Free Zone company vs Off Shore company in Dubai

In this article, we provide companies and individuals with the vital information they need when considering their operations under a …

In this article, we provide companies and individuals with the vital information they need when considering their operations under a free zone and /or an offshore company in Dubai and answer some of the most important questions that investors have regarding their business structures. This article, however, is not intended to provide legal advice or opinion, and it is for informational purposes only. If you would like to discuss how this information relates to your particular matter, we encourage you to contact a lawyer through Legalintro.

 

What are the main advantages of setting up a free zone company in Dubai?

The key advantage to foreign investors is that free zones generally offer the option of 100% foreign ownership of the establishment without the need of a UAE national acting as an agent or local sponsor. Additionally, free zone laws generally prescribe a guaranteed tax-free period of 50 years, customs duties do not apply where the imported goods are for the use of the company, and there are no restrictions on repatriation of capital and profits.

 

How about the drawbacks of setting up a free zone company in Dubai?

The main drawback for a free zone entity is that it cannot conduct trading activity outside of the territorial limits of the free zone. Another issue is the limited business activity capability of free zones as each free zone is designated for a particular type of business and can only issue license for the activities related to that particular type of business. Moreover, some free zones have specific restrictions pertaining to the amendments that would be made on the company license, e.g. changing shareholding pattern can be disallowed within the first year of establishment.

 

Can I do business in the mainland of Dubai through a free zone entity?

It depends on the type of license under which the free zone company conducts business. In case a free zone entity has a professional license, which is issued for the activities based on mental and physical effort to be practiced, such as education, health, social work or personal services, such free zone company is allowed to conduct its professional business in the mainland of Dubai. However, if there is a commercial license under which free zone company undertakes trading activity, it cannot carry out its trading activity in the mainland without appointing a commercial agent based in the mainland of Dubai, and upon entry of goods into the mainland of Dubai, a customs duty will be applied.

 

Which free zone should I choose to establish my company?

There are several factors to consider when determining which free zone would be the most appropriate option for the establishment of a new business entity. These factors include business activity, location of the free zone, infrastructure and facilities offered by the free zone and cost of business formation. Therefore, it is strongly recommended that you should seek legal advice from a specialized lawyer to have a clear understanding of the relevant free zones’ requirements and procedures. Use Legalintro to speak to an experienced lawyer who can advise on the right choice of free zone matching your specific requirements and undertake the responsibility for preparing incorporation and registration documents for the establishment of your company.

 

What are the main advantages of setting up an offshore company in Dubai?

Similar to free zones, there are neither limitations on 100% foreign ownership of offshore establishments nor minimum share capital requirement. Besides the benefit of tax exemption, offshore companies offer a high level of privacy and anonymity. Moreover, an offshore company can be in virtual form as it is not necessary to have an office in UAE. However, it can own real estate properties in the designated areas in the UAE, which is why they are principally regarded as holding companies.

 

What are the drawbacks of setting up an offshore company in Dubai?

Since offshores are not regarded as operational entities, acting merely as holding companies, they cannot be incorporated without having a registered agent in Dubai. Another key shortcoming is that the shareholders and employees of an offshore company are not entitled to get visa through the offshore company that they work for. In other words, an offshore company cannot sponsor its own employees to obtain visa for them. Last but not least, since most of the international banks consider offshore companies as high-risk customers, it is harder to obtain approvals for offshore bank account opening following company registration.

 

Which offshore should I choose to establish my company?

In order to find the best offshore, you should initially understand your priorities and needs, and then decide where to establish your offshore company. Should you seek confidentiality, Cayman Islands can be the best possible option for you as they offer one of the highest privacy amongst other offshores. In Cayman Island, corporate documents related to conducting business such as the register of shareholders or meeting minutes do not have to be registered with the government authorities and can be stored anywhere in the world. In addition, there is no requirement to have an annual shareholder meeting or an annual audit. On the other hand, if you are looking for a low-priced and fast set up, British Virgin Islands (BVI) can be the right choice. Call Legalintro to get advice from a specialized lawyer who can assist you in finding the best offshore that makes the most sense with regard to your personal situation and precise needs.