UAE provides different business-related jurisdictions that can accommodate individuals and companies with different choices. The investors are allowed to establish their business in mainland, free zone and offshore areas. There are thousands of small investors and big companies that are taking advantage of one of these locations according to their business requirements.
Mainland UAE is completely different from other business areas as foreign entrepreneurs are not allowed to hold more than 49% shares of their company (51% shares have to be transferred to a local Emirati) in mainland UAE. Apart from that, investors and entrepreneurs face difficulties also due to implementation of several taxes and many other restrictions that are also laid in companies located in UAE mainland.
In this situation, many entrepreneurs look for alternatives to mainland UAE in order to get complete profits of their businesses and minimize the restrictions that are applied in the mainland. The government of UAE is fully committed to providing such business opportunities. For this purpose, there are free zones and offshore jurisdictions that provide several incentives to businesses that are otherwise not available in the mainland UAE.
There is a minimum of 45 free zones in the country while at least 3 offshore jurisdictions (in the emirates of RAK, Dubai, and Ajman) are also established in UAE. Free zones are well-established entities in UAE as they are growing since last several decades while the country started an offshore business in 2005.
Similarities between free zones and offshore businesses
Both these areas are quite similar in a few of their aspects. Both free zones and offshore companies can be fully (100%) owned by a foreign entrepreneur, while both these jurisdictions provide a facility of 100% repatriation of profits. Tax exemptions in both these areas are also quite similar (until recently).
Differences between free zones and offshore businesses
But despite few similarities, both these business entities are completely different and are designed to fulfill requirements of different business entities. It clearly means that both these areas are providing several features that are different from each other.
Following are important differences that distinguish between free zones and offshores present in UAE:
- The first major difference between the two business entities is the recent implementation of value-added tax (VAT) in UAE. Previously, both these jurisdictions were enjoying complete exemption of taxes. But now, only 20 free zones are exempted from VAT and the tax is implemented on all the other free zones. In contrast, there is still no VAT and other taxes applied to offshore companies.
- The most important distinguishing factor between the two entities is the privacy and secrecy of offshore companies. The names and identities of owners, directors, and shareholders of offshore companies are not made public while no such facility is available in any of the free zones.
- Most of the free zones are located near seaports or airports and their purpose is to provide facilities for companies to do businesses related to trade and export. Such companies can manufacture products in UAE but have restrictions on having businesses in the local market of UAE. On the other hand, offshore companies are not allowed to do any kind of business activity in UAE. They can only use offshore jurisdiction in UAE as their business address.
- Office space is a must for companies in any of the free zones. But it is not mandatory for offshore companies to rent any office in the country.
- Shareholders and employees of a free zone company can easily get UAE residence visas and employment visas. On the other hand, offshore companies are not eligible to apply for any employment visas.
These are a few important differences between offshore and free zone jurisdictions in UAE. Both these locations provide favorable business opportunities for respective types of businesses. If you want to establish your company in either of the two jurisdictions (free zone or offshore), you can consult Riz & Mona Consultancy via our email address info@rizmona.com or landline # 971-4-5586339. We have years of experience in successful establishment and running of numerous businesses in both these business-friendly jurisdictions in UAE.
