Thursday, August 18, 2011

Pros and Cons of Setting up a Business in a Dubai Free Zone

Any foreign company that wants to enter the Dubai market has two options. Either register a Dubai Limited Liability Company that can operate anywhere in the United Arab Emirates or register a company inside one of the many Free Zones in Dubai. Over the past several years, many Free Zones have been created in Dubai in order to attract higher foreign direct investment. These free zones offer several advantages to foreign companies and are seen as one of the best ways to setup an office in Dubai. However, there are several pros and cons of setting up an office inside a Free Zone and some of them are as follows:

Pros:

Any company registered inside the Dubai Free Zones can have 100 per cent foreign ownership. This is an important advantage as otherwise Dubai does not allow foreigners to own a company based in the city completely. They are not even allowed to own majority stake and can have a maximum of 49 per cent stake in a Dubai limited liability company. However, there is no such restriction when it comes to any of the Free Zones in Dubai and foreign nationals are free to own as much as they want in their Dubai Company inside the free zone.

The other significant advantage of doing business inside a free zone is the tax exemption given to all companies. Businesses insides the free zone do not have to pay any taxes whatsoever for a certain number of years. This can be anything between 10 to 15 years and the exemption is renewable as well.

Free zones usually have an excellent infrastructure and business environment. All possible amenities can be found in these free zones and companies have an immaculate platform from which to conduct their business activities. There is a lot of government support as well for development of the free zones and hence several benefits are passed on to companies operating inside these free zones.

Cons:

While free zones feel like a good idea, there are a few cons of operating inside these zones as well. First and foremost, any company setup inside the free zone must confine their business activities to these zones only. They cannot expand beyond the free zone into other markets in UAE. They cannot cater to customers in other parts of Dubai from a free zone. This is a huge restriction especially if your company intends to service the entire UAE market.

The other important disadvantage is you cannot operate any type of company in a free zone. Each free zone is designated for a particular type of business. Examples of these include free zones dedicated to import and export business and free zones meant for technology related companies. Hence your business activities are confined to the type of free zone where you have setup your office in Dubai.

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