What are Free Zones in Dubai?
Dubai has a mixed company and tax system, meaning, there are companies formed in “mainland” Dubai which can also be called “onshore”, and there are “Offshore Companies” which are formed in “Free Zones” also called “Economic Zones”.
Mainland Companies are subject to a 9% income tax, while companies formed in Free Zones (Dubai Offshore Companies) are not subject to income tax in the UAE as long as they don’t have income sourced from mainland Dubai.
Free Zones in Dubai are like “residency” or “neighborhood” areas, which are located within the City of Dubai, but just think of them as neighborhoods with certain tax and legal incentives to attract foreign investments or businesses.
In comparison, in other offshore jurisdictions, like the Cayman Islands, USA., Isle of Man, London, etc., offshore companies can be formed in the same company registry and jurisdiction as onshore companies, just structured correctly, while Dubai Offshore Companies are formed in special Economic Zones, called Free Zones (Free from a tax and legal perspective).
Mainland companies are those formed in the UAE but not in an authorized Free Zone.
How many free zones are there in Dubai?
The UAE has over 40 Free Zones, this number is according to UAE Ministry of Economic. Out of these 40 Free Zones, more than 24 are located in Dubai, UAE.
How to pick the right Free Zone for a Dubai Offshore Company?
Each Free Zone has its own features and benefits, being some of these the number of shareholders allowed, if the authorized capital must be paid-up or not, pricing, industry-specific free zones, business activities restrictions, office space requirements, and more.
Paid-up capital requirementsSome free zones do not require the authorized capital to be paid up, while Free Zones require the authorized capital to be paid-up.
Pricing
Each free Zone has its own license, office space, and visa processing pricing. In some Free Zones the office space comes included in the license fee, while others charge you an extra fee for the office space.
Mixed Business Activities
Some Free Zone allow a mix of both commercial and professional business activity, while some Free Zones do not allow a mix of commercial and professional business activity.
Office Space
Check the availability and cost of office spaces. Some free zones offer flexible options like shared workspaces, while others may require you to rent a full office.
Warehousing
If your business needs storage in Dubai, ensure the free zone provides adequate warehousing facilities. For example, some Free Zones are located in Dubai Airport and Ports, allowing you to store merchandise or products, and being able to easily move products than in a Free Zone not located in an airport or port.
Industry-specific free zones:
Some free zones cater to specific industries. For example, and just to name a few:
IFZA: Versatile and accommodates a wide range of industries including consultancy, trading, and services.
Dubai Internet City: Ideal for IT and tech companies.
Dubai Media City: Suitable for media and advertising firms.
Dubai Multi Commodities Centre (DMCC): Focuses on trading, especially commodities like gold and diamonds.
Dubai Commercity: specialized exclusively to digital commerce in the Middle East.
Dubai Outsource City (DOC): Outsourcing, call centers, IT services.
DIFC:Focus: Financial services, banking, insurance.
This surely does not mean that if a Free Zone is focused on certain business activities, you cannot form a company there, but if for example, you are a company focused on providing professional services or in trading, forming a company at the Dubai Airport Free Zone (DAFZA) would not be the right ecosystem for your company, as you would be paying a higher fee for features that are not needed for your company, while if for example, you want to open a Financial Firm, the Dubai International Financial Centre (DIFC) might be the best option for you.
It will depend on the nature and needs of your business if a specialized free zone might be the right choice for you.
Disclaimer: Nothing herein shall be considered financial, tax, or legal advice.