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Fulfilling Economic Substance in UAE Freezones

Fulfilling Economic Substance in UAE Freezones pic 1

Free Zone (FEZ) - geographically separated area of the state, which is different from the rest of the state tax laws and has specific conditions for the local and foreign businesses.

What is the purpose of creating free zones? FZ entails financial income from foreign investors, increases the number of working places, increases volume of trade turnover and production; in general it increases development of the state and of its specific sectors of economy.

Each FZ in different countries provides different conditions for the conduct of the development and business start-up. In this article we will consider the main benefits of economic substance in UAE Free Zones.

Economic Substance in UAE Freezones pic 2First of all the government of UAE strives to create the most comfortable working environment, so the positive features of the development of the state can be seen. The legal framework serves to protect the rights of investors as much as possible. UAE has stable economic and reliable banking system. Policy strategy is straightforward to attract investors, businessmen and tourists. At present the main populations of the country are expatriates. Level of living is considered high. Amongst the other advantages are favorable strategic and geographical locations for the goods transportation as well as quick access to the European countries. It also has soft and gentle climate almost all year round.

If to consider more details about business opportunities in UAE Free zones, a Free Zone (FZ) company in UAE enjoys full exemption from income and corporate taxation. There are no customs duties and taxes on exports and imports of goods and services. It can have 100 percent foreign ownership, no exchange restrictions, free profit repatriation, no restrictions on hiring labors. It enjoys tax benefits from UAE’s nearly 80 double tax treaties.

Further it provides economic substance which is essential today to counter anti avoidance arguments that a company is set up purely for tax reasons and is not legitimate. Economic substance, which is necessary to justify that a company or structure set up mainly for tax reasons is bona fide, can be achieved with a FZ company.


Economic Substance in UAE Freezones pic 3UAE have earned a solid reputation in the world market. Company policy provides a high level of protection of information on the owners of the companies and the movements of the capital. Banking system and services are at a high level. There is a lot of competition due to the large number of banks so they are forced to seek new ways to attract customers, which always results in improving the quality of services and the creation of interesting conditions for a more favorable investment environment.

Free zone is characterized by the two types of companies: onshore and offshore. In order to know which company to use you need to understand the purpose and challenges of starting a business in the UAE.

Onshore companies provide more opportunities for business implementation. Their main advantage is the ability to cooperate and do business with local companies. It also avails to tax benefits accruing from double tax treaties, allows getting tax resident status for the company, which makes it possible to get several resident visas (including family members) in short period. The cost of registration of an onshore company is higher than of an offshore and therefore the annual renewal is higher as well. It should have physical office, located in FZ territory, just to register a legal address is not enough. You need a license for a certain type of companies as well as the submission of mandatory annual audits. If the above mentioned is not necessary, it will be enough to create an offshore company. The cost of registration is less; there is no need to obtain any licenses, while retaining the absence of taxes and fees, which is typical for all UAE Free Zones, no exchange controls and no need to file an account report. Company can have bank account in UAE as well as outside in any other jurisdiction.

All the advantages mentioned above make the UAE one of the most attractive places for opening of the business as it leads to obtaining the maximum profit from a company at the lowest cost. The country which only recently turned 40 years old showed the maximum development statewide of the economy, business and tourism in a relatively short period of time and, in accordance with economic indicators and world forecasts continues to grow, attracting more and more investors every year. Therefore, in terms of economic substance UAE business environment is one of the best in the world.

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