The United Arab Emirates (UAE) offers various options to business people based on their priorities. When starting a company, the choices available involve three jurisdictions. You can register:
- An offshore company
- A free zone company, or
- A mainland LLC
The most relevant jurisdiction depends on the type of business entity. The activities that the business undertakes and the potential trading partners also matter.
As an investor, being well versed with the different jurisdictions is not only advisable but also essential. Each jurisdiction is distinct, has individual regulations, advantages, and benefits.
This guide will help you understand the basic information about every jurisdiction. The information can help you discuss the appropriate package with your SZ representative.
In the UAE, a mainland company also goes by the name onshore company. The Department of Economic Development (DED) for the specific emirate is responsible for licensing mainland companies.
Mainland companies have no geographical restrictions when it comes to trading opportunities. An onshore company has authorization to conduct business in markets located anywhere in the UAE and outside the UAE.
Free Zone UAE
The UAE has over 40 free zones. A free zone is a physical entity with independent regulations such as customs, special taxes, and import procedures. The governing body in a free zone is the Free Zone Authority, and it's responsible for issuing trade licenses.
The most prominent benefit of starting your business in a free zone is 100% foreign ownership. Additionally, you'll be eligible for:
- Tax exemptions
- Protection of your assets, and
- Access to great infrastructure
However, your company is only permitted to trade within that particular free zone, not the entire UAE. Since every free zone has individual benefits and limitations, it's essential to understand the specific rules and regulations.
An offshore company has roots in a different jurisdiction from the parent company, usually in another country. Since having a physical office is not a requirement, the offshore company can legally trade in the registered region.
Setting up an offshore company in the UAE is most suitable if you want to protect your assets while conducting private business. This is because you're not obligated to share any financial information.
However, it's important to note that it's impossible to trade within the Emirates as a non-resident company. The only certification available is that of incorporation. If a company gets registered as a free zone offshore company, converting it to an onshore company is not possible.
Offshore companies enjoy the benefits of tax exemptions, full foreign ownership, and confidentiality.
With this in mind, let’s now compare the three jurisdictions.
Main Differences between a Freezone, Mainland, and Offshore Trade License
Previously in the Dubai mainland companies, expats could only acquire 49% of company shares. A local sponsor must control the other 51%. However the law was revised to allow expats to own 100% – this applies to over 1,000 out of 2,300 economic activities.
Free zone companies don’t have ownership restrictions and can start without a local sponsor or partner. Ex-pats can own the entire 100% of the company shares.
For offshore companies, ex-pats can retain full ownership of a company whose location is outside the UAE. Such a company doesn’t need to be physically present in the UAE.
Office Space Requirements
For any mainland company in the UAE, it’s mandatory to have physical office space measuring 200 square feet and above. Free zone companies are free to operate virtually, with no physical offices.
Offshore companies can have physical offices outside the country but not in the UAE.
A mainland company can legally trade in any place located in the UAE. This includes all the free zones in the emirates.
On the other hand, a free zone company is not permitted to trade, manufacture, or sell products or services outside the specific free zone. However, professional activities such as marketing, consultancy and accounting are given some laxity when it comes to offering their services outside the freezone.
Freezone companies can conduct business outside the emirates but are not permitted to trade directly in the UAE. To do this they need to appoint a licensed DED distributor
All mainland companies must get audited when every financial year ends. Some free zone companies have an exemption from audits, while others undergo mandatory audited accounts.
Offshore companies don’t need audits unless they need financial updates.
The minimum capital required for mainland companies varies depending on the legal business entity. For free zone companies, the amount depends on the specific emirate.
Offshore companies don’t have any requirements for the minimum capital.
Privacy and Discretion
When it comes to privacy, the details of the mainland and free zone companies are available to the public on request. For offshore companies, the details regarding the identity of the owner(s), shareholders, and directors are not open to the public.
Tips on Starting a Business in Dubai
Once you determine the best jurisdiction for your business, additional considerations to keep in mind include:
1. Understand the costs such as
ü The operational costs
ü Licensing charges
ü Visa and immigration fees
When choosing your company’s name, be aware that the UAE imposes some strict restrictions.
2. Understand the stages of ;
ü Licensing process
ü Legal requirements, and
ü Complete the paperwork
3. Ensure you have the proper documents you need to set up a bank account. Talk to the individual banks to compare the benefits to your business.
The three jurisdictions have some similarities, but the differences stand out when considering the purpose and role of your business. For instance, tax regulations for offshore companies and free zone companies are similar.
Offshore and mainland companies can have local and international bank accounts, but free zone companies have restrictions.
There is no single jurisdiction that’s generally better than the others. Your choice depends on your specific business needs. If you’re seeking to set up your company in the UAE, or you need any additional information, you are in the right place.
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