Any person who goes into business dreams of paying low taxes, working safely, being free from corruption. All these conditions can be obtained in the United Arab Emirates.
The country has set a course for diversification of the economy. In a short time, the UAE has attracted a lot of investment, creating ideal conditions for foreign entrepreneurs.
The multinational composition of the business is the main advantage. 85% of foreigners live in the country. Therefore, there are no local monopolies that could compete with companies created by foreigners. There two means of setting up companies are adopted: Mainland and Free Zone.
The Mainland and Free Zone in the UAE, what are they
A person who intends to establish business in the (UAE) should have an understanding of two concepts:
- Free Zone;
They have advantages and disadvantages.
To find out all the nuances, let’s pay attention to their substantive characteristics.
This jurisdiction allows you to conduct business in the country, but requires a payment of 5% value added tax. There is another condition: for some activities it is necessary to have representatives of the country who will own 51% of the shares. Such spheres as industry, construction, oil and gas business, as well as trade can do without them.
A company can’t function without a license from the Department of Economic Development (DED), given in the emirate, where the entrepreneur works.
Free Zone Company
The entrepreneurs can choose from 40 free zones. The company should be registered in the emirate, which you have decided to link your business with. Experts recommend choosing this option for foreign companies and those entrepreneurs who provide b2b services.
Registration here involves:
- determination of the type of business;
- trademark selection;
- rent of office space;
- applying for a license;
- payment of expenses.
Free Zone Authority assumes regulatory functions.
- no geographical boundaries: the enterprises are not limited in choice of the place to conduct business. It I available in and outside the state;
- more opportunities: the entrepreneurs get more activities. They contribute to the rapid growth of the income;
- full ownership for emigrants: generally to support the enterprises of expats local agents are involved. But there are activities, where the businessmen from abroad can have entire ownership;
- an opportunity to get many visas: in fact, there are no limits in receiving such permissions. To get additional visas, the office territory should be widened;
- the government offers contracts.
Besides, the companies can repatriate incomes and capitals, and open lots of divisions.
- quick registration without difficulties;
- possibility of full export of capital and profits;
- 100% ownership without sponsors;
- confidentiality of information;
- low taxes;
- absence import and export duties;
- simple hiring procedure;
- permanent network support.
UAE Mainland vs. Free zone
The two jurisdictions differ. Each has a corporate structure.
Ownership of Business
A few years ago, a foreign investor in the mainland could own only 49% of his company. 51% was under the control of a local representative. The situation has changed dramatically. Businessmen get 100% in definite types of activities/
There are no restrictions of this kind in the free zones. He can fully own his business from the first days of its opening.
Scope of business
There is one basic difference between the two companies. In Free Zones you can’t work within the country outside the zone if you don’t have a local agent. Meanwhile, it is possible to do it outside the UAE.
Mainland gives wide opportunities to the entrepreneurs. They can work anywhere in the UAE.
If you have decided to register the Mainland enterprise you should be ready to rent a territory for a physical office not less than 200 square feet. Otherwise, you won’t be able to receive a license.
Free zone enterprises are not burdened with such obligations. Moreover, most of them have only internet offices, and this is normal for them.
In fact, for mainland enterprises, there are no limits on the number of visas. But this does not mean that they can get as many of them as they want. Their amount depends on the size of the office area. If you need additional visas, you should expand the workspace. Keep in mind that a visa works only for two years.
Free zone enterprises are limited in receiving visas. Restrictions are different in various Free Zones. Usually the amount of visas should not exceed 6 items. They should be prolonged in three years.
Every mainland entity in Arabian Emirates must pass an audit.
In Free Zones it differs. In some Zones an audit isn’t necessary. But certain entities such as FZE and FZCO prepare a document of the year.
The procedure for determining this parameter in the mainland companies is included in the legal structure.
Requirements for the minimum size of capital are observed in the rules of the free zones and they differ from each other.
Approvals for business setup
To start a mainland enterprise, one needs to get permits in several state organizations:
- the Department of Economic Development;
- Ministry of Labour;
- Local Municipality.
Registering a new business in Free Zones is guided by the rules, adopted in each of the Zones. An entrepreneur should not address government agencies.
The Constitution and the laws of the Arabian country reliably protect confidential information. Intellectual property is also protected. In 2021, the country adopted a package of bills, according to which the country established world standards in this area.
In the same year, laws on industrial property patents and trademarks were issued.
Violation of copyright and patent rights, the use of someone else’s trademark in the country is punishable by large fines, and in some cases, by criminal penalties.
Government Authorities activities for Company setup
The opening of a mainland company is followed by the participation of government agencies. The Department of Economic Development (DED), the Ministry of Labor (MIL), the Ministry of Interior (MOI) play an important role in the process of creating and functioning business entities. The local municipality also takes an active part in setting up a business.
The Government doesn’t take part in the opening procedures of enterprises in the Free Zones. There Free Zone Authorities (FZA) implement regulatory functions.
Set up costs
Despite the fact that businessmen pay minimal taxes, the government has established other channels for the flow of money. Any service related to registration or doing business is accompanied by the payment of high amounts. Moreover, the size of the company does not play a role. The location is more important.
For example, in Dubai, the initial creation of a company costs about $ 25,000. This amount consists of several payments. The license costs $4,000. Entrepreneurs pay several types of fees:
- to the municipality – $2,700;
- To the Ministry of Economy – $815;
- To the Chamber of Commerce – $320.
Some money comes from the annual license renewals. For this, you need to pay $ 2,000 every 2-3 years. The annual medical commission costs hundreds of dollars. Add to this the cost of renting an office, in which each employee should have from 7 to 12 sq. m. Rent 100 sq.m. in Dubai costs approximately $88,000 per year. In Abu Dhabi prices are two times lower for setting up Mainland and Free Zone entities.
In the Free Zones
The cost of setting up a company in free zones is influenced by the type and size of the business. Besides, in each jurisdiction, the price parameters are different. Definite free zones have adopted criteria for minimum share capital. Subsequently, this circumstance contributes to an increase of the initial cost.
Free zones significantly limit entrepreneurial activity. Thus, for novice businessmen, this is not a favorable option.
On the Mainland
To acquire a license for a mainland company several permits are necessary. Administrative bodies are actively involved in the creation of a business. The price of opening your own business is influenced by several factors:
- type of business;
- the size of the territory rented for the office;
- the number of shareholders.
This option is the most acceptable, giving you ample opportunities.