The two main options for company formation in Dubai UAE are setting up a business in the local market or in one of the many free zones. Each option offers distinct advantages, depending on the nature of your business, ownership preferences, and operational requirements. Learning about the key differences between local and free zone setups will help you make an informed decision about which option is suited for your needs.
Ownership and control:
One of the most significant differences between local and free zone companies is the ownership structure. In a local company setup, foreign investors are required to have a local sponsor who holds 51% of the company’s shares. This can be a barrier for some entrepreneurs who prefer full ownership and control. Instead, free zone companies allow 100% foreign ownership, giving entrepreneurs complete control over their business operations.
Geographical scope and market access:
Local businesses can operate anywhere within the UAE, which provides access to a wide domestic market. This is ideal if your business plans to serve both local customers and international clients within the UAE. Free zone companies, however, are limited in terms of geographical operations. They are restricted to conducting business within the free zone or with international clients. However, free zone companies can easily establish partnerships with local distributors or clients by forming agreements or registering with a local distributor.
Taxation and financial benefits:
Free zones in Dubai are often known for offering a range of financial benefits, such as tax exemptions, customs duty benefits, and full repatriation of profits. Many free zones offer tax holidays for a specified period, which can be an attractive incentive for startups and growing businesses. Local companies, however, are subject to UAE’s tax laws, and while taxes are relatively low, they do not enjoy the same tax exemptions or benefits as those in the free zones.
Regulatory environment and paperwork:
The regulatory environment differs significantly between local companies and free zone setups. Free zones offer a simplified and streamlined process for business setup, with less paperwork and faster approval times. Additionally, free zone authorities often provide various support services, such as visa processing and office space. In contrast, local businesses must steer more complex procedures, including dealing with government authorities and obtaining additional approvals, which may involve more time and effort.