Difference Between Free Zone and Offshore Company Formation in UAE

The business setup process in Dubai offers foreign investors multiple options such as more then forty free zones and three offshore centres which force the entrepreneurs to have a detailed study before launching their business here. The decision to choose the right jurisdiction (free zone or offshore) is a strategic decision and the investors need to know the basic differences between the two types of company formation in Dubai. Both offshore and free zone company formation serve different purposes and therefore, the foreign investors need to approach the best business setup consultants in Dubai, UAE before making the strategic decision.

Features of Free Zone Business Setup Process in Dubai

There are nearly 45 free zones in the UAE and the majority of them are in Dubai. The Free Zones are developed mainly to promote trade and exports and bolster the investment ecosystem in the country. The Free Zones are regulated and controlled by the respective free zone authorities that have specific regulations for the companies registered with them. The investors can set up a new company in the free zones or start a branch of their existing company. The entrepreneurs conduct businesses only in the activities permitted in the trade license issued by the respective free zone authority. However, a company in the free zone have certain restrictions and are not allowed to trade directly with the UAE market. The foreign investor can enjoy the benefit of 100% ownership in the free zone entity and there is no need to have a local sponsor.

Features of Offshore Company Formation in the UAE

Foreign investors set up an offshore company in the UAE mainly for asset protection and investment diversification while enjoying tax benefits and confidentiality. The foreign investors can register an offshore company in some of the free zones in the UAE which are regulated by the respective free zone authorities. The foreign investors can own freehold properties in certain specific areas with confidentiality by forming an offshore company in the UAE. Unlike free zones, offshore companies are not allowed to conduct any business activity in the UAE. The UAE has signed Double Taxation Avoidance Agreements (DTAA) with around 115 countries, and the investors can avail of the benefits of DTAA by registering an offshore company in the UAE. There are 3 offshore jurisdictions in the UAE spread across three emirates: Dubai (JAFZA Offshore), Ajman (Ajman IBC Offshore), and Ras Al-Khaimah (RAKICC Offshore).

How does the Offshore and Free Zone Company Formation Differ from Each Other?

The offshore and free zone business setup in Dubai has its own pros and cons. The business goals of investors who opt for offshore company formation in Dubai are different from the plans of the businessmen who wish to start a company in the free zones. The difference in the business goals can be grasped by explaining the differences between offshore and free zone company formation. The following are some of the factors that distinguish both types of business setup in Dubai.

1. Office Space

The companies licensed by a free zone authority are allowed to rent an office within the free zone. Free Zones in the UAE offer modern infrastructure and sophisticated facilities for the companies to set up a physical office. The companies with limited office requirements can also opt for co-working space or Flexi desk facilities. On the contrary, the offshore cannot have an office space in the UAE, reason being the offshore companies are not allowed to business within the UAE.

2. Business Activity

The restrictions on business activity are one of the major factors that differentiate the process of business setup in UAE free zones from offshore company formation. The companies operating in a free zone can conduct the business in any of the activities allowed by the free zone authorities and the same will be mentioned in the trade license. However, free zone companies can’t do trading in the UAE market except by appointing a Logistic company. In contrast, the companies formed as part of the offshore business setup are not allowed to conduct business within the UAE. However, offshore companies can conduct business outside the UAE.

3. Cost Effective Business Setup Process

The offshore business setup process in Dubai gives the investors an added advantage of cost effectiveness. The administrative costs are less since the requirement to hire staff or office space is minimal. With the expert assistance of reputed business setup consultants in Dubai, setting up an offshore company is a hassle-free process. On the contrary, the free zone business setup process in Dubai requires more investments in terms of hiring staff, renting office space and also the pressure of regulatory compliance.

4. Eligibility for Visa

Setting up a free zone company in the UAE is an advantage in connection with the ease of getting visas. The shareholders and employees of the free zone company can easily apply for the visas. All they required to do is availing the PRO services of the reputed business set up consultants in Dubai to facilitate the visa process. However, visa eligibility is not applicable to the offshore business setup in Dubai, UAE.

Final Thoughts

The first task every investor has to deal with while preparing to start a company in Dubai is finalizing the right jurisdiction for their business. Investors can start a business in the mainland, free zone, or offshore according to their business goals. However, investors often find themselves at a bay while pondering over the selection of the jurisdiction. Since it is a strategic decision, expert assistance of a professional company formation service provider is required.