Why were free Zones created?
In 1985, the UAE established its first free zone at Jebel Ali Port. This strategic move aimed to attract external investment and business by offering a custom-free export environment. The success of Jebel Ali Port, which quickly became one of the busiest trading hubs in the Middle East, set the stage for creating numerous free zones across the UAE.
What is the Purpose of a Free Zone?
Free zones are designated areas within the UAE designed to encourage economic activity by providing a range of benefits to businesses. These zones aim to:
- Attract foreign investment
- Stimulate economic growth
- Create job opportunities
- Foster innovation and development
UAE: What is the Free Zone?
Free zones in the UAE are specially designated areas where businesses benefit from various incentives, including tax exemptions for permissible qualifying free zones, custom-free imports and exports and the ability to operate under distinct legal frameworks separate from mainland regulations.
How Many Freezones are in the UAE?
The UAE boasts over 40 free zones, the majority of which are in or around Dubai. These free zones cater to various industries, from finance and technology to logistics and media.
UAE: What is the Mainland?
The mainland refers to the onshore area of the UAE, where businesses must comply with federal laws and regulations. Unlike free zones, mainland businesses often require a local sponsor and are subject to different tax and ownership laws.
Free Zones vs. Mainland
Choosing between a free zone and the mainland depends on your business’s specific needs and goals. Free zones offer greater flexibility and financial incentives for foreign investors, while mainland businesses have the advantage of a broader market presence within the UAE.
Below is a lightly edited excerpt from Immigration & Mobility Decoded discussing the main difference between the free zone and the mainland. The discussion features insights from Florabel Baustista and Philipp von Zitzewitz from Sesam Immigration.
Immigration & Mobility Decoded:
Can you explore the free zones and offer a little bit more context, maybe for viewers who are unfamiliar with them versus the mainland?
Florabel Bautista:
Free zones allow foreign companies to set up an entity in the UAE and maintain 100% ownership through a corporate or individual company. On the mainland, depending on their business activity, there is still a regulation that they should have a local partner, an Emirati partner, on the license.
This means that if a business would like to set up a manufacturing company on the mainland, for instance, it will also have to look into a partnership with either a local company owned by an Emirati national or an individual who will be part of the licensing process. As a result, they will pay a share percentage to maintain a license as part of the mainland’s shareholding.
What are the Benefits of Free Zones?
Businesses operating in free zones enjoy a variety of advantages, including:
- Tax Exemptions based on qualifying income: Companies in free zones often benefit from corporate tax exemptions, which can significantly reduce operational costs.
- Custom-Free Imports and Exports: Goods can be imported and exported without customs duties, making trade more efficient and cost-effective.
- 100% Foreign Ownership: Unlike mainland businesses, which require a local sponsor, foreign investors can fully own companies in free zones.
- Simplified Business Setup: Setting up a business in a free zone is streamlined, with less bureaucracy and quicker licensing procedures.
- Modern Infrastructure: Free zones are equipped with state-of-the-art facilities, ensuring that businesses have access to the best possible resources and technology.
What are the rules for the free zones?
The UAE’s free zones attract global investors with various incentives and operate under specific regulations. Businesses must obtain licenses, such as commercial, industrial, service and professional, by following steps like activity selection, company registration, name approval, securing office space, and license acquisition.
Free zones allow 100% foreign ownership and offer tax exemptions for qualified companies, custom-free trade, and profit repatriation without restrictions. Employment regulations let businesses sponsor visas for employees based on office space. Contracts must comply with free zone labor laws, and the hiring process includes determining visa quotas, employment approval and visa processing.
Annual license renewal requires financial statements, fee payment, and regulatory compliance. Some zones need annual financial reporting and may conduct random inspections. Free zone businesses enjoy custom-free trade, though duties apply when moving goods to the mainland.
Free zones provide robust intellectual property protection and dispute resolution services. Adhering to these regulations is crucial for successful operations, allowing businesses to thrive.
Setting Up a Business in a Free Zone
Setting up a business in a UAE free zone involves several key steps:
- Choose a Free Zone: Select a free zone that aligns with your business activities and goals.
- Select a Business Activity: Determine the specific activities your business will undertake.
- Register Your Business: Complete the necessary registration and licensing procedures.
- Secure Office Space: Acquire the required office space within the free zone.
