Beginning your dream business in the United Arab Emirates will be a lifetime decision with no regret for an emerging entrepreneur.
The United Arab Emirates is an elective monarchy formed from a federation of seven emirates, consisting of Abu Dhabi (the capital), Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain. As of 2020, the United Arab Emirates has an estimated population of roughly 9.9 million which consists of majorly expats making the national population a minority. Economic growth has been impressive and steady. Backed by the world’s seventh-largest oil deposits, and thanks to considerate investments combined with decided economic liberalism and firm Government control, the UAE has seen their real GDP more than triple in the last four decades. Nowadays the UAE is one of the world’s richest countries. The UAE offers businesses a strong enabling environment: stable political and macroeconomic conditions, a future-oriented Government, good general infrastructure and ICT infrastructure
It can become your final destination with availability of free trade zones (100% Ownership), minimal taxes in Mainland, ample natural resources, cheap labour, a capable economy and outstanding infrastructure. Here a business can be established remotely while staying in a foreign country.
The Country provides favorable conditions for Business growth. Most of the companies are exempt from corporate tax and VAT is 5 %. However, the country’s federal corporate tax rate will be 9% on the profit of businesses for taxable income exceeding 375,000 UAE dirhams ($102,000), and below that income -zero taxes to support small businesses and start-ups from June 1, 2023. After analyzing various tax structures, the UAE corporate tax regime will be amongst the most competitive in the world when compared with similar developed economies globally like in Hongkong, tax rates lie between 8.25 % to 16.5 %
The UAE have more than 30 free economic zones with special tax regimes which provide tax free period up to 50 years. Owners of companies located there are exempt from corporate tax, VAT, and import and export taxes. But from June 2023, Businesses doing trade with Mainland UAE may be subject to 9 % corporate tax after getting further clarity from upcoming notifications and guidelines in near future.
Each free zone has its own allowed business activities. For example, Dubai Healthcare City is for providing healthcare services by companies. Likewise, Dubai Internet city is for IT & Telecom Companies. Minimum Share Capital requirement is different in each Free Zone.
Dubai provides numerous worthwhile scenarios for business holders and Indian stakeholders looking to discover this marketplace. You have a choice to set up your business in a free zone in Dubai or go for a mainland company incorporation where you can start as an LLC with 100% ownership and can create business relation in the local market easily. You also have an option to establish your organization in free trade zone which will separately run under control of each emirate.
With a favorable tax environment, access to ample financial and natural resources, and suitable trading opportunities, Dubai is a best place to expand your business where expatriates’ population has reached a level of 85 % with 15 % UAE Nationals.
We are highlighting here the important differences between Mainland and Free zone jurisdictions while registering a corporation with respect to parameters like scope of Business, Office space, visa limits, statutory audit, and others from perspective of an investor. Because before investing, Entrepreneur must have knowledge of these different zones covered under various jurisdiction in respect of taxes, location, trade policies etc. The investor or the entrepreneur should go through these differences and select the apt jurisdiction that perfectly suits his business objectives.
Corporation located on the mainland is considered as a local concern which is not restricted in terms of legal geographical limits. Both local and international business can be done easily without any restriction under Dubai mainland. A mainland company (named as an onshore company) will be established under guidelines of the government authority of the concerned Emirate. The Department of Economic Development of the particular Emirate will issue trade license. In case of UAE mainland company there are more trading opportunity with minimal restriction for operations.
A free zone company is incorporated within a special jurisdiction that falls under a particular Emirate. A free zone company is allowed to trade only within the free zone and outside the UAE. More than 30 Free Zones are operating in the UAE for several business activities. Free zone jurisdictions have their own rules & regulations and have a government regulatory body called the Free Zone Authority under each emirate. Trade license is issued by this Free Zone Authority. A UAE free zone is characterized by the benefits of 100% foreign ownership and zero taxes.
Following is the Summary of the Differences between a Mainland and a Free Zone in Dubai:
| Feature | Mainland | Free Zone |
|
Scope of Business |
The establishment is allowed to do business both inside and outside the UAE. Local Market is easily accessible. Company can run in varied business arenas and can be benefitted from the opportunities available in the mainland. | It is incorporated within a designated jurisdiction of the emirate where the company is allowed to do business inside the same free zone. Many of the free zones cater to specific industries. Therefore, diversification and scope of business is marginally low compared to the mainland.
There are certain restrictions on the company incorporated in any of the UAE free zones. Free zone companies are allowed to do business within the jurisdiction of the particular free zone and outside UAE. There are more than 30 free zones in the UAE. |
| Office Space | A minimum office space of 140 sq. ft is mandatory for a UAE mainland corporation. | In the case of the UAE free zone, virtual offices are allowed and there is no need to take a physical space for office.
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| Visa Permits | Any required number of visas can be applied by acquiring more physical workspace for your business in Mainland
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The maximum expected permits are around 6 for Visa Application here. Application can become subject to certain restrictions when this limit is crossed. Extra physical work space is must for applying more visas. |
| Taxation Laws | Personal or professional taxes are not levied. Only 5 % Vat is applicable. 9% corporate tax is mandatory from June 2023 | Free zones offer complete exemption from taxes to businesses that comply with the relevant regulatory requirements and do not conduct business with mainland UAE. |
| Number of Partners | Max. 49 partners are allowed for your mainland company. | There’s a limited number of partners you can have for your free zone company. |
| Statutory Audit | Audit is mandatory for a UAE mainland company. | Audit is applicable on some type of establishment covered under Free zone jurisdiction. Certain Free zone entities like free zone establishments (FZE) and free zone companies (FZCO) should require yearly audit |
| Cost of Incorporation | High | Medium |
| Authorities for setup | Permission is required from authorities like Department of Economic Development (DED), Ministry of Labour (MIL), Dubai Municipality, Ministry of Interior (MOI) etc. | they don’t require approvals from authorities outside of the free zone and have their own rule & regulations for the approval of any company inside its jurisdiction. For Ex Dubai Internet City is located and operates within the jurisdiction of Dubai Development Authority (DDA), an independent government body. |
| Type of Establishment | Sole establishment company, Limited Liability Company (LLC), Branch of foreign company, Representative Office, Civil Company, Public Joint Stock Co., | Free zone establishments (FZE), free zone companies (FZCO), FZLLC |
| Incorporation setup requirement
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Investors will have to be present in the country while registering a mainland company. Or can be done via a Power of Attorney that must be notarized and attested in your home country at the UAE embassy and then again in UAE at the Ministry of Foreign Affairs. | Free zone business setup procedure can be done entirely remotely without the need for the owner to be physically present in the UAE. |
| Restrictions on expansion Onshore | Corporation located on the mainland is considered as a local concern which is not restricted in terms of legal geographical limits. Both local and international business can be done easily without any restriction under Dubai mainland | Expansion into other UAE markets is not permitted. This can be highly restrictive especially if the company intends to service the entire UAE market. |