Freezone Company Formation UAE

There are over 50 diverse freezones in UAE where to set up a freezone company in UAE. These zones allow full ownership of companies by foreigners and expatriates and are known for their efficient and specialized services. There are each governed by a special framework of rules and regulations and subject to a different regulator or supervisor. The main advantage of a Freezone company formation UAE is to prevail tax incentives: Free Zones offer no import or export duties, and no capital gains tax. Furthermore, companies can repatriate 100% of their profits and capital outside of the UAE.

A freezone company set up as a qualifying free zone person will be subject to 0% corporate tax on qualifying income and 9 % on taxable income that is not qualifying income.

A Qualifying Freezone Person is a Freezone company set up in a way to meet ALL the following conditions:

1. Has Adequate Substance in the UAE

• Undertake core income-generating activities in a Free Zone.
• Have adequate assets to conduct such activities.
• Have adequate number of qualified employees to conduct such activities.
• Incur an adequate amount of operating expenses to conduct such activities.

2. Derives “Qualifying Income” as specified in cabinet decision no. 55 of 2023. Qualifying Income is defined based on the nature of the transactions and parties involved:

• Transactions with Other Freezone companies: Qualifying Income comprises income from all transactions except those derived from Excluded Activities. (Excluded Activities are: 1. Any transactions with natural persons, except Ownership & management of ships, Fund management services, Wealth management Services, Financing & leasing of aircrafts. Banking activities.3. Insurance activities except re-insurance activities. 4.Finance and leasing activities except Treasury and financing services to Related Parties and Financing and leasing of Aircraft. 5. Ownership or exploitation of immovable property except Commercial Property located in a Free Zone where the transaction in respect of such Commercial Property is conducted with other Free Zone Persons. 6. Ownership or exploitation of intellectual property assets.7. Any activities that are ancillary to the above.)

• Transactions with Non Freezone companies: In this case, Qualifying Income includes income from Qualifying Activities only. If the transaction involves any Excluded Activities, then the income generated from such activities will not be considered as Qualifying Income. (Qualifying activities are: 1. Manufacturing of goods or materials. 2.  Processing of goods or materials. 3. Holding of shares and other securities. 4. Ownership, management, and operation of Ships. 5. Reinsurance services. 6. Fund management services. 7. Wealth and investment management services. 8. Headquarter services to Related Parties. 9. Treasury and financing services to Related Parties. 10. Financing and leasing of Aircraft, including engines and rotable components. 11. Distribution of goods or materials in or from a Designated Zone to a customer that resells such goods or materials, or parts thereof or processes or alters such goods or materials or parts thereof for the purposes of sale or resale. (** the activity of distributing goods or materials must be undertaken in or from a Designated Zone and the goods or materials entering the State must be imported through the Designated Zone.). 12. Logistics services. 13. Any activities that are ancillary to the above.
• Income From All Other Transactions: This includes any other income that a Qualifying Free Zone Person might earn if they satisfy the de minimis requirements. These requirements usually pertain to thresholds or limits under which the income may still be considered as Qualifying Income. Note that Qualifying Income does not include income derived from a Domestic or Foreign Permanent Establishment (e.g. branch of a free zone company in Mainland or outside the UAE), income derived from immovable commercial property when dealing with Non-Free Zone Persons, or income from non-commercial property when dealing with either Free Zone Persons or Non-Free Zone Persons.

3. Not Elected for 9% Tax Rate Applicability.
4. Complying With Arms Length (Articles 34) & Transfer Pricing Rules (Article 55).
5. Meet the Other Specified Conditions in Cabinet Decision no. 139 of 2023:

• Non-qualifying revenue is less than a specific limit: the Qualifying Free Zone person fulfils the De Minimis requirements. (The De minimis requirements are fulfilled when the non-qualifying Revenue obtained by the Qualifying Free Zone Person in a tax period does not exceed the total Revenue Percentage of the Qualifying Free Zone Person in that tax period, or the amount specified by the Minister, whichever is lower.) 
• Prepares Audited Financial Statements.

The Free zone company set up UAE could be made as a Limited liability Sole Establishment (FZE) with one shareholder only, a Free Zone Company (FZC) LLC with at least two shareholders, a Public limited liability company (PJSC) or a branch or representative office of a local or foreign company. Some Mainland LLC would require 51% local national sponsor while 49% maximum of their shares could only be owned by foreign expatriate. This is not applicable to freezone LLC where the expat can directly own 100% shares of the company.

In general, a free zone company set up under a specific free zone is not permitted to carry out business outside this free zone, i. e. on the mainland. However, it may get an initial permission from the respective free zone authority or open a branch mainland with the ministry of economy and the Department of Economic Development.

Any Freezone company set up in any freezone , regardless of its license activity, can own real estate in its jurisdiction or outside the UAE. A Dubai registered Freezone company set up to own properties in Dubai is eligible to purchase property in the freehold area under certain conditions. However, Freezone company set up in another other emirate is not allowed to buy property in Dubai.