The Effect of Free Zones on Dubai and the UAE’s Economy
After transforming from a town surrounded by endless miles of desert, Dubai is now one of the world’s best business destinations for startups, investors, entrepreneurs and corporations. A key factor behind this change has been the Emirati government’s effort to introduce and develop Free Zones in Dubai and other areas across the UAE. Would you like to learn more about these critical economic areas? We have all the details.
What is a UAE free zone?
While we have a more detailed description of Free Zones in this article, the simplest definition of a Free Zone in the Dubai and Emirati economy is that Free Zones are separate business areas often near a port or significant business hub. Each Free Zone has separate legislation from the government rules and regulations that govern onshore or Mainland companies in the UAE.
Each Free Zone in Dubai and the rest of the UAE has a separate Free Zone authority. There are currently 45 Free Zones in the UAE touching various sectors from healthcare at Dubai Health City to commodities trading and tech at premier hubs such as the DMCC. With the highest number of Free Zones in the country, Dubai’s Free Zones allow investors to enjoy a whole host of benefits, including incentives regarding company costs and infrastructure.
The economic importance of Free Zones in Dubai
So, now that we’ve gone over the goal of having Free Zones in the economy, we must understand why the authorities created these areas in the first place. Creating Free Zones aimed to promote the UAE’s expanded economic growth. They sought to do this through favourable company setup in each of these special economic areas. They also offer some fantastic incentives for foreign companies to come and operate in the UAE.
There’s been remarkable growth in the Emirati economy, with the introduction of Free Zones playing a significant part in elevating Dubai’s status and that of the United Arab Emirates altogether. How does the importance of Dubai’s Free Zones translate into the overall economy? When looking specifically at Free Zones, 2018 figures from the Dubai Free Zones Council found that Dubai Free Zones were responsible for 31.9% of Dubai’s gross domestic product (GDP) during the first nine months of that year.
As Dubai and the other emirates have looked to diversify beyond the traditional oil and hydrocarbon sectors, the Free Zones have contributed to powering robust non-oil external trade growth. From 2000 to 2019, non-oil external trade in Dubai grew from 143 billion Dirhams to 1.271 trillion Dirhams. While we have yet to see the full figures from 2020, Dubai Customs reported that Dubai trade figures were about 551 billion Dirhams in the first half of 2020, with transactions increasing 24.5 per cent to 11.2 million during the first nine months of 2020. The numbers point to the city being able to bounce back from the COVID pandemic.
Many of the UAE trade hubs are centred inside Free Zones and attract a host of foreign investors. With their enterprises, these investors bring more job opportunities, competitive salaries, a solid knowledge base, and an overall level of excellence. With most of the city being home to foreigners, Dubai is one of the most preferred ex-pat destinations for its high rate of growth, safety, and quality of life, with many of them working in Free Zone companies.
Free Zone Benefits and Costs
What are the four primary benefits of starting a business in one of the UAE’s Free Zones? The reason organisations find the Free Zone model attractive is to seamlessly do business beyond borders, especially if your customer base is in the Middle East rather than solely in the UAE. While each area has incentives to attract people, each Free Zone enjoys the following rewards for prospective clients:
100% foreign ownership
100% repatriation of capital and profits
100% import and export tax exemption
100% exemption from income and corporate taxes
What other perks can you get from establishing yourself in a Free Zone? If you’re interested in the DMCC, you will get to enjoy a 50-year tax holiday for personal and income taxes upon registering there. You can also take advantage of warehouse space if you need it, or even coworking options in locations such as KIKLABB.
How much should you expect to pay to establish a Free Zone company? We have a full cost comparison of some of the Free Zones we work with here, and the pricing varies depending on the Free Zone. The price range for Dubai-based Free Zones can go from 11,500 Dirhams (£2,320.49 per the exchange rate when we wrote the article) to 51,053 Dirhams (£10,303.59 per the exchange rate when we wrote the article).
Are you interested in company registration in a UAE Free Zone?
As experts on the nuances, local legislation and customs governing business in the UAE, Europe Emirates Group can guide you through your Free Zone company formation journey. We will take a comprehensive look at your business requirements with the best ways to use a Free Zone licence to ensure you strike the right balance of having access to local markets while making your tax burden more efficient.
Working with our expert team will ensure you gain a comprehensive comparison of all available options. Our approach will help you avoid potentially costly pitfalls and craft the most optimal structure for you in the Free Zones network in Dubai and the rest of the UAE we have available.
Get ready to be surprised by how our team of experts can seamlessly cater to your business requirements. If you’re ready to get started, we encourage you to contact us now.
CEO, Europe Emirates Group