Onshore supplier or client for example. So Free zones are beneficial for some companies, but not suitable for all.
8. Can I set up a branch?
Most Free Zones offer three legal frameworks in which to establish a business;
- a limited liability company with a corporate shareholder,
- a limited liability company with a natural (individual) shareholder,
- and a branch of a foreign or UAE company.
Any company can establish a branch in a Free Zone and is treated as an extension of the foreign company, which remains legally liable for their activities. The main thing to consider with a Branch is tax. All taxes will need to be paid in the parent company jurisdiction.
9. How much is it to use the meeting rooms – how many hours are free of charge?
Most Free Zones have at least one meeting room which is available to hire at relatively low fee, and usually it is possible to use the rooms on a complimentary basis for at least a couple of hours per month depending on your office lease package – normally this is not available with a Flexidesk option.
10. Do Free Zones only allow companies from one type of industry?
It is common for Free Zones to specialise in one industry. For instance, TwoFour54 in Abu Dhabi is a media Free Zone which houses many well known media companies, Dubai Healthcare City is specifically targeted at Healthcare providers and suppliers. It is important to research the Free Zone that you are interested in and ensure that your business will be a good fit. Ultimately your business will benefit from working in an environment where business opportunities can be shared and the networking is a common practice.
It’s worth noting that some industries are not suitable or permitted to set up in a free zone, so do your homework first and speak to an expert.
Freezone not for you?
Prefer to set up an onshore company? Read our blog Business set up information UAE. James Swallow shares his in-depth knowledge of the key steps and considerations surrounding all types of company formation in the UAE.
James Swallow is Commercial Director of PRO Partner Group. PRO Partner Group specialises in company formation in Abu Dhabi, Dubai, the wider UAE and Oman. In particular the team specialize in Onshore Company set up. They can also advise on Free Zone company set up.
T: +971 (0)4 456 1761 (Dubai)
T: +971 (0)2 448 5120 (Abu Dhabi)