The launch of the Jebel Ali Free Zone (JAFZA) in 1985 was a watershed moment in the history of the UAE in terms of attracting foreign investors. The concept of free zones changed the landscape of business setup in Dubai forever as the inception of JAFZA was followed by the launch of more than 40 free zones. The process of business setup in Dubai free zones provided a conducive environment for foreign investors with benefits such as 100% ownership, export/import duty exemption, the total reputation of capital & profit, and access to modern infrastructure.

Foreign investors throng to establish companies in Dubai free zones because regulations are less stringent in free zones compared to the mainland. The procedure is easy and all the services are available under one roof. For faster license clearance, foreign investors can hire business setup consultants in Dubai. Read ahead to the rest of the features, processes and requirements linked to the process of Dubai company formation.

Doing Business in Dubai Free Zones 

Each free zone operates by its own set of procedures and regulations. Companies registered under a free zone are not allowed to do business on the mainland. The companies are only allowed to cater to customers within the free zone itself or carry out imports or exports. However, certain free zones such as Dubai Multi Commodities Centre (DMCC) allow companies to operate on the mainland through a Dual License. The mainland operations under the Dual License will be subject to DED’s conditions and regulations.

Industry-Specific Free Zones 

Most free zones in Dubai are built around a business activity with facilities and licenses to promote the specific industry. For instance, Dubai Multi Commodities Centre (DMCC) is a cluster of companies trading in commodities such as coffee, gold, silver etc. Dubai Silicon Oasis’s (DSO) primary objective is to encourage investments in the tech industry. JAFZA caters to industrial, logistics and manufacturing companies. Similarly, Dubai CommerCity is the first e-commerce free zone in the UAE. Dubai International Financial Centre (DIFC), as the name suggests, focuses on the financial services industry such as banking, insurance, Fintech etc.

Then there is the free zone for media companies called Dubai Media City; a free zone for designers and designing companies called Dubai Design District (D3); and a free zone for tech companies called Dubai Internet City. Dubai Healthcare City issues licenses for healthcare-related businesses, clinics, and doctors. Automotive businesses are supported by Dubai Cars and Automotive Zone (DUCAMZ). However, apart from serving a central focus industry, these free zones also provide licenses for a wide range of other sectors as well. International Free Zone Authority (IFZA) is a general-purpose free zone in Dubai.

Types of Company Structures in Dubai Free Zones 

There are more than 30 actively operating free zones in Dubai in which investors can register their companies. Each free zone is regulated by an independent free zone authority that issues the licenses and implements regulations for the companies. The free zones mainly permit the following types of legal structures depending on the number of shareholders:

1. Free Zone Establishment

A Free Zone Establishment (FZE) is a type of legal structure with only a single individual shareholder.

2. Free Zone Company

A Free Zone Company (FZCO) is a type of company structure that can be established with two or more shareholders.

3. Branches of Existing Companies

A company operating in a foreign country or a UAE-based company can establish its branches in a free zone. The branch company should carry out activities that are similar to the parent entity.

Major Business Licenses in Dubai Free Zones 

A business license is the most important prerequisite to opening a company in Dubai free zones. The following are some of the most popular trade licenses provided by most of the free zones in Dubai.

1. E-commerce License
2. General Trading License
3. Trading / Commercial License
4. Service License
5. Industrial License

The list is not an exhaustive list of business licenses issued by Dubai free zones. Many free zones provide certain exclusive licenses based on the activities. Consult with business setup consultants in Dubai who can provide the entrepreneurs with a list of licenses issued by each free zone authority.

Process of Dubai Free Zone Company Formation  

An entity can be incorporated into Dubai Free Zone through a straightforward set of rules. Setting up a company in Dubai free zones involves less stringent rules and the license can be obtained in a few weeks. The following steps are necessary to obtain a Dubai free zone company license:

1. Determine the activities
2. Select an appropriate legal structure
3. Select a name for the company
4. Choose an office space or Desk
5. Get initial approval
6. Register the business
7. Obtain the Dubai free zone license

Value Added Tax in Dubai Free Zones 

Though the UAE is a no-tax jurisdiction, the government levies Value Added Tax (VAT) on taxable goods and services at a nominal rate of 5%. The Federal Tax Authority (FTA) has classified certain free zones as Designated Zones that are subjected to special VAT rules. The FTA has published a list of Designated Zones and the free zones outside the list are considered non-designated Zones.

The transaction of goods within the Designated Zones is out of the scope of VAT. Similarly, the transaction of goods from one Designated Zone to another Designated Zone is also out of the scope of VAT. However, goods transacted to a Designated Zone from a non-Designated Zone are subject to VAT. Also, goods transacted to a non-Designated Zone from a Designated Zone are subject to VAT. The Designated Zone status is an important parameter when selecting a free zone for forming a company in Dubai.