Article:
ISSUE No.8 January - February 2007

IN THE ZONE
Free Business in the United Arab Emirates

By: Helene Mathieu Legal Consultants

Amongst the countries of the Arabian Gulf, the United Arab Emirates has taken the lead in developing free zones and has been remarkably successful in attracting foreign investment. In fact, nearly all new foreign investment in the UAE gravitates to the free zones.

What Is a Free Zone?

According to the World Federation of Free Zones, a free zone is a portion of clearly defined and isolated land or setting, with a special tax, customs and imports regime, usually involving a status of extra-territoriality.
Everything in a free zone is oriented towards allowing each client who establishes a company therein to get on with doing business, without any hindrance. In order to facilitate this easily, the free zones are regulated by the established laws from the government of each country, and in many locations by a separate entity – or a free zone authority.

What Free Zones Are There In the UAE?

The main idea of establishing free zones in the UAE was for them to serve as a central business hub for entities desiring to conduct business in the outer world, not specifically in the UAE. Therefore, UAE free zone companies are intended to operate within the relevant free zone and are not licensed to operate within the rest of the UAE. Legally speaking, free zones are not considered part of the UAE. Thus, goods imported by a free zone entity will be subject to customs duties when taken out of the free zone into the rest of the UAE. This restriction can only be considered a business constraint for companies willing to trade within the UAE. If you are targeting the international market outside the UAE, free zone establishment is the right choice for your prosperous business.

What Is the Benefit of a Free Zone?

Any natural person or juridical entity, whatever her or his nationality but of recognized personal, professional and economic status can invest and operate in a free zone. Assisted by experienced consultants, the drafting of the required corporate documents and the company formation take two to three weeks on average.
In the UAE, foreigners may own one hundred percent of the equity in a company established in a free zone, and setting up does not require a local partner. Therefore companies retain full control of their businesses at all times. This is in sharp contrast to the regime outside of the free zones where the UAE Commercial Companies Law requires at least 51 percent national ownership in commercial companies.
The UAE government guarantees that in the event that the country imposes corporate taxes, there will be none for companies established in the free zones for a period of up to 50 years. All profits can be transferred out of the country as and when required and there are no currency restrictions.

How About Going Offshore?

Offshore companies are similar to free zone companies. An offshore company is the one which operations are not handled in the country of its incorporation and offshore owners are non-residents of the country. With the benefit of tax-free business owned by foreigners at the heart, offshore incorporation is one of the best known and most efficient ways of tax planning.
Offshore companies are not subject to any form of taxation, auditing or assessment in the jurisdiction of their incorporation (except for payment of a fixed Annual License Fee). Consequently, they do not pay any taxes for transactions carried out outside their territory of registry. Dividends generated by an offshore company and received by other companies are also exempted from all forms of taxation. All corporate information is confidential, and offshore companies are not required by law, even if they have a branch in a UAE Free Zone, to file annual income tax returns or financial reports. An additional benefit for incorporating an offshore company and consequently setting up its branch in a UAE free zone is that the free zone authority will waive the security deposit required to establish a new business entity.

Which One to Choose?

There are a whole panoply of factors to consider when determining which free zone would be most appropriate for the establishment of a new business entity. These factors include, for example, location, infrastructure and facilities, licensing process of the proposed activity, and the prestige of a particular free zone.
Experienced consultants will advise on the right choice of a free zone matching your business activities and undertake the full responsibility for preparing incorporation and registration documents for the establishment of your company.