United Arab Emirates [UAE] are a compelling destination for company formation and entrepreneurship. There are three major categories of companies one get to choose from when starting a business in this country. They are Free Zone, Mainland and Offshore companies. A renowned business expert, Kavan Choksi mentions that investors and entrepreneurs need to gain a good understanding of all three types of companies, and ultimately opt for the one that aligns with their interests.
Kavan Choksioffers general insight into the three major categories of companies in UAE
Free Zone Company is the very first type of company in UAE. These companies have been magnetizing foreign investors for several years, and are a pretty popular choice for starting a business in the United Arab Emirates. There are more than forty Free Zones in UAE, each of them having distinctive legal requirements and allowed activities. One needs to identify the ideal Free Zone in UAE for their business based on the proposed company’s activity, business plans and budget. Free zone companies are allowed to provide goods and services internationally and to local UAE clients, but with certain exemptions.
Establishing free zone companies would be an ideal choice for IT companies, digital businesses, advertising and marketing agencies, ecommerce firms and international traders. These companies shall be considered UAE tax resident company by default. This basically means that the treaties for the avoidance of double taxation will apply to them. However, in case a free zone company wants to obtain a tax residency certificate, certain additional requirements apply. Every free zone or free trade zone [FTZ] has its own specifications in terms of activities allowed efficiency, reputation, audit requirements and procedure for company formation.
Second on the list of the major categories of companies in UAE would be mainland companies. These companies are registered under the government authority of the respective Emirate. Every Emirate has a distinctive economic department that is responsible for issuing business licenses to mainland companies.
Kavan Choksi says that for several years mainland companies were required to have local shareholders. While this requirement is no longer applied, for certain activities these companies still need to have a local agent. A mainland company would be authorized to trade in the UAE local markets as well as outside the country. In case one wishes to provide goods or services locally, establishing a mainland company is the only option. Usually, mainland companies tend to be in a better position than the other types of businesses, in the eyes of the local banks. Every mainland company additionally must have a physical office. From 2023 mainland companies shall be subject to 9% corporate income tax.
Offshore company is the third type of companies that can be established in the UAE. These companies are not by default not considered as tax resident companies in the eyes of the UAE authorities, which makes them different from free zone and mainland companies. Offshore companies are designed only for activities outside the country. They are also managed from outside UAE.