Free trade zones enable international firms to set up in the UAE without a local sponsor. They are distinct legal entities and companies operating within them are able to bypass many of the legal requirements for trading onshore. For example, foreign investors can own 100 per cent of businesses set up in the zones (instead of just 49 per cent onshore) and can repatriate all of the profits. This is because the free zone authority is, in effect, acting as the company’s sponsor in its role as an agency promoting inward investment.
Equally important to the attractiveness of free zones for firms is their international way of working. Dubai International Financial Centre (DIFC), for example, has its own regulator, which governs financial services using UK standards. Businesses set up outside the zone’s boundaries have to comply with local business laws.
These factors and many more (including zero income tax and impressive infrastructure) have lured thousands of companies to set up in Dubai’s now much-copied free zones. The free zones increasingly tend to specialise in a particular area, such as manufacturing.
The success of the model can be seen in the growth of the original free zone at Jebel Ali in Dubai. Occupying more than 48 square kilometres, Jebel Ali Free Zone hosts more than 6,000 companies from 120 countries and is one of the largest and most successful free zones in the world. The greatest testament to its success is its replication. In Dubai alone, there are now more than 30 free zones covering sectors from finance to media, and textiles to e-business.
The process for joining a free zone is usually relatively simple, which is one of the main attractions. It can often start with little more than an application form and can be completed within days. However, prospective tenants would be wise to consider their options carefully before choosing where to set up.
Even before thinking about which free zone to choose, investors need to make sure such a set-up is right for them. This is because most firms in many of the free zones are restricted from trading directly with clients in the UAE. Jitendra Gianchandani, chairman of Jitendra Consulting Group, says investors should carefully consider their reasons for moving to the UAE. “Many investors who want to serve clients in the local market should not form a company in the free zone, as [business with onshore entities] is possible only through a local dealer or agent,” he says. “Moving from one free zone to another is not easy, as the old company has to be liquidated and all visas have to be cancelled. There are also registration fees.” He proposes that businesses start with a small investment. “They can expand once they are familiar with the local conditions,” he says.
Businesses have to serve certain markets specific to each free zone. These markets can be identified from the names of free zones (Textile City, for example), but there can be some surprises, so businesses should investigate their options thoroughly.
As well as having different set-ups and specialisations, free zones charge varying rents. These depend on the type of business, the sort of facility required and amount of space taken. The most popular zones charge the highest rents. DIFC charges AED2,370 ($645) a square metre, according to the US’ Jones Lang Lasalle. Standard office rents in Dubai are about AED1,300 a square metre. The UK’s Cluttons says warehouse space goes for between AED17 a square metre a year in poor locations to AED200 in Jebel Ali Free Zone.
There are several ways of setting up in free zones and these vary in each location. Existing firms can almost always set up a branch company, removing the need to meet burdensome capital thresholds.
Free Trade Zone Benefits
- 100 per cent ownership for foreign investors
- Exemption from import and export taxes
- 100 per cent repatriation of capital and profits
- No corporate taxes
- Lease for a renewable 15-year period
- Assistance with labour recruitment and other support services
- Flexible investment options
- Efficient transport and distribution facilities
UAE Free zones
- Abu Dhabi
- Abu Dhabi Airport Zone
- Abu Dhabi Ports Company
- Two Four 54
- Masdar City
- Ajman Free Zone
- Dubai Academic City
- Dubai Airport Free Zone
- Dubai Autozone
- Dubai Biotechnology & Research Park
- Dubai Flower Centre
- Dubai Health Care City
- Dubai International Financial Centre
- Dubai Internet City
- Dubai Knowledge Village
- Dubai Logistics City
- Dubai Maritime City
- Dubai Media City
- Dubai Multi Commodities Centre
- Dubai Outsource Zone
- Dubai Silicon Oasis
- Dubai Studio City
- Energy and Environment Park
- Gold & Diamond Park
- International Media Production Zone
- International Humanitarian City
- Jebel Ali Free Zone
- Mohammed Bin Rashid Technology Park
- Fujairah Creative City
- Fujairah Free Zone
- Ras al-Khaimah
- Rakia Industrial parks
- Rak Media City
- Ras al-Khaimah Free Zone
- Hamriyah Free Zone
- Sharjah Airport International
- Umm al-Quwain
- Ahmed Bin Rashed Free Trade Zone