What is the difference between free zone and offshore companies

, Entrepreneurs

Setting up your business in Dubai would put you on the road to success. Dubai is an amazing place, for budding entrepreneurs. However for any outsider, setting up a new business in Dubai can be a bit confusing. There are of course a lot of options and with them a lot of questions. Thus, we have come up with this article to help you steer through these options.

Depending on the business model you choose, there are many ways for you to set up your business in Dubai. The two main options are: a free zone enterprise or an offshore business.

Confused? Let us shed light on both options.

Free Zone Company – If you want to keep hold of full ownership of the company you should set up a business in a Dubai under free zone. When you go for a free zone company you can do your business through the free zone only. Free zone also restricts you to rent a warehouse or an office space only inside the free zone.

Offshore Company – If you set up an offshore company in UAE you are not permitted to do business within the UAE. However, you can use the UAE as a base to do your business anywhere in the world. It is ok to set up an offshore company in Dubai however it is more beneficial to set it up in RAK Free Trade Zone with the registered office based in Dubai.

If you aspire to start your business in the United Arab Emirates, it is essential to get familiar with the concept of free zone and offshore. You need to understand the difference between both types for the business to run smoothly.

Both of these types offer some liberties and some limitations to the organization in conducting their business. When you are trying to get registered in Dubai to start your business, you need to mention which type of setup you want keeping in mind that the limitations on free zone companies are different from offshore companies. These autonomy and restrictions need to be taken into deliberation beforehand. To help you make up your mind we’ll provide some more details.

Dubai Free Zone Companies

Originally, Free Zones in Dubai were created based on airports or sea ports and their function was to draw investors to operate primarily import-export, trading businesses and manufacturing by offering them a range of attractive privileges like:

  • ¾ No taxation
  • ¾ No customs duty
  • ¾ No need to associate with local partners to setup your business
  • ¾ Complete foreign ownership
  • ¾ Employees and Shareholders were eligible for UAE residency visa

However, now Free Zones in Dubai have taken a different path altogether as they are not just airport or seaport based and they offer not just manufacturing and trading licenses. At present, there are about 20 or more, diverse free zones in Dubai offering business opportunities in more or less every sector of economy.

For instance, there’s Dubai Healthcare City or DHCC it’s a Free Zone for healthcare providers and then there’s Knowledge Village a Free Zone for training and educational institutions other examples are Dubai Media City, DIFC and many others. Each free zone having its own rules and regulations; but basic incentives remain the same in all of them.

Dubai Offshore Companies

Though registering an offshore company is common practice in countries like Liechtenstein, Monaco, Hong Kong and Panama, the UAE begun registering these types of companies only in the year 2003 when the Regulation-2003 on Dubai’s Offshore Companies was issued.  As per Regulation 2003, Jebel Ali Free Zone Authority was authorized to register offshore companies.

Afterwards, in the year 2007 two more Free Zones in Ras Al-Khaimah like RAKFTZ and RAKIA were also authorized to register the offshore companies. As mentioned earlier, UAE offshore companies cannot operate their business activities directly in the UAE. But, offshore companies can become a shareholder of any Mainland or Free Zone company in UAE, this enables them to enter in the UAE market and perform their business activities via the subsidiary companies. Furthermore, by law Offshore companies shan’t be considered as performing business in the UAE, if they:

  • ¾ Use legal, auditing, accounting or management consultancy
  • ¾ Prepare and maintain records and  inside the UAE
  • ¾ Hold meetings their members or directors in the UAE
  • ¾ Lease a property to use it as a registered office
  • ¾ Hold a bank account in any UAE bank for conducting their routine transactions.

Conclusion

The Free Zone and Offshore companies offer different roles and purposes. Free Zone companies have a physical presence in the UAE and operate their business from there, whereas Offshore companies only have registration and office address in the UAE however they are not eligible to conduct business activities inside the UAE directly. In addition, employees and shareholders of Free Zone companies are eligible to get residency visa(s) of UAE, while it is not the case with Offshore companies. Nevertheless, Offshore companies do have their own advantages like their freedom to own real estate, less cost in setting up and freedom from restrictions like office lease. So, before selecting which type of company your business needs, it is imperative to properly understand the differences, purpose, advantages and disadvantages of each of them.

We at Samsun Godwin can take care of all your business needs, from your initial queries to your final choice. Our dedication to offer our clients with the very best and our outstanding customer service standards form the foundation of our value system. Our expert team will quickly find your needs and deliver to your requirements in the most competent way.

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