UAE Free Zones Explained: How to Establish a Business in a Free Zone

The United Arab Emirates (UAE) has always been a proponent of free trade and investment. This is evident in the country’s lenient tax policies, business-friendly regulations, and state-of-the-art infrastructure that supports numerous industries. 

But perhaps one of the most compelling aspects for entrepreneurs and businesses looking to set up in the UAE is the country’s free zones.

What Are Free Zones?

Free zones, also known as free trade or special economic zones, are specific areas in the UAE where you can establish a business (either by enlisting the help of business consulting services or taking on the process yourself) and operate under an entirely different, and more favorable set of regulations and tax laws than those of the rest of the country. 

Today, there are over 40 free zones across the seven emirates of the UAE with different government authorities responsible for overseeing their activities.

Instituting free trade zones was part of the UAE’s efforts to attract foreign investment and diversify its economy beyond the oil and gas industry. Since their inception, they’ve contributed significantly to the country’s economic growth and status as a global business hub. 

Why Choose Free Zones in the UAE?

Given the choice between setting up a business in the free zones or on the mainland, there are several reasons why most foreign entrepreneurs and corporations opt for the former, including:

  • Full Foreign Ownership

If you want to start a business in the UAE mainland, you can only retain a maximum of 49% ownership. The remaining 51% is usually held by a local Emirati sponsor or partner. This rule has only been amended recently to permit complete ownership of specific business activities. 

However, free zones have always granted 100% foreign ownership to companies established within their jurisdictions.

  • Complete Repatriation of Capital and Profits

However much you invest or earn through your business in a UAE free zone, you’ll be entitled to repatriate the entire amount back to your home country. 

  • 100% Exemption From Corporate and Income Taxes

Personal income tax is one area where mainland and free zone businesses are on equal footing. However, free zone companies are fully exempt from corporate tax, while mainland businesses are liable to a 9% levy on profits surpassing AED 375,000.

  • No Customs Duty

Simplifying the import/export process for corporations whose operations involve substantial cross-border trading is one way free zones reel in most foreign investors. To this end, anything that enters or exits a free zone is not subject to customs duty — an advantage not afforded mainland-based companies.

  • Strategic Locations

Free zones in the UAE are almost always found near airports, seaports or in the heart of major cities, giving businesses in the area instant access to regional and international markets. 

  • Fast, Straightforward Company Formation

Corporate structuring and business setup processes in UAE free zones are usually streamlined, with fewer steps to complete than mainland business structures. Once you’ve met all legal and licensing requirements, you can expect to be up and running in about one to four weeks.

  • Excellent Infrastructure and Facilities

Office spaces, warehouse and storage areas, industrial parks, customized production facilities, logistics centers, telecommunication networks, and value-added services — they have it all. Anything your business may need is available on-site or near most free zones.

How To Set Up Your Business in a UAE Free Zone

The process of starting a company in a UAE free zone usually involves the following steps:

1. Determine Your Business Activity 

Free zones in the UAE offer many types of licenses based on the nature of one’s business activity. A few examples of them include:

  • Commercial trade
  • Industrial
  • Manufacturing
  • Media
  • E-Commerce 
  • Offshore
  • Education

Before you begin the registration process, you need to figure out which license category applies to your business. This choice might also dictate which free zone you may end up operating in since not all of them support all license types.

2. Choose Your Legal Structure 

There are mainly three legal forms you can pick for your UAE free zone business: 

  • Free zone limited liability company (FZ LLC)
  • Free zone company (FZ Co.)
  • Free zone establishment (FZE)

The main difference between these forms lies in the number of shareholders allowed and whether or not they’re legal or natural persons. 

You may also be able to establish a branch or subsidiary of an existing company that operates in the UAE or overseas. Check with the relevant free zone authority of your preferred jurisdiction to learn what kind of company setup it offers. 

3. Register Your Business’s Trade Name 

A trade name is what your business will be called. It should be unique to your company, so you must ensure it hasn’t already been taken. You can do this by going back to your corresponding free zone authority for verification.

4. Select a Location and Office Space

There are several free trade zones across the UAE, so you can choose whichever suits your business activity and needs. 

You can rent or own office spaces that either come completely or partially furnished, depending on your preferences and budget. In particular free zones, you may also buy land to build your own facilities like factories or warehouses.

And if you happen to have filed under an independent/professional license, you can rent a space on an as-needed basis or register with a virtual office.

5. Obtain Initial Approval

Every company established in a UAE free zone answers to the laws of its respective authority. To obtain pre-approval from yours, you’ll need to complete and submit the necessary forms and documents for your business activity and type. 

The nature of certain businesses may demand additional permits or approvals from other relevant authorities. These might include healthcare, travel, tourism and other heavily regulated industries. 

6. Pay the Required Fees

The charges for the business setup will include the company license issuance fee, which you can secure after you complete the payment. 

Start Your Entrepreneurial Journey in the UAE

Free zones in the UAE are prime destinations for anyone looking to tap into the region’s thriving economy, and by now, you know why.

Capitalize on everything these special trade zones offer and get your business off the ground today. 

Interesting Related Article: “How to Start An Offshore Company in United Arab Emirates