One of the first things I encountered as I started researching how to set up a company in Dubai was that the premise of free zones, or free trade zones. These are actual geographical areas that are governed by their own regulations separate from the regulations of the UAE in general, except for the criminal law. The framework of each of the free zones are designed for one or more specific business categories, and will not accept license applications that do not belong to those categories.
This categorization will be your first step in determining which free zone to pick for your company, and you can find an updated list of all the different free zones on Wikipedia.
A short back story of free zones
First, a a very compressed introduction to the policy of the UAE to give you an understanding of the existence of free zones. 50 years ago, Dubai was a small village surrounded by desert in every direction except for the Gulf in the north, unknown to most westerners. The British decision to withdraw from the area in 1968 led to the leaders of the neighbouring states to form a federation, initiated by Sheikh Zayed bin Sultan Al Nahyan of Abu Dhabi and Sheikh Rashid bin Saeed Al Maktoum of Dubai. Around the same time, oil exports was becoming a major source of income for the young nation, and the ruling families decided to use this money to improve the lives of its citizens by building roads, schools and hospitals.
Oil brought the UAE wealth and a heightened standard of living, but Sheikh Rashid bin Saeed Al Maktoum, the ruler of Dubai at the time, was concerned that while oil might be a sustainable source of income for decades, it would not be so for generations. His thoughts are best summed up in his famous quote:
My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel
Thus the plan was initiated to diversify the economy of Dubai, to secure a high standard of living in a future post-oil world. Revenue from oil and gas currently (2017) account for less than 5% of the gross domestic product, and tourism, property, aluminium production, the Dubai ports and aviation now make up most of the GDP.
Dubai wanted to attract businesses and investors from abroad, and is increasingly focusing their strategy on attracting knowledge workers by offering free customs duty and tax free benefits to foreign investors. Thus, the free zones were set up. The attractive perks have resulted in major global corporations such as Microsoft, Oracle, LinkedIn, Ericsson and hundreds more have set up a hub in Dubai, employing thousands of expatriates and locals.
Why choose a free zone?
First off, setting your company up in a free zone is the only way to retain 100% ownership of your business, with no local sponsor needed. When the company is up and running, you can enjoy 0% corporate tax and the same rate on your income, as well as free customs duty. As you are employed in your startup, you can apply for a worker’s visa, start a corporate and private bank account and hire staff. Except for the startup and annual renewal fees, there are no costs involved in running your business.
Why not choose a free zone?
The nature of your business needs to determine what kind of company you set up. Each free zone has a set of regulations that you need to know well before setting up, or you run the risk of going through the whole setup process just to discover that regulations prohibit you from actually doing the work you planned. Here are some (but not all!) restrictions you should research before setting up:
A free zone entity’s business may be limited to operate in certain areas. A license in Fujairah may not allow you to set up a shop in a local mall for example. If you plan to do business outside of the zone where you set up, make sure your license allows for it.
- Office location
A free zone license package will usually come with an office lease agreement in that zone, which is not optional. While some of the free zones offer what is called a flexi-desk, meaning that you can work from anywhere you like, you cannot necessarily rent an office elsewhere. If your customers are mostly located in the Internet City free zone for example, you might want to set up office in one of their buildings. A license from another zone will not allow you to do that.
As each free zone is run as a separate authority, the startup and renewal fees can also be very different. Expect the cost of setup to be from 25 000 AED and upwards, with the annual renewal fees usually a bit lower.
- Legal framework
Operating an onshore business (as opposed to a free zone company), you enjoy the benefit of a sound legal framework wherever you operate (though there may be some differences in the different emirates). You are not confined to a set of regulations structured by the free zone. Laws such as the recently approved bankruptcy law may not apply to free zone companies.
A local sponsor is usually more than just a shareholder. Through their professional network, they can provide knowledge and benefits that can be a valued asset for a new company.
Simply put, a young free zone company does not carry the same weight as an onshore company.
Should I use a consultant to help me set up?
Setting up a free zone company in Dubai by yourself is perfectly doable, but it does involve a steep learning curve, a lot of paperwork and more time spent than a seasoned consultant. A professional will prepare your paperwork, use their network to your advantage, avoid pitfalls and perhaps most importantly – advice you on what kind of license suits your kind of business best. Personally, I chose the middle path: I spoke with a consultant for advice on where to set up, but I did the job myself. The reason for me was that I wanted to be involved in every part of it and learn through my own experience. I won’t lie: it was frustrating at times, as one would expect, going through any legal process outside of one’s home country. The people at Creative City Free Zone where I set up the company however, were helpful, quick to respond and customer friendly.
Got questions or comments? Feel free to add below.