Freezones in UAE vs Non-Freezone: What’s the difference?
It’s no secret that the United Arab Emirates has become a key player in the business world, and the country’s willingness to succeed in this area hasn’t gone unnoticed. The UAE has recently climbed the ranks and reached the 11th spot in the World Bank’s Annual Ranking for Ease of Doing Business.
There are no signs of slowing either, with statistics across almost every sector backing up the country’s commitment to promoting business and trade.
By 2025, for example, the UAE e-commerce market is predicted to reach $8bn. The AI market is closely following too, with the revenue from this industry in the MENA region forecast to hit $1bn by 2025.
For the entrepreneurs that hope to enjoy this business hotspot, they must first make an important decision — to set up their company in a free zone or non-free zone.
Let’s explore free zones in UAE vs non-free zones, the benefits of both and what to expect.
Understanding free zones in UAE: What are they?
Freezones are all about business. They allow services and goods to be traded and are usually exempt from tax and customs rates. Business owners in free zones across the United Arab Emirates have 100% ownership.
Often conveniently located by a port, free zones are governed by a different framework of rules and regulations.
While many free zones deal with all industries, some cater exclusively to specific sectors like the Dubai Healthcare City (DHCC) for health and wellness, Sharjah Publishing City (SPC) for publishing and the Dubai CommerCity for e-commerce.
Want to use Dubai as your export base? Read this article to find out more.
What are the benefits of being a business in a free zone?
The full details around benefits may differ between areas, but we’ve listed some of the general benefits to business investors:
- 0% corporate tax: Companies that set up a business in a free zone won’t be required to pay corporate tax out of their business revenue.
- 0% import or export tax: Businesses are exempt from all customs duties.
- 100% foreign ownership: In a free zone, a foreign investor retains 100% ownership and control.
- Networking opportunities: There’s a vibrant ecosystem of companies from numerous industries, many of which act as communities for like-minded people.
- Business-friendly support: Freezones are tailored to the needs of businesses, with comprehensive support services available to help at almost every stage.
What are the most popular free zones in the UAE?
In total, 46 free zones span the UAE, with these attracting global investors and entrepreneurs from far and wide. As the economy changes and markets develop more free zones are likely to appear.
For the global crypto players amongst us, Ras Al Khaimah is set to launch a new free zone focused on digital and virtual asset companies. So while the number may continue to climb in the future, we’ve detailed four of the most popular:
Jebel Ali Free Zone (JAFZA)
Since 1985, the Jebel Ali Free Zone (JAFZA) has played an integral part in the UAE’s business hub. It was the first free zone to be established and is currently home to 9,500+ businesses that significantly contribute to the GDP of Dubai. These businesses bring in a whopping $ 104.2 billion in trade value yearly.
The location near the Jebel Ali Port makes it an ideal spot for trade, logistics and general business activities.
Dubai Multi Commodities Centre (DMCC)
Shortly after JAFZA was created, the Dubai Multi Commodities Centre (DMCC) free zone was created in 2002.
Focused on allowing trade, the DMCC aimed to enhance Dubai’s position as a leading global trading centre for commodities. Now, it’s one of the UAE’s most prominent and fastest-growing free zones, with over 23,000 registered companies.
Ras Al Khaimah Economic Zone (RAKEZ)
Located in Ras Al Khaimah, RAKEZ was born out of a merger of two free zones — the Ras Al Khaimah Free Trade Zone (RAK FTZ) and Ras Al Khaimah Investment Authority (RAKIA).
RAKEZ isn’t limited to just one sector and it supports both industrial and commercial activities, currently totalling over 18,000 companies.
Abu Dhabi Global Market (ADGM)
Established in 2015, the Abu Dhabi Global Market (ADGM) provides world-class facilities and modern infrastructure to numerous businesses and financial institutions in Abu Dhabi. They are set to expand further, creating one of the largest concentrated financial districts in the world.
Exploring Non-Freezones: What does this mean?
Otherwise known as a ‘mainland company,' non-free zones refer to a business registered with the Ministry of Economy under the supervision of the Department of Economic Development.
To establish a non-free zone, or mainland company, a UAE resident is required as a sponsor.
What are the benefits of setting up a business in a non-free zone?
There are many benefits to setting up a mainland company, including unrivalled market access and flexibility in location. You can set up your office in any part of the country and have the freedom to operate anywhere within the UAE.
Other benefits include:
Lower set-up costs: Mainland companies are often cheaper to initially set up.
Trading within the UAE: Mainland companies can conduct business directly with other mainland companies without restrictions — but not in free zones.
Ability to win local contracts: Mainland companies can bid for government contracts and participate in projects exclusive to the mainland.
Local partnerships: Benefit from first-hand knowledge and connections from the inclusion of a local Emirati partner.
What’s the difference between a free zone and a non-free zone?
If you’re choosing where to set up your business, here are the main differences between free zones and non-free zones.
In a free zone, foreign investors have 100% ownership of their company.
In a non-freezone/mainland, you must have a local Emirati sponsor or partner who holds at least 51% of the shares to set up a business.
But how do you set up a company in Dubai? Find out by reading this article.
Companies in a free zone may be under certain restrictions when conducting business outside that area.
Mainland companies have unrestricted access throughout the UAE but cannot trade in free zones.
It depends on the area, but free zones generally have tax advantages like no corporate and personal income taxes, exemptions on import/export duty and lower customs duties too.
Non-freezone companies must pay corporate and personal income taxes. But, the UAE doesn’t impose any federal corporate tax.
Freezones operate under their own regulations and the frameworks often keep businesses as the priority.
Non-freezone companies must comply with the regulations set by the UAE’s Federal and Emirate-level authorities.
Flexibility with your chosen location
If you’re a Freezone company, you must have a presence in the area you’re registered in.
In contrast, non-free zone companies can work from wherever suits them best. They have complete flexibility in choosing their office location from across the whole of the UAE.
Again, there are certain regulations that free zone companies must adhere to in regard to their trade and interactions with non-free zone entities.
Mainland, or non-free zone companies can conduct business directly with other non-freezone companies throughout the UAE.
Freezones benefit from gaining industry-specific support when they join a free zone designed for their industry.
Non-freezone companies are able to work across numerous sectors, as they aren’t bound to one.
Choosing the right option for your business
Choosing between free zones in UAE vs non-free zones entirely depends on your business needs. Assess the benefits and downfalls of each before making your final decision.
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