Advantages and Disadvantages of setting up a Freezone Company
100% business ownership in the UAE with a Freezone setup! but what are the other benefits and downsides?
As business set up consultants, ACT regularly encounters individuals keen on setting up their companies within free zones. In most cases, these investors do not understand that a decision to be onshore or in a Freezone can have a long-standing impact on the day to day working of the company.
Making an informed decision about whether or not your business requirements are met within the rules and regulations governing the free zones involves understanding the advantages and disadvantages of a Freezone Setup.
- 100% Ownership: This feature of Freezone companies is what attracts the majority of the interest.
- Tax Exemption: Companies within the free zone are allowed exemption on taxes.
- Import Duties Exemptions: Imports within Freezone are exempted from the 5% Customs Duty, however, the transfer of goods from port or airport to specific Freezone outside the entry port jurisdiction still requires duty under deposit.
- 100% Confidentiality: The assets owned by a Freezone Company is kept in confidence by the Freezone Authorities.
- No Trade Barriers: Companies are free to trade with other companies all over the world with no trade limitations.
- Trade Restrictions within UAE: Companies within Freezones under the UAE law are not allowed to legally engage in business with companies and individual onshore, each Freezone has different legislation with regard to the allowances or legality of operating the Freezone.
- Restrictions on expansion Onshore: Freezone companies looking to establish presence onshore are not allowed to do so as a branch office and would need to establish a new entity which can be owned by the FZE company under the laws of the Emirate, they open in.
- Restricted to certain locations: Setting up a Freezone company limits choices of office spaces available as companies are required to set up within the Freezone jurisdiction and therefore rent is subject to the prices available within that Jurisdiction.
- Limited to specific activities based on the specialization of the jurisdiction and its governances.
The decision to stay onshore or setup within a Freezone, each has its pros & cons, but there is no one form that takes the title of the ‘best option’. This is because each company has its specific requirements in terms of business activities, ownership, and it is essential the choices match the requirements of the individual looking to setup.
For some, the 49% ownership in an LLC (Limited Liability Company) may be an appropriate fit, as it allows them complete access to the UAE Market. On the other hand, foreign companies looking to set up in Dubai, may choose a Freezone as it allows them to retain complete shares of the company and not spend the additional costs associated with onshore options, if however, companies wish to avail full ownership and still be onshore within the UAE market, they can establish a foreign branch office or a representative office which is 100% owned by the mother company.
Individuals can also operate as a sole establishment 100% owned by the individual or as a civil company owned by more than one individual or company.
For this reason, we urge you to look at hiring a business set up consultant like ACT PRO, who can ensure that the legal structure of your company allows you complete control over your business and provides all options suitable to the demands of your requirement, so a decision is made on both the financial and operational implications governed by the legal form, activity, and jurisdiction the company is established in, Freezone or onshore.
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