One of the biggest considerations for company formation in the UAE or getting a business license is choosing the correct type of business entity. Each has its advantages and disadvantages, but there are differences between these two types of companies.
In this article, we will discuss the difference between free zone and offshore company to help you decide which jurisdiction is better for your business in the UAE.
What Is an Offshore Company In Dubai?
An offshore company in Dubai is an excellent means for managing international ventures and asset holding. Unlike a free zone company, a UAE offshore company cannot operate freely. Still, offshore companies in the UAE have a free reign on operating outside the UAE without renting a physical office Typically, the registration process requires registered authorities in the UAE to handle associated administrative tasks.
What Is a Free Zone Company In Dubai?
Setting up business in Dubai free zone companies is a surreal opportunity for entrepreneurs willing to start in a thriving hub. In addition, you can operate with 100% foreign ownership. Moreover, the Free Zones make up 8 percent of all the companies registered in the UAE, most of which are in Abu Dhabi and Dubai. Usually, setting up physical presence will be easier since a physical registered office and compliance with local regulations are needed.
Offshore vs Freezone Companies Difference
To understand the difference between free zone and offshore company, you need to study their unique operational characteristics, which are as follows:
Offshore Companies In Dubai: Key Aspects
The following are the key features of this zone:
No Local Office Requirement
The “No Local Office Requirement” is a real game changer for foreign entrepreneurs wanting to set up an offshore company in Dubai but do not want the burden of leasing physical office space. One other method that significantly reduces the cost of rent, utilities, and upkeep, and it’s a great option for quick and effective startups.
In addition, this arrangement is suitable for shareholders looking to get away from red tape associated with onshore company setups, particularly if they are interested in international business or asset holding.
100% Foreign Ownership
Many benefits come hand in hand with launching an offshore entity in Dubai. Foreigners are allowed to have 100% ownership. Moreover, RAK offshore companies offer different operational frameworks than freezone companies, which provide strict rules enabling shareholders to obtain UAE residency visas, a bank account in UAE and other logistics and staffing options.
Tax Benefits
Offshore companies in Dubai offer great tax advantages; owners and investors fully avoid corporate and personal income taxes. This attracts foreign entrepreneurs who wish to operate international businesses (import and export of goods) while avoiding high local taxes.
However, the free zone companies similarly avail tax relief on companies’ profit. Still, they may have to comply with specific conditions of free zone authorities, such as Value Added Tax (VAT) registration, depending on the work carried out in the UAE.
Moreover, an offshore or international company can be registered with three UAE authorities. Some of these are the Jebel Ali Free Zone (JAFZA) in Dubai, Ras Al Khaimah Investment Authority (RAKIA), and Ras Al Khaimah Free Trade Zone (RAKFTZ) in Ras Al Khaimah.
To fully understand the difference between free zone and offshore company you may need to seek expert advice. Contact Xpert Advisory today. They will help you decide which jurisdiction is better for your company.
Freezone Companies in Dubai: Key Features
The following are the key features of this zone:
Dedicated Free Zone Area
Nowadays free zones attract businesses since they enjoy corporate and personal income tax exemptions. The registration process becomes simplified, often supported by corporate service consultants. Thus, it lets you enjoy foreign ownership without the requirement to have a local partner or agent to establish a business. You often need a physical office inside the free hold areas, which is good on the compliance front and helps with credibility.
Business Activities Permitted Or Prohibited Specifically
Free zone companies in Dubai are offered the opportunity to run their businesses within the free zone and worldwide, but they cannot do business directly in the UAE market. International entrepreneurs are attracted by the fact that these companies work with trading activities, consulting, and manufacturing with no corporate tax.
Tax Exemptions
Foreign entrepreneurs can easily establish a company by taking advantage of Dubai’s tax-free zone companies. While a free zone company setup is restricted in the industry, it can be conducted within the UAE, unlike offshore firms focused on international dealings.
Free zone firms located in Dubai have to VAT register with the Federal Tax Authority, but offshore companies generally don’t need UAE residence visas.
Offshore vs Free Zone Companies Initial Setup Costs
The traditional way of offshore zone company formation costs between AED 10,000* and AED 18,000* for registration and similar as for annual maintenance fees.
On the contrary, free zone companies require AED 11,500* to AED 70,000*, depending on the reputation of the free zone, office spaces, and the number of employee visit visas required.
Offshore vs Free Zone Companies Annual Maintenance Costs
The offshore company’s annual rent fees in Dubai may change depending on your jurisdiction and the required services for setup. Typically, it will cost between AED 5,000* to AED 8,000* each year in upkeep costs, including fees for the registered agent and other legal requirements.
On the other hand, free zone companies tend to incur higher annual maintenance costs because of the need for physical office space, the number of UAE residence visas, and possibly corporate tax liabilities that may be incurred from mainland activities.
Final Words
The difference between free zone and offshore companies lies in the unique advantages and operation modes for these companies. As a result of 100% foreign ownership, offshore companies are convenient to set up international business. In contrast, free zone companies offer a thriving business society, the possibility to obtain a UAE residence visa, and tax exemptions. Depending on your business goals, operational preference, and budget, you can choose between these options.
Getting in touch with experts at Xpert Advisory can help you make informed decisions and set up your business efficiently.
FAQs
How Much Is A Free Zone Visa?
The Dubai Free Zone visa cost can vary based on the pack chosen, but on average, costs come out to be from AED 3,750 to AED 12,500*.
What Is The Cheapest Free Zone In Dubai?
Dubai south, is considered the most budget-friendly Free Zone in the dubai, with setup costs of as little as AED 11,000**
How Long Is A Freezone Visa In Dubai?
The UAE freezone residence visa is for 2 years and can be extended. UAE residency visa allows you to stay permanently in the country.
Does One Get a Visa under an Offshore Company?
No, visas are not permitted under an offshore company
Can an Offshore Company do Business inside the UAE?
No an offshore company cannot do business inside the uae
