Internationally a free economic zone, free port or a free zone, is a designated area in which companies are taxed very lightly or not at all, in order to encourage economic activity. Similarly, within the UAE free trade zones are areas that have special rules, import regimes, and tax concessions, and are governed by a special framework of regulations.
Free zone company set up in the UAE
Essentially a free zone in the UAE allows a business set up in Dubai to start work within a fixed geographical boundary after renting a small office, or even just a shared desk. It grants 100% ownership with minimal interference from the Ministry of Human Resources and Emiratisation, MOHRE, and none-to-negligible taxes.
In comparison, a mainland visa, grants a company rights to conduct business anywhere within the city limits. It is governed by the MOHRE, and requires a local sponsor to partner with the enterprise. The UAE has a number of free zone company set up options across Dubai, Abu Dhabi, Sharjah, Fujairah, Ajman, Ras al-Khaimah and Umm al-Quwain.
A key feature of a free zone company set up is that it is not subject to any restrictions under the Companies Law regarding foreign ownership restrictions. Securing a government contract is a public transaction and needs to be announced, with companies making a bid. Only limited liability companies (LLC) issued under a mainland license, with a minimum 51% local shareholding, are open to apply for government contracts. This is usually the norm, but rare exceptions apply.
Foreign companies that undertake business with the UAE federal government, or the government of any emirate or any other governmental body, are obligated to comply with rules set forth in the Financial Order No. 16 of 1975, the Federal Regulation of Conditions of Purchases, Tenders and Contracts, as well as any local procurement rules. With a few exceptions, only UAE nationals, foreign entities with a local agent or foreign entities with local partners may bid for public sector tenders.
Opening a Branch or Representative Office: Under articles 327 to 332 of the Companies Law, foreign companies are permitted to open a branch or a representative office of a foreign company, that may be wholly owned by foreigners, and could therefore be registered out of a free zone.
Registering a branch or representative office is usually undertaken in partnership with a local UAE national sponsor, or a company that is wholly owned by UAE nationals. The sponsor performs the role of a service agent, is usually paid an annual fee in the range of USD 20,000 to USD 40,000, and has no power nor responsibility with respect to the branch, where the foreign company retains full control. In the event that a company set up like this is uniquely qualified in the service it performs, it may be eligible to bid for, and secure government contracts with a free zone license.
For more information on free zone and mainland visa structures, enlist the help of professionals to guide you on how to bid for government contracts. Book an appointment with one of our trusted consultants at Decisive Zone and get expert help.