Main land VS Free Zone.....

In our earlier post on Dubai being the indigenous business hub, we had highlighted the option of free zone and Main land for business formation. So what is a free zone? How different is it from main land business? What are the advantages of setting up business in the free zone and in main land? There are infinite questions on this topic, of which few will be touched upon and clarified in this article.

Main Land:

“The best time to plant a tree was 20 years ago and the second best time is now”, goes a Chinese proverb and holds the same for starting business in Dubai Mainland.

UAE mainland consists of all business entities which are directly registered under, each emirates government and its authorities with the limitation of commercialized geographical areas. The main land directly represent the government policies and its legal structure.

The main difference between the main land and the free zones is the ownership regulations. In a free zone the investor can maintain 100 % ownership of the company whereas in the main land (Onshore) a local sponsor is required to setup the industry with 51 % of the local sponsor and 49 % to the investor. In case of a professional company, the ownership is 100 % for the investor, but still a local service agent is required. Whereas in a free zone, there is no such sponsorship required.

However the sponsor can provide you with a power of attorney POA) and avoid any involvement in the operations or profit sharing.

To setup a business in mainland, a license has to be obtained from the Department of Economic Development in Dubai (DEDD) to start with. The process for obtaining the DEDD Mainland license is quite different and a little more involved with more documentation procedures. It can be a challenging process because it involves a lot of documentation and series of activities involved.

The basic categories for all Business activity in UAE mainland are the following:

·         Commercial license (General trading activities)

·         Professional License (Service industry)

·         Industrial License (manufacturing related)

All the above mentioned licenses are issued by the Economic department of Dubai. However, licenses for some categories require approval from certain other departments (KHDA, Dubai Municipality, RERA, TRA etc.) and ministries.

For example, banks and financial institutions require approval from the Central bank of UAE, insurance companies and related agencies from the Ministry of Economy and commerce. In general, all commercial and industrial businesses in UAE should be registered with the chamber of commerce and industry and must be approved by the Department of Economic Development of Dubai.

The main advantages of commencing a business in the Mainland are:

·         Privilege to do business activity in any part of UAE

·         No trade barriers ,limitations in registration and legal requirements

·         Relaxation in the taxation

Free zone:

In our earlier post, the definition of free zone has been highlighted.

To make it a bit more clear, Free zone is a portion of clearly defined and isolated land/settling, with a special tax, customs and imports regime, different from the mainland area involving a status of extra-territoriality.

The main idea of establishing free zones in the UAE was for them serve as a business hub for companies willing to conduct business with the outer world .Therefore ,UAE free zones are intended  to operate within the corresponding free zones .

Free zone can also tend to be cheaper and be a quicker process to obtain whereas the quickest free zone in the UAE can process the license in just 2 working days.

A free zone provides the investors with 100 % ownership of the company and gives them the complete control of their business. There are around 38 functioning free zones and 19 upcoming free zones in UAE .All of them offer different activities to choose from, different pricing and different amenities.

The free zone business license and visa costs are cheaper, but it is restricted to work within the free zone and international regions only.

A free zone has enormous number of advantages that can be enjoyed by a company. Like:

·         No personal income or capital gain taxes

·         No corporate taxes

·         100 % repatriation of capitals and profits

·         Liberal labor laws and no currency restrictions etc….

Hopefully, this post will be of some help to throw some light in differentiating the Main land and the free zones.

We will discuss in detail in our forthcoming post about the different types of licenses available and the different department involved in approving them for a mainland business setup.

Dubai-Veritable Shine to business and comemerce

UAE is a confederation of seven emirates and each one of them provides distinct business advantage for the investors.The confederation consists of Dubai, Ras-al-Khaima, Sharjah, Abu Dhabi, Ajman, Fujairah, mm-Al-Qaiwain.

In this post we would try to explore the benefits and opportunities’ extended by the one of the emirates in detail. In the forthcoming series of post we will discuss in detail about the 7 emirates and their business friendly economies.

In a short span of 40 years, Dubai has transformed itself from a local trading community into one of the most inspiring and successful cities in the world. Today its stands out as an immense attractive destination for tourists and businesses alike.

