Broadly, there are two jurisdictions in the United Arab Emirates for conducting business: “Mainland” in one hand, and more than 30 Economic Freezones in U.A.E on the other hand. mainland and freezones offer different advantages depending on your business type and activities.
I. Mainland companies
This is the regular form of companies in U.A.E where the majority of shares should be owned by U.A.E citizen/corporate. Though, in practice U.A.E nationals and their overseas partners can agree on how profits can be shared and how business decisions are ultimately made. In case a company outside U.A.E desires to set up a branch in then an Emirati local agent should be appointed (not a partner).
However, it should be noted that business ownership and the management in mainland companies are two separate matters, this means that even if overseas business owners set up their businesses in mainland, they will still have full control on their business operations and management.
- Type of licenses of mainland companies
1. Commercial license (L.L.C): for conducting commercial activities in U.A.E, i.e. General Trading. It requires minimum of 51% ownership to be held by a U.A.E National (Local Partner). Though, it is possible to change the percentage of the profit/loss distribution in contrary to the percentage of the shares ownership and significantly reducing the profit shares of the local partner.Note: by practice, local partners agree to receive monthly or yearly fixed amount against being partners in this kind of companies and to not to share any profits.
2. Professional license: for conducting professional and consultation activities in U.A.E (i.e. law firms).
3. Foreign Company’s branch: for conducting the activities of the mother company, the branch will be 100% owned by the mother company, though a U.A.E National Sponsor (not a partner) is required against a fixed amount as sponsorship fees.
II. Freezones companies
Dubai by itself has more than 20 freezones, each of which has its own licensing body. The freezones include Dubai Media City, Dubai International Financial Centre (DIFC), Dubai Airport Freezone, Dubai Multi Commodity Center (DMCC), and Jebel Ali Freezone (JAFZA), one of the largest ports in the world and home to 6,400 companies, never mentioning Ras Al Khaimah Investment Authority (RAKIA) and Ras Al Khaimah Free Trade Zone (RAK ftz), Fujairah Freezone. The big advantage of Freezone companies that they allow 100% ownership by non-emirate citizens/companies.
III. Offshore companies
We can describe offshore companies as a special kind of free zone companies. These kind of companies provide several additional advantages beside exemption of any kind of taxes and the 100% ownership, which are:
- no minimum capital required.
- no Office required.
- confidentiality of the shareholders and director details as they as there is no public register.
- offshore company can have a fully operational bank accounts with all bank facilities.
- simplified and faster registration procedure.
- relatively low registration and operation costs.
Important note: Whether you decide on mainland or a freezone, the benefits of having businesses are:
- no business taxes.
- no employment taxes.
- no currency restrictions
- no personal income tax.
- no custom duty.
- physical presence in the U.A.E not required to incorporate your new company.
Benefits of mainland companies over freezones companies
- Exporting goods in the local markets and having free trade agreements, while freezones companies need to appoint distributors located in the main to distribute the products in the local market, this means paying 5% tax on the products.
- More Flexible to enter business agreements with government authorities.
- Entitles you to have an office anywhere in mainland.
- Wide range options for business activities for your company’s license comparing to freezones.
- No limitation on visas number (depending on the office space size).
Benefits of freezones companies over mainland companies
100 percent foreign ownership, this means 100 percent repatriation of capital and profits, while Companies in mainland are required to have a local service agent for branches or majority U.A.E national ownership for L.L.Cs.
Dubai was the first emirate to pioneer the free zone model, offering foreign businesses attractive concessions and a number of investment incentives, including 100 percent ownership of a subsidiary and zero taxation.
There are currently 22 free zones in operation, developed for specific sectors and industries including ICT, media, finance, gold and jewelry and health care.