What budget an entrepreneur needs to allocate to become a resident of a free zone in the Emirates
The United Arab Emirates has been a haven for international business for many years – for new and relocated companies, for branches and representative offices of existing organizations. What is it that attracts business people to the UAE?
The fact that local authorities have created favorable conditions for the development of entrepreneurship, in particular, they have organized a separate infrastructure for foreign investors – special economic zones (SEZ), or free trade zones, or free zones.
What advantages are available to residents of free zones in the UAE:
- Corporate tax exemption if the FEZ company earns less than AED 375,000 per year ($102,000). If the annual income is more than this amount, the rate is only 9% – loyal terms compared to the tax systems of other countries.
- There is no need to register a company in partnership with UAE nationals, foreigners can independently own and operate a business.
- Full exemption from customs duties (on imports and exports).
- The ability to freely withdraw (repatriate) capital and earned profits.
- Exemption of hired employees from income tax on wages.
Which free zone in the UAE is better for an entrepreneur to choose?
In 2023, there are 44 free zones in the Emirates, the full list is published on the website of the Ministry of Economy. Are all spaces suitable to register a business in the Emirates on favorable terms? No, not all are suitable.
Many foreign investors choose a free-zone based on the cost of the license, but this is a short-sighted approach. It is more important to consider the Emirate, the exact location (near a seaport or airport, a city neighborhood) and the types of activities allowed. For example:
- Dubai Gold and Diamond Park – in this zone can be licensed independent jewelers, manufacturers and sellers of precious products and others involved in this area.
- Dubai International Financial Centre – financial and insurance institutions, FinTech startups and other industry representatives can obtain a license in this zone.
- Dubai Maritime City – companies related to shipping, ship repair, and other maritime-related businesses can obtain a license there.
As you can see, the segmentation of free zones is not just a formality, it is also an advantage and benefit for future residents, because doing business surrounded by representatives of your field is useful from the point of view of healthy competition, networking, and organization of joint projects.
How much it costs to open a business in the Emirates free zones
The cost of registering a company in the UAE free-zone depends on several aspects, future residents need to allocate a budget for the following costs:
- Rent of office, commercial or industrial premises in the territory of the required FEZ.
- License fee (trade, industrial, manufacturing license, for service or e-commerce – must be renewed annually).
- Minimum authorized capital of the company, which is deposited in a bank.
- Payment of resident visas for hired employees.
- Other operational costs associated with the registration of a new legal entity (various fees, contributions and duties).
Let’s make a list of some popular free zones – how much a license will cost for residents and how much the other registration costs will cost:
Dubai virtual commercial city
License cost: AED 650 per year ($177)
For this money an investor registers a virtual company in the UAE. It is not necessary to spend on the physical presence of the business in the country.
With a virtual license, the resident will remain a taxpayer in his country, will not receive a residence permit and guarantees of opening an account in Emirati banks, but will have the right to remotely conclude transactions with companies in the UAE.
Additional costs include a one-time fee of AED 200 for registering the name of the legal entity + AED 300 for identity verification.
Dubai Multi Commodities Center
License cost: AED 20285 per year ($5520) + company registration fees. Total AED 52,660 ($14337)
One license includes 6 types of activities from one group, which is 2 times more than in other zones. In addition, it is necessary to take into account the amount of authorized capital – not less than AED 50,000 ($13600).
Khalifa Industrial Zone Abu Dhabi (KIZAD)
License cost: From AED 11,000 to 17,000 ($3000-4600).
The minimum authorized capital is AED 50,000. For a license fee, the entrepreneur gets the opportunity to rent on preferential terms the necessary equipment, warehouses, machinery – everything that is necessary for an industrial company or logistics business.
Meydan
AED 12,500 ($3400), without a visa or AED 14,350 ($3900) with one visa
The license price includes the cost of a workplace. Start-up capital is at least AED 100,000 ($27200). Taking into account the various fees and charges, it will cost about AED 35,000 ($9500) to register a company in Meydan on a one-time basis.
As you can see, the budget for opening an offshore company in the UAE consists not only of the cost of the license, which must be paid annually, the total amount will be several times more. But this money should not be considered irretrievably spent, in return, the administration of the free zone offers residents a lot of benefits for comfortable business and adaptation:
- The opportunity to purchase or rent at below-market prices the necessary assets for daily operations (equipment, furniture, apparatus, warehouses, special vehicles, commercial premises, land plots).
- Preferential tariffs for public utilities.
- FEZ jurisdictions are not subject to laws and restrictions that apply to mainland companies.
- Assistance with registration of residence permit for the founder of the company, employees and their families.
- Possibility to regulate the cost of a working office, for example, by renting only a place in a shared co-working space for the required amount of time or refusing to be physically present in the free-zone at all, paying only for a virtual address.
- Confidentiality of personal data of business founders.
- Opportunity to open corporate and personal bank accounts in the UAE.
This is an incomplete list of possible benefits of residency in the Emirates FEZ. Each free-zone is a separate world with its own rules and requirements.
What a foreign investor should consider when opening a company in the Emirates in a LEZ
Follow this algorithm of actions when planning to enter the UAE market:
- Choose the legal form of the legal entity (branch of a foreign company, representative office of a mainland company, independent freelancer, joint stock company, LLC…). Registration costs depend on this.
- Decide on the management team. How many people will be co-founders, how many shareholders, how many salaried managers and employees.
- Clarify the direction of the business. This determines the type and cost of the license (commercial, industrial, individual, educational, e-commerce).
- Check the UAE Ministry of Economy website for a list of all active free zones. Analyze which jurisdictions will suit you territorially and in terms of permitted activities. After the initial selection, the number of suitable zones will decrease several times.
- Having short-listed the suitable zones, start comparing each one individually: by the infrastructure offered and benefits for residents, by the cost of the license and registration fees.
- Ask the administration of each suitable zone to prepare a detailed calculation of all the necessary fees associated with opening a company in a particular free zone. Each free zone in the Emirates has its own corporate website with contacts, the administration is always ready to provide feedback to future residents.
- Having found the most suitable free zone and having negotiated the details of cooperation with the administration, start preparing documents for registration of a legal entity. On average, organizational formalities take about a month, and in most cases the owner of a new company can entrust this task to his representatives.