Dubai as a city has an indigenous population of 1 million, the number of Dubai expatriate residents now stand at 2.5 Million, thanks to its lifestyle appeal and investment incentives.

Dubai’s economy boasts an ambitious combination of cost, commerce and environmental advantages that make an ideal and appealing investment climate for local and foreign businesses. This is as a result of Dubai’s astute foresight, innovative facilities and infrastructure and its government’s favorable economic policies.

Location proximity:

The strategic location of Dubai provides access to approximately 3 billion consumers from a unique centralized time zone combining East and West business ours. Dubai is the perfect gateway for the East and west Business hub and one of the most lucrative in the world.

Key Advantages of Dubai Business friendly economy:

·         No Direct taxes

·         No foreign exchange controls

·         100 % repatriation of capitals and profits

·         Relaxed visa policies

·         Political & Economic Stability

·         Physical infrastructures (DXB Airport, DWC airport, Jebel Ali port, Port Rashid, **Free zones etc.)

·         Investment support and Promotion by the government (Dubai Department of Economic Development)

·         Visionary Leadership

·         Strategic Location advantages

·         Free trade agreements

This is all complimented by an integral service sector, which includes shipping, banking and finance, legal firms, hotels and hospitals. Dubai’s advancing capital markets are built on the foundations of cutting edge technology and grounded regulatory systems. The government has an excellent commitment to business and lenient economic policies gained from a constant and balanced industrial relations.

**Free Zones:

Exceptional area of a country where standard trade and regulation (trade barriers, quotas, regulatory etc.) are relaxed for the purposes of enticing new foreign investment.

UAE has about 35 operational Free zones and 19 proposed free zones .Out of which Dubai has 16(JAFZA,DAFZA,DMCC,DWC,DIFC,DIC,etc) operational free zones and 15 proposed zones.

The key advantage of a free zone is the foreign investor can have 100 % ownership of his company. It also offers incentives including no income tax, freedom to repatriate both capital and profits, full exemption of import duties and no currency restrictions.

We will discuss in detail about the virtues of Dubai free zones and main land in the next post…….

prasad.santhosh@adamglobal.com

Virtue Of Globalization

SME enterprises and large corporation can reap the benefits of expanding operations into foreign markets. Serious threats of tight national markets makes it competitive for the survival of the company.

The More crowded the market, tougher the survival. In such scenario, it is ideal to look at better pastures for growth and better profits equally.

Main reasons for entering into the foreign market are as follows:

·         Lowering cost

·         Reduced Business Risk

·         Business Friendly Market

·         Exposure

Firms competing in international markets hopes to gain cost advantage, by increasing the sales volume thereby increasing the economies of scale reducing the production cost. Going global has a good implication on dealing with the suppliers. More the sales, greater the purchase supplies, providing the firm a leverage on negotiating prices with the suppliers.

                                                   

Business Friendly Market:

By expanding the operations into foreign markets, a new base of eager customers can established with the competitive rivalry at its low. The nation’s government may sweeten the pot by offering subsidies and incentives for setting up business operation as it will boost the economy of that country.

A new country may offer more favorable economic conditions than the home country. When the recession or implementation of restrictive government policies make turning a profit more difficult, expanding into an area that doesn’t currently pose the challenges can offer a more lucrative alternative.

The new market may offer an economic climate that is more “business –Friendly”, offering advantages like lower taxation, minimum government regulations.

Exposure:

Overseas expansion increases the exposure to the business by creating a “global foot print”, thereby providing a sustainable competitive advantage by gaining greater brand recognition.

In addition to thriving expansion into foreign market, it also paves way for rejuvenating a struggling business.Business operating in the saturated market or shrinking market share can have access to new markets gaining a new customer base in foreign markets.

Lowering of business Risk:

Business Risk refers to the potential that the operation might fail. If a firm is completely dependent on one country, negative events in that country could ruin the ruin. Thereby diversifying into different markets, the business risk is reduced considerably.

Key Takeaways:

Competing in the international market involves important opportunities. The.The opportunities include access to new customer base, lowering costs and reducing business risk.