The United Arab Emirates (UAE) has evolved to emerge as one of the world's greatest business centers today. With a strategic location at the crossroads of Europe, Asia, and Africa, it offers the perfect blend of economic stability, cutting-edge infrastructure, and enterprise-friendly policies. Due to the cosmopolitan cities like Dubai and Abu Dhabi, the UAE now attracts foreign direct investments, trade, and tourism. In connection to these, it can be said that knowledge of how companies are formed in the UAE is basically a key for businesses in maximizing opportunities since there are more than enough available in that country.

The business environment of the UAE by all accounts has the following features:

• Thriving free-zone ecosystem;
• Regulatory frameworks streamlined;
• Competitive tax systems;
• Infrastructure at the world-class;
• Access to the diversified workforce.

However, company formation is an intricate process riddled with legal and regulatory requirements. Therefore, a comprehensive knowledge of the laws, regulations, and procedures in place concerning the setting up of companies within the UAE is viewed as being indispensable in terms of successful setup. This will help you to understand an overview of the process of company formation within the UAE to guide entrepreneurs and businesses toward informed decisions and a solid base for success.

Choosing the Right Jurisdiction

Here's an overview of the key differences between Free Zones, Mainland, and Offshore jurisdictions in the UAE:

Free Zones

• Autonomous regions with special economic status: Free zones are designated areas within the country that enjoy special economic status, allowing them to operate in an exclusive regulatory framework as compared to the mainland. This enables companies to acquire more favorably phrased economic policies within the UAE.
• Tax Exemption: Free zones are known to exempt companies from paying corporate taxes. Normally, the exemption comes in terms of 0% to 50% on corporate tax, making it attractive to foreign investors.
• It allows for 100% foreign ownership: unlike mainland enterprises, which must have at least 51% local ownership of free zone companies. Free zone companies are allowed to be owned entirely by foreign investors, giving full control over business operations.
• No customs duty on imports/exports: Free zone business activities do not attract customs duty on imports and exports, which has largely helped in reducing the costs of running operations.
• Simplified licensing and regulation: The free zones ensure streamlined processes in the setting up of businesses by having fewer bureaucratic hurdles and faster licensing compared to mainland companies.
• Limited scope of activities: although the advantages abound for free zones, business ventures get restricted to performing activities within their areas of operation and are more or less limited while seeking to carry out business elsewhere outside the free zone, especially when it comes to the UAE mainland market.

Examples:

• Dubai Free Zone (DFZ)
• Jebel Ali Free Zone (JAFZA)
• Dubai Silicon Oasis (DSO)
• Abu Dhabi Free Zone (ADGM)

 

Mainland

• Onshore jurisdiction: Businesses on the mainland are subject to the federal laws of the UAE, hence giving them geographical freedom to operate business in any part of the country.
• 51 percent ownership by the locals: In this aspect, the UAE law follows a particular percentage of ownership, according to which the mainland business has to be owned by a UAE national or a company situated in UAE for a remaining share of 49 percent that can be owned by the foreign individual.
• Corporate tax (9-15%): Mainland businesses are subject to corporate tax, and this is collected while exercising from 9% to 15%, based on the nature of the business and the specific emirate.
• Import/export customs duty: Firms operating in the mainland UAE have to pay customs duties on goods imported to or exported out of the UAE, hence the cost of operations goes higher.
• More complex licensing and regulations: The regulatory environment, as far as licensing procedures and compliance requirements, has to be more complex in order to set up a business in mainland China.
• Broader scope of activities: Whereas a free-zone company is limited in its scope of activities, mainland businesses are not restricted to any specific type of activities to be undertaken and they are free to trade within the local UAE market as well as internationally.
  

 

Examples:

• Dubai Department of Economic Development (DED)
• Abu Dhabi Department of Economic Development (ADDED)

 

Offshore

• Special financial and legal framework: Offshore companies have a separate financial and legal framework that is established; there are some regulations that back international business or investment, making it easy and with low bureaucracy.
• 100% foreign ownership: Offshore structures offer 100% foreign ownership without the requirement for local partners or shareholders since, with offshore structures, full control is allowed to international investors.
• Confidentiality and anonymity: Those offshore companies supply the most confidentiality and anonymity; in such places, the amount of information in the public domain regarding company ownership or finances is minimal, offering protection of the identity of owners/shareholders.
• Activity scope: Offshore companies are generally restricted from operating outside the UAE and have no rights to trade within the local UAE market.
• No physical presence is necessary: offshore firms can be established without requiring any office or staff in the UAE which thereby enables flexible and cost-effective operations.

 

Examples:

• Ras Al Khaimah Offshore (RAKIA)
• Ajman Offshore
• Dubai Offshore

 

Differences between setting up a mainland business versus a free zone business

 

Key Differences