Everything you Want to Know about Dubai Offshore and Free Zone Company

by Zaara 02, Mar 2021

Everything you Want to Know about Dubai Offshore and Free Zone Company

The firm needs to be familiar with the free zone and offshore terminology while carrying on business in the United Arab Emirates. The distinction between these two types of companies would need to be recognized by a company to continue smoothly.

Each of these categories may give the company individual freedoms when carrying on a business. When an entity is trying to register to conduct business activities in the United Arab Emirates, they need to mention what type of setup they want within the nation. The restrictions imposed on companies operating in the free zone would be different from those of offshore companies. It would be essential to take these privileges and constraints into account beforehand.

If you intend to set up a business in Dubai, it will help you understand the distinction between Offshore and Free Zones to ensure that your business runs smoothly. Both have their distinct characteristics, which differ based on the type of business practices they implement and their benefits.

Free Zone means a specified tax-free region where 100 percent foreign ownership is permitted. There is no customs duty to import and export goods, and there are no conditions for having a local partner or agent set up a company.

Dubai has many free zones within its territory. A Free Zone entity's key feature is that it requires the client to own 100 percent of the company. Therefore, a local sponsor is not required. The Free Zone company is permitted to trade globally and within the Free Zone.

Certain conditions concerning the initial share capital must be registered in the Free Zone. These specifications vary between the different Free Zones and depend on the company's intent. Free-zone businesses need to construct a physical office within the designated area. Virtual offices can be leased if it does not require a full-scale office. When doing business within the United Arab Emirates, a free zone company would have certain limitations.

The Free Zones are developed mainly to draw investors to operate a company, with some of the attractive business benefits they provide being:

  • No revenue Tax
  • No Custom Import / Export Tax.
  • Any local partner did not need one hundred percent ownership.
  • Shareholders and workers who apply for a UAE residency visa
  • Leasing options for 25 years, storage services
  • A simple procedure for recruitment.

An Offshore Company is a legal, commercial entity established to operate outside its licensed jurisdiction or its ultimate ownership position. While offshore government bodies are regulated under the free zone and benefit from a free zone company's ownership advantage, it can not be used as a direct substitute for a free zone company.

The primary difference between a Free Zone company and an offshore company is that offshore companies are licensed outside the United Arab Emirates to operate their business. Within the nation, they can not have business operations.

An Offshore company is allowed to access and operate bank accounts with the UAE-based banks as required. It would also have the right to own investments within and outside the United Arab Emirates. The bank account run by the company can retain any revenue that the company receives from its assets.

Offshore companies, unlike a Free Zone corporation, have no minimum capital requirements that need to be invested before incorporating. Offshore companies are generally used by other business entities that work within or even outside the United Arab Emirates as holdings or asset companies.    

There may be several reasons for registering an offshore corporation, but the advantages of using an offshore company structure are:

  • Providing a pathway for expanding the international market;
  • Entry to a secure legal system that is business-friendly;
  • Access to a lighter regulatory regime;
  • Offering tax neutrality on overseas profits in respect of personal or business profits, capital gains, and inheritance taxes (depending on the jurisdiction);
  • Offer additional access to worldwide funding;
  • They are offering a vehicle to isolate or certain assets from operating organizations, such as intellectual property.

According to the law, an offshore company is not eligible to do business in the UAE,  if it:

  • Usage of UAE-based legal, accounting, auditing, management consulting, and related services;
  • Prepare and keep records and documents inside the UAE;
  • Having meetings within the UAE of its directors or members;
  • Rent property to use as a registered office or owns property in any free holding area where foreigners can own property;
  • Holds a bank account in UAE banks to carry out its routine operating transactions.

Similarities between Offshore Business and Free Zone Business Setup in Dubai

In a few of their areas, both of these regions are very similar. Both free zones and offshore companies can be wholly owned by a foreign entrepreneur (100 percent), although both jurisdictions have a 100 percent tax resettlement facility. Tax exemptions are also widespread in these two regions.

Distinction Between Offshore and Free Zone Business Setup in Dubai

 

 

         OFFSHORE

         FREE ZONE

  1. VAT and other similar taxes
  • VAT is not accessible to offshore corporations and other taxes as well.
  • After the recent implementation of Vat in the UAE, almost 20 free zones are excluded from VAT.
  1. Office Area
  • An offshore company doesn’t need to rent an office or business facility in the nation.
  • Office space is compulsory for businesses in any of the free zones.
  1. Visas for employment
  • No employment authorizations/permits were issued.
  • Employees and even shareholders of a free zone business can quickly obtain a visa from UAE residence.
  1. Confidentiality and Intimacy
  • Offshore companies' names and identification of founders, directors, and even shareholders are not publicly disclosed.
  • No confidentiality benefit in Free Zones
  1. Business operation
  • They will also carry out business activities outside the UAE
  • However, prohibitions on the conduct of business on the local UAE market are laid down
  1. Minimal share capital
  • There's no minimum standard for share capital
  • Minimal share capital should be invested in the Bank.
  1. Location
  • Free zone firms are purely located in the free zone
  • An offshore firm can be established only in some particular jurisdiction

There are a few significant differences between UAE jurisdiction in the offshore and free zone. Both these locations provide attractive market opportunities for the respective business sectors.

Thus, although Free Zone and Offshore companies are similar, they have various roles and purposes. Free Zone companies are used when providing a physical location to do business in the UAE. On the other hand, offshore companies have only an office address and authorization in the UAE, without working directly in the UAE.

Also, shareholders and employees of Free Zone companies are authorized to obtain a UAE residency visa(s), but this is not the same for offshore companies. However, offshore firms have their advantages, such as land ownership rights, smaller set-ups of costs, and no need to rent an office. Therefore, it is essential to properly understand the distinctions, advantages, disadvantages, and purpose of each of them before selecting a kind of business for your company.

If you want help setting up a Free Zone company or want to start an offshore business, please contact the experts at Commitbiz or submit a question to [email protected].

Contact us; we will be keen to help you.