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Dubai Free Zone Company Formation - General Free Zones/DMCC

Sponsored by Europe Emirates
23 March, 2018


Dubai is already well known for its light burden of taxation. However, its expanding network of free zones offer unparalleled tax and regulatory advantages for foreign investors looking to establish a platform in the Gulf region.

Introduction

According to most recent estimates, there are thousands of commercial and economic free zones scattered across the world offering companies across a range of economic sectors certain fiscal and legal privileges not generally available to operators in the wider economy. However, few match the incentives on offer in Dubai's free zones, of which there are now more than 30.

Dubai Free Zones

Companies in Dubai's free zones are granted a number of tax and regulatory benefits, including freedom from corporate taxation for a period of 50 years, a concession which is renewable; exemption from all import duties; 100% repatriation of capital and profits; and 100% foreign ownership (foreign ownership is restricted to a maximum of 49% in the UAE).

In addition, there are no re-export duties, no personal income taxes, no currency restrictions, and no restrictions on hiring foreign employees.

Other advantages include the availability of abundant and cheap energy, modern and efficient communications systems, and access to a skilled labour force.

Dubai's network of free zones now covers a comprehensive range of economic sectors, including manufacturing, logistics, healthcare, research, education, finance, information technology, the media, commodities, outsourcing, and many more. Most free zones specialize in a particular sector, and only companies operating in that sector may establish in the free zone.

However, most free zone companies are not suited to trading in the UAE itself. Generally, free zone companies are not permitted to trade within the UAE market, and in order to do so they need to establish a UAE company (with its foreign ownership restrictions) with a local sponsor.

Jebel Ali Free Zone

Of note is the Jebel Ali Free Zone (JAFZ), the first free zone to be established in Dubai and now said to be the world's largest such zone. Launched in 1985, this 50 square kilometre site situated near the port of Jebel Ali is now home to 7,000 companies including many global household names.

The JAFZ is also a vital cog in the economy of Dubai, accounting for 25% of GDP, 20% of its foreign direct investment, and more than half of its exports.

Dubai Multi Commodities Centre

A more recent free zone success story is the Multi Commodities Centre (DMCC). Established in 2002 by Royal Decree, the DMCC is a strategic initiative of the Government of Dubai, with a mandate to enhance commodity trade flows through the Emirate by providing the appropriate physical, market, financial infrastructure and services required.

Enjoying the same fiscal privileges, legal autonomy and regulatory freedoms as Dubai's other free zones, the DMCC is the master developer and licensing authority for the Jumeirah Lakes Towers (JLT) Free Zone, the fastest growing free zone development in Dubai. The DMCC has been awarded the title of Global Free Zone of the Year three times by the Financial times fDi magazine.

The number of companies established in the zone has grown to more than 14,000. The DMCC has attributed this growth in large part to its digital transformation initiative, which made all the free zone's services available online in 2013, including the company registration process.

Furthermore, the DMCC was the first UAE free zone authority to offer freehold business premises in addition to all the usual incentives.

Free Zone Company Formation and Licensing

Setting up a business in a Dubai free zone is relatively free from bureaucratic hurdles. It can be broken down into the following five steps: determining type of legal entity; choosing a trade name; applying for a business licence; choosing an office space; and registering a business. Investors are usually assisted through this process by the free zone administration.

Generally, the choice of company format is between a Free Zone Establishment (FZE) or a Free Zone Company (FZC). An FZE has one shareholder, which can be an individual or a company, while a FZC will have two or more shareholders (which can also be either individuals or companies). Minimum capital levels vary from one free zone to another.

Investors also have the option of establishing a branch or representative office of a UAE or foreign parent company in a Dubai Free Zone.

As mentioned, free zone companies must obtain a licence before carrying out commercial activities in a free zone. The type of licence required will depend on the activity to be carried out by the company. However, broadly, there are three categories of licence, as follows:

  • A Trading Licence allows the holder to import, export, distribute and store items specified on the licence.
  • An Industrial Licence allows the holder to import raw materials, carry out the manufacture of specified products and export the finished product to any country.
  • A Service Licence allows the holder to carry out the services specified in the licence within the Free Zone. The type of service must conform to the parent company's licence, issued by the Economic Department or Municipality of the relevant Emirate in the UAE.

The cost of setting up a company in a Dubai free zone can vary considerably depending on the free zone in question and the type of activity undertaken by the company. Generally, company registration costs start from around AED17,500 (USD4,765), a sum that includes first year licence fee. However a free zone licence needs renewing annually, and this ongoing cost can also vary from one free zone to another, from AED10,000 up to around AED50,000.




 

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