What is the difference between Free zone and Offshore?

To conduct business in the United Arab Emirates , it is important for one to be familiar with the concept of free zone and offshore . Before choosing type of company formation he/she should make sure to get there concepts clear regarding advantages and disadvantages of free zone and offshore formation.

Free Zone Freezones were developed with a motive to promote trade and export. Many countries have similar concept and its very well known in the international community. So , far it’s been extremely successful at its purpose . A company can have its branch in free zone. The branch is an extension of the main company not an individual entity. If any company wishes to register under free zone it need to show its solvency. The procedure to register under free zone authority is quite simple. For registering you need to have a bank account in any bank that is licensed to the UAE . Also , minimum required share capital need to be deposited in that account. Once the company is registered under free zone , the capital is released and can be used by the company. Companies registered under free zone need to have physical office inside the designated area only. Virtual office can also be rented if physical office is not required. Free zone entities have certain restrictions while conducting business in UAE. But it offers some privileges too , such as : - No income Tax - No custom duty for import/ export. - No local partner required 100% ownership. - Shareholders and employees eligible for UAE residence visa. - 25 years lease options, warehouse facilities. - Easy recruitment procedure.

Currently, there are nearly 40- 50 free zones in UAE and each is offering business activities in almost all sectors of economy. Each free zone has its own rules and regulations , however , basic incentives are same in all free zones.

Offshore An offshore setup is a corporate entity which is flexible enough to have a mixture of features. An offshore company is also registered under free zone and enjoys many benefits as an average free zone company gets. But, it can’t be substitute of that. An offshore setup need to open a bank account in any bank in UAE. It can also invest in real estate in certain particular areas. Any income gained from its investment can be kept in the bank account operated by the company. For offshore setup there is no requirement of minimum share capital unlike free zone setup. The main purpose of offshore setup is to hold assets of organization which operates inside or outside the UAE.

Conclusion Thus even though free zone and Offshore setup share some common traits , but they have different purposes . Free zone setup is used to conduct business in UAE , existing physically . While offshore company are only registered in the UAE without being entitled to operate business activity in UAE. However , offshore companies have its own advantages , eligible to invest in real estate , less setting up cost and no office required to lease. Therefore , before choosing a type of company formation , it is very important to have a clear view of their advantages or disadvantages and purpose of each of them.

This blog post is written by Ms. Reet. Feel free to call our Business Adviser today for a quality consultation relating your Business queries. Please send inquiry to info[at]flyingcolour[dot]com or call +971 4 4542366.