Free Zone Company Vs. Mainland LLC in UAE

United Arab Emirates (UAE) is one of the most preferred jurisdiction among foreigners for starting and expanding their business as it offers them a hassle free and uncomplicated process to start their business with an access to dynamic and progressive economy that is serving the needs of customers around the world. The major concern for the investors planning to start their operations in UAE is the type of company they should incorporate- Free zone company or LLC. What are the pros and cons of different type of entities in the UAE? This article highlights the difference between two most popular forms of companies in UAE and advantages and limitations associated with them.

Free Zone Company

UAE, being a hub for businesses around the world has made policies to suit the needs of different types of business activities. There are more than thirty free zones registered and operational and this number is growing continuously. The companies registered with these free zones are called free zone companies. These entities are free to trade on any part of the world without paying any export duties. They may trade within UAE through a local distributor or agent. However they are not allowed to engage in business directly outside the free zone within the UAE.

Limited Liability Company

A limited liability company (LLC) is the legal entity which is registered in the mainland as per the provisions of the Commercial Company Law of UAE. The law provides any two or more natural or juristic persons can register an LLC and the number of partners of the LLC should not exceed fifty. An LLC can undertake their business operations within and outside UAE.

Major Difference

Basis of Difference Free Zone Company LLC
Registration The investor shall decide the free zone that suits his activity and shall apply to respective free zone authority for registering the company. An LLC should be registered with Department of Economic Development of respective Emirate in the country.
Ownership A free zone company can be owned 100% by foreign nationals. A foreign national can hold upto 49% of shares in a LLC. 51% shares of an LLC must be held by an Emirati national.
Repatriation of Funds A free zone company can freely repatriate its capital and profits without any restrictions. An LLC needs to comply with regulatory requirements for repatriation of profits.
Taxation A free zone entity is not liable to pay any taxes. UAE is introducing VAT from 2018 and most of the business will be liable to register themselves with authorities for the same.
Jurisdictional Limitations A free zone entity cannot provide goods and services in the mainland without a local distributor or agent.

The office and warehouse space should also be situated inside the free zone only.

An LLC can provide goods and services anywhere within the UAE.

They can rent and own property anywhere in the country.

Regulatory Compliances A free zone entity needs to be comply only with the regulations of respective free zone authority. An LLC should abide by the provisions of Commercial Companies Law, Labor Laws, and other laws as may be applicable to their business activity.
Time to Incorporate the Companies Incorporating a company in the free zone may take 2 – 3  weeks and in some free zones it is possible within a week. Incorporating an LLC  takes  7-10 days depending upon activity.

Conclusions

Incorporating an entity in free zone or forming an LLC has their own pros and cons and one should critically examines their requirements based on their business objective, before coming to any final decision. If their activity requires trading inside UAE, they should choose for an LLC but if he needs to hold the ownership, a free zone entity is recommended.

We at IMC PRO Services, can help you structure the most suitable form for your business.

Please feel free to contact us at bc@intuitconsultancy.com