How Startups can benefit from the Free Zones of UAE

How Startups can benefit from the Free Zones of UAE

Starting a startup is a tough business. Entrepreneurs go through various emotions when they begin their journey in this path. Some days they feel that they can conquer the world and some days it seems like the end of the business. However, the life of an Entrepreneur is the most fulfilling, as the business owner has the opportunity to build a company starting from a nascent idea stage, to the go to market stage and further on. The explicit cost of starting a business is high. Life becomes a little easier if you are planning to start your venture in the Free Zones of Dubai or UAE. If you are looking to target the Middle East and North Africa market and would like to have an excellent location which makes you own 100% of the company with various facilities, make use of the free zones in UAE and Dubai.

The last few years Dubai has not only witnessed the advent of startups but the prominence of the same over corporate. Dubai today is booming city of startups with great success stories, and this has caught the attention of the consumer. The variety of startups from enterprise to retail to travel, demands not only mentorship, guidance but space and location which is profitable and easily locatable for the benefit of the business.

There are 2 ways of starting up a business in UAE:

  • Setting up an Onshore company: A non – Emirati shareholder partnering or setting up with a UAE National partner or sponsor who owns a majority share in the business, also taken by a number of organisations.
  • Setting up your business in a Free zone- An increasingly popular option among entrepreneurs nowadays. A company can be registered a Free Zone Company or a Free Zone Establishment. FZE and FZC are limited liability companies, with the FZE having a single shareholder and FZC, 2-5 shareholders. To operate outside the free zone, a local agent is required to distribute the products. Both FZEs and FZCs are also allowed to import merchandise, equipment and goods from any foreign country without paying customs taxes, though some goods are prohibited in free zones (i).

Setting up a company is UAE is quite simple, once the processes are understood and the right steps are taken. The business model ascertains whether the company is best suited for operation within a free-zone or not.

Free Zones of UAE

There are 38 Free Zones in the country and each free zone is specialised to handle a particular type of business. For example, Dubai media city is known for providing advanced infrastructure, supportive environment and strategic location to the media businesses such as CNN, CNBC, MBC, Sony etc (ii).

One of the largest is the DMCC Free Zone (12000+ registered companies), which registers about 170 companies a month and almost all are new to Dubai. DMCC or Dubai Multi Commodities Centre has one of the best locations, i.e., Jumeirah Lake Towers. It allows full range of activities, which includes business set up in gold, diamonds and precious metals. It has been awarded as the Global Free Zone of the year by Financial Times Magazine (iii). The other competitive Free Zones similar to DMCC are Jebel Ali (6400+ companies) and RAK Free Trade Zone, which boast 7000+ clients in Ras Al Khamaih.

Startups receive variety of benefits, if they operate in the FreeZone.The following is an analysis of the cost and infrastructural benefits:

The cost benefit of having your startup in a free zone:

  • Full control of business activities- 100% ownership.
  • Full repatriation of capital
  • Exemption from import and export duties – a boon for trading companies who would otherwise be required to pay different custom duties
  • No tax on corporate gains or personal income – except for individual cases, investors are guaranteed zero tax liability
  • No currency restrictions
  • Reduced cost of operations

Infrastructural Benefits (iv):

  • Pre-built offices, factories and warehouses – companies can choose packages to suit their requirements
  • Fast-track company setup and licensing procedures
  • Single window clearances and one-stop administration services
  • Assistance with labour recruitment as well as additional support services, such as sponsorship and on-site housing
  • Abundant and inexpensive energy
  • Transportation networks for the road, sea, and airways
  • Quality infrastructure and communications
  • Attractive work environment
  • Capacity to operate 24 hours a day

UAE an International Hub

UAE has become an international hub for business owners, who want to market and sell their products and services in the region. It is also ideal for high net worth individuals looking for a suitable place, healthy lifestyle, excellent flight connections and good employees. Owning a free zone company has its own benefits. Business owners can also own a freehold property in Dubai.

Free Zones usually have excellent infrastructure and business environment. The Govt. of UAE supports the Free Zones, hence a lot of amenities and benefits are passed on to companies operating inside the free zones. However one should weigh both pros and cons of operating inside a free zone. As mentioned earlier, companies operating inside Free Zones can operate only in Free Zones. They cannot cater to customers in other parts of Dubai other than free zones.

Apart from the 38 Free Zones, 9 other Free Zones are under construction in UAE. The Free Zones covers nearly all industry segments from “A” like alternative energy to “Z” like zero-customs ports. All registered firms are exempted from paying municipality tax and enjoy free capital repatriation. Free zone companies also do not pay import or export customs (v).

UAE is a multifaceted country and the startup ecosystem is young and evolving with various business models specific to the consumer of MENA. Despite the economic turmoil in the neighbouring Arab countries, UAE remains a harbour of stability and economic openness. It is advisable to consult a business consultant before taking the decision to choose a Free Zone location. At Commitbiz, we analyse the business and accordingly provide our feedback. We understand the landscape of business setup and provide curated suggestions. For further information, write to us at info@commitbiz.com.