What Is a Free Zone? Heres everything you need to know.

What Is a Free Zone? Heres everything you need to know.

Author

Ambia Hoque

Date

There are approximately 400 million SMEs (small and medium enterprises) worldwide. Many people start (or want to start) their own business, but several difficulties can come with it. Getting assistance wherever possible can be very helpful. One of the best things you can do to make starting a business easier is to do so in a free zone. So what is a free zone, and why should you start a business in one? Keep reading to find out.

What Is a Free Zone?

A free zone (sometimes called a free zone authority or free trade zone) is an area that allows the trading of goods and services with several benefits.

Many people are interested in free zones because they have 0% tax rates and preferential customs duty rates. They also offer complete import and export tax exemptions.

Free zones also allow for 100% foreign ownership, which is ideal for anyone looking for more privacy in their entrepreneurial activities. There’s no open directory, so people can’t freely look company details up. With this, sensitive details like shareholder information can’t be accessed by the public.

Dubai has seen a huge amount of development in recent years, attracting businesses from all kinds of industries. It’s an ideal hub for a new business, and there is plenty of access to other goods and services in the area.

The History

The Emirates region originally started using free zones to attract more businesses. Benefits such as the 100% foreign ownership helped bring in entrepreneurs from all over the world. This also benefited local businesses by bringing more people into the region.

There are now a total of 45 free zones throughout the UAE. This includes Ras Al Khaimah and Umm Al Quwain, two of the most popular Emirates. These free zones have changed over the years to offer more advantages to those making use of them.

Not all free zones are the same – they each have different offerings, and some are catered to specific industries. A business in the healthcare sector, for example, is best situated in DHCC (Dubai Healthcare City). Businesses that deal in a lot of international trade may do better in the JAFZA (Jebel Ali Free Zone) as it contains the biggest port in the whole region.

The DIFC (Dubai International Financial Centre) is a financial district in the centre of Dubai. It’s considered to be very prestigious, and its jurisdictions are governed by English Common Law.

Why Start Your Business in a Free Zone?

There are several advantages of a free zone that make them ideal for starting a new business or even moving an existing business over. Among these advantages, perhaps the most appealing are the tax benefits.

Tax and Duty

Tax exemption is the main reason why people lean towards starting a business in a free zone. Taxes can eat up a sizeable portion of your business’ profits, so you could potentially save a lot of money by avoiding them. Both corporate and personal taxes are reduced to 0%.

On top of this, you won’t have to pay any VAT for your profession. This is the case for all goods and services across the region.

If your business will be importing or exporting goods, you can benefit even further. There are no tax rates for this, as well as no currency restrictions. Taxes vary between different countries, so the amount you will benefit from this depends on where you live and would normally be opening a company.

Easy to Set Up

Starting a company isn’t always easy. There’s a lot of paperwork and administration involved, and you need to make sure you’re following all rules and regulations set by the country your business is in. Compared to many other countries, starting a business in Dubai is incredibly simple.

In most situations, all you need to do is produce some simple documentation. This typically includes things such as a passport, professional credentials, and business documents.

You can usually get your business started in a free zone in Dubai within just a couple of weeks. Many of these zones also allow you to use virtual packages and flexi-desks.

Flexi-Desks

A flexi-desk is essentially a workstation you can use to run your business. With modern advancements, it’s becoming far more viable to operate entire businesses online. Many companies don’t need warehouses or brick-and-mortar stores, just a computer and an internet connection.

With a flexi-desk facility, you can make use of a station with a desk, chair, and computer to run your business. These facilities contain many of these desks, which are separated by dividers but don’t have individual rooms to help keep costs down. You can usually rent one of these yearly.

When you rent a flexi-desk, the only people who will be permitted to use that computer are you and anyone else from your business who you allow. You can lock the desk when you leave to prevent anyone else from gaining access.

Flexi-desks are far more cost-efficient than renting a physical office space and will help you save time when first getting set up. In some jurisdictions, flexi-desks may offer additional features. This often includes things like a phone or a P O Box.

Foreign Ownership

Setting up a business in your home country is one thing, but doing so in another country can often involve various complications. There may be legal barriers that make it difficult or even impossible.

If you want to start a business in the UAE mainland, you need to have a local partner to work with, and they’ll need to conduct their own line of work. By setting up in a free zone, you can avoid this. When you start a business in a free zone, you’ll retain 100% ownership without any issues.

