Advantages & Disadvantages Of Starting Your Business In Tax-Free Zones

tax free zones

Businesses from all over the world have started making their presence felt in Dubai. From the entertainment sector to the construction sector most of the businesses are trying/have already opened their branches in Dubai and it only makes sense to do it. Dubai is the melting pot of various cultures and this makes it the perfect testing grounds for products. From a business point of view, the exposure that any business gets from doing work in Dubai is tremendous just by the fact that they are catering to the needs of a multi-cultural audience. What is better is the fact that Dubai is well equipped for you to do your business. Among a wide range of benefits, it offers political stability, the existence of venues, expat-friendly visas, great infrastructure, easy access to other parts of the globe and one of the best things is – Tax-Free Zones. There are a lot of countries that have tax-free zones, but the best and preferred ones are in Dubai. Some of them are Dubai Airport Free Zone, Dubai Media City, Dubai Internet City…etc.

Setting up a business in one of these tax-free zones can have its own pros and cons. The advantages of setting up your business in a tax-free zone are plentiful. Some of the advantages are as follows:

Easy Registration process:

It is so much easier and faster to register a company in the tax-free zone than on the mainland. What is typically done in more than five steps is completed in one step when it comes to setting up a business in the tax-free zone.

100% ownership:

If you are looking at sole ownership of your business then setting up your business in a tax-free zone is the best way to go about it since only tax-free zones will allow it. 

No local partner required:

If you are setting up your business in mainland Dubai then by law it requires you to have a local partner who will own 51% of your company shares and you will own only the remaining 49%. This means when you set up your business in a tax-free zone you get to enjoy 100% of your profits.

No corporate taxes:

With the introduction of VAT companies in mainland Dubai are required to pay a VAT percentage of 5%. This is a standard rate that applies to all the businesses operating from the UAE but this charge does not apply to the companies operating from one of the tax-free zones. 

No custom duties:

Free zone licensees are allowed to import goods or equipment into the tax-free zone without paying any customs duties. These goods can be stored for an unlimited period of time depending on the type of goods and the Free Zone license validity. There are certain forms and documents that have to be filled and submitted in order to avail of this facility.

Infrastructure:

You will always find world-class infrastructure facilities along with great amenities in the tax-free zones. This helps the smooth running of your business and helps your business to have a smooth work-flow. The transportation facilities in these zones are also really good as it is well connected with the public transport system.

Visa Facility:

If you register your business in a tax-free zone you are eligible for a three-year-long period of visa which you, your employees and their family can enjoy. This can also be renewed with no hassle at all. 

Workspaces, warehouses, and factories:

Among the wide range of facilities offered tax-free zones also provide workspaces, warehouses and, factories all within the same area. You will find customised or pre-designed warehouses and office facilities with the best technology which will ensure the smooth running of your business.

Repatriation of capital and profits:

Foreign investors can transfer 100% of their corporate money back to their home country, such a benefit is huge for any investor.

While these are a few of the advantages of running your business in tax-free zones there are some cons to it as well. Few of the disadvantages are as follows:

Trade restrictions:

Businesses operating in the tax-free zones can not legally do business with companies and individuals onshore. They can only engage with international businesses, each tax-free zone has a different set of rules with regards to allowances or legality of operating from the particular free zone.

Restriction on expansion:

Companies operating from the free zone cannot expand it’s business to mainland Dubai under the same license. If they wish to do so, they are required by law to establish a new entity and can be owned by the Free Zone Establishment.

Type of company:

Another issue you may face while setting up your business in the free zone is that you are not allowed to establish any kind of business in free zones. Each free zone has a type of business which is the only type allowed there. In simple words, if a free zone allows trading and manufacturers, you cannot set up a media company there. 

Share capital:

Setting up your business in a free zone can sometimes turn out to be more expensive than setting up your business onshore. The minimum share capital required when to start a Free Zone Establishment varies between 50,000 to 1,000,000,00 while a lot of onshore operations do not require share capital.

While these are some of the advantages and disadvantages of starting your business in a tax-free zone an SME needs to evaluate all of this before starting a business in Dubai. It is a fact that the free zones have allowed the UAE to move away from oil and helped it create a diversified economy. Currently, approximately a third of the UAE non-oil based revenue comes from these tax-free zones.

If you are a business and you are looking at starting your business in a tax-free zone, DAFZA is a place you should look at. Strategically located near the airport they boast of rapid clearance and fast processing of paperwork to maximize business activity and efficiency.