- Apply for Visas: Obtain the necessary visas for you and your employees.
Immigration & Mobility Decoded:
Florabel, Philipp mentioned that the country offers incentives and provides those pitches to attract the Fortune 500 companies, companies of all sizes. What are some popular industries attracting companies to the UAE?
Florabel Bautista:
Yeah, so there are a lot. Many industries in the UAE, specifically in Dubai and Abu Dhabi. Of course, oil and gas companies, construction companies, real estate, hotel and hospitality industry, logistics and transportation, financial services, healthcare industries and pharmaceuticals are also very popular here in the UAE. Retail industries as well. Fintech and crypto and IT are just booming in the country.
Immigration & Mobility Decoded:
And how are companies, Florabel, typically, I guess maybe tapping into or utilizing their offices in Dubai or Abu Dhabi or elsewhere in the UAE? Does it just help them expand their time zone coverage, offer more coverage to their clients or user base? I’m just curious to understand how global companies operate.
Florabel Bautista:
Companies must choose if they would like to set up their office in the mainland or in the free zone. There are so many free zones that they can choose from, but that will all depend on what kind of business activities they would like to operate. So that’s the kind of options they would have to choose when considering setting up an office in the UAE. First, of course, whether their business is more convenient in the mainland sector or in the free zone sector.
Free Zone Visas
Businesses in free zones can sponsor visas for their employees, simplifying the process of bringing in skilled workers from abroad. The number of visas available typically depends on the size of the office space leased by the company.
Immigration & Mobility Decoded:
So, Philipp, we just learned a little bit about the free zones versus the mainland. I’m curious if you can discuss in a little bit more detail the specific visa pathways or routes that workers can actually use with their employers. I’m based in the states and I’m sure you and Florabel know some of our popular work visas are the H-1B, the L-1 visa, the TN visa. But I’m curious, what are the UAE’s equivalents to some of these?
Philipp von Zitzewitz:
Our equivalent would be the work permit people can apply for through a company. A company then sponsors the visa. So, work authorization through a company. There are also opportunities to apply for a work and residence visa as a freelancer, as well as a concept for remote work visas, which are tied to an international employer. Those are some of the roads into the country.
Typically, most people and employees here arrive in the country on a tourist visa. They would look around; they would familiarize themselves with the area and they would apply locally for jobs and if they are successful, they would find work authorization and an employment contract through their future employer.
In the past, the typical model was that the local market did not have enough talent and most employers would recruit talent from outside the country. So, in those cases, entry permits would have to be applied for through the employer. So that was the traditional role. But nowadays, many people find their way into the UAE by themselves. And given the incentives now for investing capital into the country as well, there are also opportunities for businessmen and investors to come to the country. If you bring enough money or invest in the country, be it through a company or in real estate, you are also entitled to related visas that way.
There is the traditional approach of coming into the country as an employer, and then there’s that of an investor, who invests money and then can obtain a visa from that activity.
Envoy Global
The creation of free zones in the UAE has been a pivotal strategy in attracting foreign investment and boosting economic growth. With over 40 free zones offering a range of benefits, the UAE continues to be a prime destination for businesses looking to establish a presence in the Middle East.
However, navigating the complexities of setting up a business and obtaining visas in the UAE can be challenging. Envoy Global’s UAE team of experts is here to assist your organization in every step of the process. Our team provides comprehensive support, from selecting the appropriate free zone or mainland setup to managing the visa application process for your employees. With in-depth knowledge of the UAE’s regulatory environment and extensive experience in handling immigration matters, we ensure a smooth and efficient transition for your business operations.
Partnering with Envoy Global means leveraging our expertise to navigate the UAE’s dynamic business landscape effectively. Contact us today to learn how we can help your organization thrive in one of the world’s most vibrant economies.
Envoy is pleased to provide you with this information, which was prepared in collaboration with Philipp von Zitzewitz, Director of Sesam Immigration and Florabel Bautista, General Manager of Sesame Immigration.
Content in this publication is for informational purposes only and not intended as legal advice, nor should it be relied on as such. Envoy is not a law firm, and does not provide legal advice. If you would like guidance on how this information may impact your particular situation and you are a client of the U.S. Law Firm, consult your attorney. If you are not a client of the U.S. Law Firm working with Envoy, consult another qualified professional. This website does not create an attorney-client relationship with the U.S. Law Firm.