Trading Within the UAE

A common difficulty with businesses is establishing trade. This is one of the few restrictions that remain in place in free zones. When you first open your business, you won’t be able to trade directly with the UAE local market – fortunately, it’s fairly easy to get past this.

To start trading, you first need to establish some meaningful networks with investors in the same industry as your business. One way you can do this is to find a local distributor to collaborate with. You may be able to pay them a fee, and in return, they can offer your goods and services to the market.

Another thing you can do is get your business set up and then open branch offices in different locations in Dubai and the Emirates. You can use these offices to provide your goods or services in various locations. Just bear in mind that this will come with additional costs but will also help you increase your profits in the long term.

Ongoing Support

To encourage more businesses to open up in these areas, free zone authorities assist with visa applications. This applies to shareholders and any dependents such as family and domestic staff.

Depending on the free zone you open your business in, you might be able to get assistance with opening corporate bank accounts, such as advice on the best institutions for your business needs.

Some zones provide ongoing support in terms of networking services and professional advice. To help new businesses get off of the ground they might also offer growth initiatives and access to startup hubs.

How to Start a Business in a Free Zone

As you probably realize, there are plenty of good reasons to start a business in a free zone, but if you’ve never done it before, starting a business can be quite daunting. Fortunately, the process in a free zone is relatively simple.

1. Choose Your Business Activity

It’s likely you already know what sort of business you want to start. If not, there are hundreds that you can choose from in the UAE. You can even have just one license with multiple business activities under it, so you’re not restricted to just one line of work.

The activities you choose will determine how much your license costs. They’ll also help you figure out which free zones are most suitable for you to get started. Once you’ve got the business activities decided, you can move on to branding.

2. Settle On Your Company Name

For some people, coming up with a company name is easy, and for others, it can be very difficult. You want to do this early so you can move on to other parts of your business. People often go with something that relates to the type of industry the business is in so that the public can easily relate to it.

Bear in mind that there are some specific rules in the UAE regarding company naming conventions. You must avoid any of the following:

  • Offensive language
  • Religious references
  • References to other organizations (‘FBI’ and ‘Mafia’, for example, are forbidden)

You can engage with a professional Dubai company to get assistance with your name, making sure it’s suitable and compliant. They may also be able to help you check its availability and deal with any other issues that might arise. If you don’t meet the correct regulations at this point, you could encounter more trouble further down the line.

3. Apply and Submit Documents

No matter where you set up a business, there will always be documents that you have to deal with. An advantage of free zones is that they typically require a lot less than other areas. Some of the standard documents you’ll need to submit are:

  • Completed application form
  • Passport copies (for all shareholders)
  • Contact information

There may be other specific documents needed by certain free zones, such as a business plan. Like naming your business, this is another time when it’s good to work with a local company. They can help you get everything in order and submitted correctly, preventing any delays.

4. Open a Bank Account

Once your license has been approved, you’ll almost be ready to start operating. One last thing you’ll want to do first is open a bank account for our business.

Most free zones will assist you in finding a bank that would be well suited to your type of business. You’re free to do your own research and select a bank yourself, but the help is there if you want it.

5. Visa Processing

Getting your visa is the last step in setting up your business. Visa applications are often a bit confusing, but a free zone authority can manage this for you. If you’ve been working with a company set-up specialist, they’ll also be able to take care of this.

Either of these parties can liaise with the correct government departments to ensure your visa is processed correctly. Once this is all sorted, you can start trading.

Freelancing in a Free Zone

In recent years, the number of people working as freelancers has increased massively. The UAE has also become a great place for this. Many free zones have freelance licence packages that you can buy to help you start out there as a freelancer.

These licences let people work as sole traders in a range of sectors and are generally quite affordable. Some of the sectors that have seen a lot of growth in recent years are:

  • Health and fitness
  • IT and software development
  • Media
  • Graphic design
  • Infrastructure

For a freelancer, this offers a lot of possibilities in terms of freedom and growth.

Should You Start a Business in a Free Zone?

You’re no longer asking, “what is a free zone?” but you may still be unsure about where to get started. DUQE is one of the best free zones for people looking to start a business.

It offers tax exemptions, international trade, end-to-end support, and more. If you have any questions about starting your business in DUQE, click here.

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