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Company Formation in Free Zones in the UAE

Dubai-Airport-Freezone-DAFZAQ. What is a free zone? Why do some companies opt to set up their business in free zones?

A. In general, a free zone or free trade zone may be described as a portion of a city or a clearly designated area in a country apportioned for business activities such as the receipt and storage of goods without any import duties, and where commercial/industrial operations may be carried on and certain taxes or restrictions on business or trade do not apply.

What makes free trade zones attractive for business is the tax exemption they offer; and, especially in the UAE where regular companies are required to have a UAE national sponsor, the fact that businessmen get to enjoy 100% ownership and control of their business.

Q. I am planning on setting up my company in a UAE free zone, what factors must I consider?

A. On the outset, a number of considerations have to be taken into account when setting up any business, and these include budget, company type and location.

There are various free zones in the UAE that have proven attractive to global investors because of tax exemptions and the assurance of 100% foreign ownership minus the red tape usually associated with establishing a business. The different free zones are focused on very specific activities and industries, and provide entrepreneurs a range of modern infrastructure and facilities to suit their business needs.

It must be emphasized, however, that no two free zones are the same. Each free zone, managed by a specific governing body, would have its own applicable fees, business setup protocols, regulations, and space requirements. The free zone authority issues operating licenses and offers assistance to startup firms. Each free zone also requires a minimum capital amount depending on the type of business one plans to establish.

Entrepreneurs can register their business ventures either as a free zone establishment (FZE) or free zone company (FZC), or as a branch of a company based locally or overseas. Both FZE and FZC are considered limited liability companies, with the former having a single shareholder and the latter two to five shareholders. Free zone occupiers can only conduct business transactions within the applicable free zone or abroad; otherwise, they need a local dealer/agent to sell their products in the country where the free zone is located. They are allowed to import merchandise, equipment and goods from any foreign country without paying customs taxes; though some goods are prohibited in free zones.

With the different laws governing various free zones, businessmen and entrepreneurs are encouraged to approach business setup firms or qualified legal professionals for guidance and advice.

Q. How should I go about setting up my business in a free zone?

A. Whether you are looking at setting up a free zone company or an offshore company, you will be required to submit documentation and other legal requirements to get business setup work going. But be sure to involve the expertise of a qualified legal advisor before going through the motions of setting up your company. Remember that rules vary across the different UAE free zones, as does the paperwork involved. Also, since it is most every businessman’s desire to perpetuate his/her assets indefinitely, it would do well to prepare a succession plan appointing a family member, partner, shareholder or any such person/s as you deem fit. This is an important legal element requiring the expertise of a qualified lawyer or solicitor, so having someone well-versed in the companies law on UAE free trade zones (among other legalities) and able to confidently point you in the right direction will prove an invaluable asset to your entire undertaking.

Article Courtesy of

Nita Maru, LLB (Hons) UK
Solicitor and Managing Partner
TWS Legal Consultants
Office Suite 3001, HDS Tower
Jumeirah Lakes Towers, Dubai UAE
Tel No. : +971 4 448 4284
Email: info@twslegal.ae
Web: www.twslegal.ae

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