A Guide to Choosing a Free Trade Zone in the United Arab Emirates: Useful Information for Your Business

8:14 pm  |  24.03.2024

When you open a business in the United Arab Emirates, it is important to understand that choosing a free trade zone (FTZ) is not just a formality. This is a strategic decision because a mistake here can result not only in loss of time, nerves, and extra money but sometimes in the destruction of the entire business. Before you sign the documents and invest in a license, let’s discuss how to prevent your dream from turning into a nightmare due to the wrong choice of FTZ.

What Is Important to Consider?

FTZs in the United Arab Emirates are not just territories with tax incentives. These are entire ecosystems created to accelerate business growth. However, not all of them are suitable for all types of activities. Neglecting key factors such as location, infrastructure, market access, and FTZ specifics can result in unexpected costs, frozen operations, and even license revocation.

Wide Choice of FTZs or “The Stingy One Pays Twice”

As you know, there are many free trade zones in the UAE (currently there are approximately 50), each of which promises favorable conditions for entrepreneurs. However, the main mistake that businessmen often make is choosing the cheapest option at first glance, without taking into account the long-term perspective and the quality of the services provided.

The low cost of licenses and visas can hide pitfalls in the form of insufficient management and additional unobvious costs, which can ultimately lead to the inoperability of the company.

Let’s consider a specific case: one of the entrepreneurs, after conducting a superficial analysis, discovered that the cost of a license in one of the FTZs is only 7,000 dirhams. This price seemed very attractive to him – where else can you open a business for $2,000? However, when faced with reality, he discovered that to register a company he had to rent space in a co-working office, which costs around Dh50,000 a year. This raised the total cost of registration to Dh57,000, significantly exceeding his initial expectations.

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In such situations, the correct choice of FTZ is crucial. For example, the IFZA FTZ in the UAE has established itself as one of the most preferred jurisdictions for international business. In IFZA, the cost of a license includes not only the right to conduct business but also the provision of office space, which avoids the unexpected costs that the entrepreneur in our example faced.

Compliance with Rules and Specialization

Choosing the wrong FTZ can also lead to greater financial costs and difficulties in doing business, especially in the context of banking compliance. Recently, banks in the UAE have significantly tightened their requirements for companies. Therefore, opening a bank account will become a very difficult task if you choose to register an FTZ company that is not reputable.

Our advice is to carefully choose an FTZ, focusing not only on location but also on the quality of services provided, reputation, and specialization. Consider FTZs located near key transport hubs (such as airports or ports), which may offer additional benefits to your business.

Avoiding the Imposition of Unnecessary Licenses

It is not uncommon for free zone employees to offer clients a General Trading License without conducting a proper analysis of the business needs. What consequences might this have? The result is unnecessary costs and complications, especially considering that such a license is unnecessary and can create problems when interacting with Emirati banks.

Before offering a General Trading License, professionals should carefully review the client’s business model to ensure that the type of license offered is optimal for their needs. Instead of automatically offering a General Trading License, a real expert will recommend including in the trading license the maximum number of activities that correspond to the specifics of the client’s business.

READ: Understanding Free Economic Zones: Business in the UAE

One of the main problems of the General Trading License is its non-optimality in the banking sector of the Emirates. Difficulties may arise both when opening a bank account and during subsequent financial transactions. Banks may view such a license as riskier due to the wide range of permitted transactions, which will require additional checks and requirements.

However, there are free zones in the UAE that are focused on the real needs of their clients and offer a variety of types of licenses with the ability to include up to 10 types of activities corresponding to the company’s areas.

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Choosing the right free zone and appropriate license is a critical step to successfully running a business in the UAE. Therefore, it is important to contact proven and reliable partners who will help your business grow and develop, avoiding unnecessary obstacles and costs.

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