Too many first time business owners make the wrong choice by solely focusing on the cost. Learn about the various other factors to consider when setting up your freezone company that can greatly impact your ability to carry out business, open a bank account and future costs of maintaining your company.
1. Reasons to incorporate:
What is your reason to set up a UAE freezone entity? And what are your expected benefits?
It is advisable to define your requirements and expectations as a first step; and perhaps discuss this with an experienced company set up consultant. Not only will this simplify the decision making process for you, but could also lead you to find that another set up type may better suit your requirements. Available options are plentiful with many new freezones being set up in recent years and thus it would help to define your preferences and shortlist the best fits.
The jurisdiction you chose to set up in could impact may other aspects such as reporting requirements, ability to build banking relationships, tax liability, incorporation costs, compliance requirements, etc. thus the importance of this step.
This brings me to my next point, jurisdiction reputation.
2. Jurisdiction reputation:
Certain freezone jurisdictions are a lot more reputable than others- typically ones with higher substance requirements, strict reporting requirements and well defined legislation. The reputation and credibility of your freezone will greatly impact your ability to do business with high profile clients, bid on government tenders, and build banking relationships amongst other aspects.
Often new business owners chose jurisdictions solely based on the cost and then face difficulties actually doing business with clients or opening a bank account. The cheapest set up options aren't always the best. Jurisdictions that require you to maintain an office space, deposit paid up capital, and abide by strict compliance regulations are generally perceived to have greater substance and credibility among potential clients and local banks. A slightly greater investment at the time of setting up can go a long way towards making it easier for you to carry out business once the company is set up.
3. Taxation, compliance and reporting:
Albeit such laws are primarily passed and enforced on a federal level in the UAE, there are several bylaws and conditional regulations that specific freezone jurisdictions have. This could be the regulation or prohibition of a specific activity, additional reporting requirements, corporate governance requirements, additional taxation, etc.
It is advisable to thoroughly clarify the laws and requirements of the freezone jurisdiction you set up in. Failure to comply can lead to the closure of your entity and the levying of sizeable fines. It is better to tread with caution and comply than face such repercussions that may hamper your future business prospects.
4. Available entity types:
The UAE provides several novel and innovative entity types for business owners to set up their companies. It is worthwhile exploring the various options available and checking if the freezone jurisdictions you shortlist have such options available.
Depending on which freezone entity type you chose, you will have limitations on the number of shareholders you can have, the number of visas you can sponsor, and the number of activities you have; so chose wisely. Often amendments can be difficult and expensive to carry out in the future. It is recommended to set up an entity that not only fulfills your immediate requirements but can also accommodate future requirements that you may have (hiring ore employees, adding more shareholders, etc.).
Common entity types in the UAE include Sole Establishment, LLC, FZE, FZC, and offshore entities amongst others. Some entity types (such as mainland sole proprietorships) are reserved for Emiratis only whilst others are available for expatriates to own either jointly with Emiratis (as in the case of mainland LLCs) or solely (as in the case of freezone LLCs).
5. Banking needs:
Albeit I have hinted at this several times before in this article, this deserves a separate point for itself.
Not being able to open a bank account is one of the most common concerns we hear of from first time business owners. Although all UAE entities are permitted to have a bank account, it is the banks that exercise tremendous caution when it comes to opening accounts for new businesses. Owing to strict central bank KYC/ AML regulations, banks must exercise great caution and due diligence when opening accounts for new entities.
What they typically look for is substance and credibility. A company set up in a credible jurisdictions, with an office, paid up capital, local managers, and being in good standing.
It is advisable to seek an entity type and freezone jurisdiction that fits these criteria.
6. Incorporation and renewal cost:
Albeit this is a major factor for most to consider, it is advisable to equally weigh in the other points mentioned here. Too often first time business owners make rushed decisions based on cost alone and end with a host of issues down the line.
Not all cheap freezone options are the best as many low-cost freezones are known to attract illegitimate businesses, money launderers, etc. This makes your company look bad on the onset.
It is advisable to look for a freezone jurisdiction with strict regulation and fair substance requirements at a reasonable cost.
Setting up a company is often a significant investment of very hard earned money for many; particularly for first time business owners. It only makes sense then, to ensure that it is done right.
The options available to set up a freezone entity in the UAE are plentiful, and with a bit of research and consulting the right people you should be able to find an option that suits you perfectly. Reach out to us with your company set up requirements and our consultants would be glad to help you.