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Dubai Company Formation: Free
Zone VAE
Introduction/summary
Dubai/UAE
has double taxation agreements = DTA with most other countries. EU freedom
of establishment is not applicable. For approval of the permanent
establishment according to tax laws, a commercially equipped business
operation must be installed in Dubai/UAE, and active business must be
transacted in UAE/Dubai.
Since only oil
companies and banks are subject to taxation in the UAE/Dubai, and any
other companies do not pay any taxes, this results in interesting
opportunities for investment in Dubai/UAE. In order to be able to use the
tax advantages, a permanent establishment according to DTA must be
installed in Dubai. On the one hand, a Dubai company is no offshore
company in this sense, since the UAE/Dubai also maintain double taxation
agreements with many countries – including Sweden and Denmark – but on the
other hand, the EU freedom of establishment is not applicable. Therefore,
the following prerequisites for approval of a permanent establishment
according to tax laws in Dubai must be met:
-
Place of management: A manager resident in the UAE/Dubai according to
tax laws must – at least on the outside – control the company’s
businesses.
-
There must be a commercially equipped business operation, i.e. at least
one office and one employee.
- It
must be demonstrated that the Dubai company does actively transact
business in the UAE.
Under
the stated conditions, for example the Swedish could be a majority
shareholder of the Dubai company, but nevertheless Dubai/UAE has the sole
right of taxation, provided that the Articles of Association state that
all relevant decisions are made at the shareholders’ meetings, which
exclusively take place in Dubai, at which the Swedish shareholder must be
present. However, the UAE company law stipulates that 51% of the
company shares must be held by persons resident in Dubai. As a rule, the
founder will use a “sponsor”. This requirement may be omitted in case of
company formations in the free zones. In the free zones, 100 % of the
shareholders may be foreigners.
 Dubai
The Jebel Ali Free Zone
The Jebel Ali Free Zone (JAFZ)
was established in 1985 with the specific purpose of facilitating
investment. Accordingly, the procedures for setting up in the zone are
relatively simple. Its legal status is quite distinct: companies
operating there are treated as being "offshore", or outside the UAE for
legal purposes.
The option of setting up in
Jebel Ali is therefore most suitable for companies intending to use
Dubai as a regional manufacturing or distribution base and where most or
all of their turnover is going to be outside the UAE.
100% foreign ownership is
permitted in the JAFZ. There is exemption from all import duties and
100% repatriation of capital and profits is guaranteed.
There is freedom from
corporate taxation for a period of 50 years, a concession which is
renewable. There is a high level of administrative support from the Free
Zone Authority. In addition, there are no import or re-export duties,
no personal income taxes, no currency restrictions, and no restriction
on hiring foreign employees.
Companies approved for
operation in Jebel Ali Free Zone are granted one of the following types
of licences, renewable annually for as long as the company holds a valid
lease from the Free Zone Authority:
-
A General Trading Licence allows the
holder to import, distribute and store all items as per Jafza rules
and regulations.
-
A Trading Licence allows the holder to
import, export, distribute and store items specified on the licence.
-
An Industrial Licence allows the holder to
import raw materials, carry out the manufacture of specified products
and export the finished product to anycountry.
-
A Service Licence allows the holder to
carry out the services specified in the licence within the Free Zone.
The type of service must conform to the parent company's licence,
issued by the Economic Department or Municipality of the relevant
Emirate in the UAE.
-
A National Industrial Licence is designed
for manufacturing companies with an ownership or shareholding of at
least 51% AGCC (Arabian Gulf Co-operation Council).
Companies holding a Free
Zone licence are permitted to operate in the Jebel Ali Free Zone and
outside the UAE. Operation within the UAE can be undertaken either by a
commercial agent, representative, distributor, or the mother company
licensed by the relevant UAE authority. Any company holding a Free Zone
licence can itself purchase goods or services within the UAE.
Any company wishing to set
up a project in Jebel Ali Free Zone must first complete a simple
questionnaire. The license application process then takes place and will
include a meeting to discuss and finalise the project details. If
everything is satisfactory, the Authority will issue conditional
approval for the project. Thereafter, a lease agreement and, if required,
a personnel secondment agreement will be prepared by the Authority for
signature by the company.
At the time of signing, the
applicant will be required to provide the insurance policies called for
in the agreements and should pay the agreed rental and licence fee prior
to collection of the licence.
If the company wishes the
Free Zone Authority to sponsor employees on its behalf, applications for
entry permits may be submitted once the licence has been issued. The
bank guarantee called for in the personnel secondment agreement will be
required at this stage together with visa charges.
If the company's project
involves the erection of a structure, detailed plans must be submitted
after the lease has been signed. When the plans have been agreed, a
building permit will be issued.
Administrative work, such as
importing equipment or engaging labour for installation of equipment,
may proceed in parallel with construction work. But application for
entry permits for operatives to be sponsored by the Free Zone Authority
will not normally be accepted until a completion certificate for the
construction has been issued.
A Free Zone Establishment -
or FZE - is an establishment formed and registered in Jebel Ali and
regulated solely by the Free Zone Authority.
Such establishments must
have a capital of at least Dh 1 million and liability will be limited to
the amount of paid-up capital. A FZE need only have a single shareholder
and is an independent legal entity.
Any company, organisation or
individual wishing to form a Free Zone Establishment must submit a
completed application form to the FZE Department of the Free Zone
Authority. A decision on whether permission has been granted will be
given within 30 days of receipt of the application and any other
information and documentation required.
If permission is granted,
the Authority will record all relevant details in the FZE Register and
issue a Certificate of Formation. This will specify the date of
registration after which the FZE will be free to conduct any such
business as is permitted in its Special Licence.
The free zone is the base
for thousands of leading international firms, including many Fortune
global companies from various sectors.
The Free Zone and Dubai
Ports Authority (DPA) are inextricably linked, they are led by one
chairman and share a strong, symbiotic relationship. The Free Zone is
built around the DPA's Jebel Ali terminal, enabling customers to take
full advantage of the port's ISO-certified container and general cargo
operations. Specialized unloading facilities and purpose-built storage
such as the cool and cold stores are also at the disposal of Free Zone
companies. Jebel Ali terminal offers efficient cargo handling, and with
rates among the lowest in the world, the prospect for exporting is good.
In February 2000 Dubai ruler
Sheikh Maktoum bin Rashid al-Maktoum issued a decree setting up a
free-trade zone for electronic commerce and technology, known as
Dubai Internet City.
Legal and fiscal privileges
in the DIC are similar to those applying in the Free Zone.
The physical location of the
Internet City is on Sheikh Zayed Road, next to the American
University.This area overlooks the Emirates hills golf course
development. The City opened for business in late 2000; highlights
include:
- World class technical infrastructure:
high bandwidth, low cost telecom infrastructure and secure, high
speed support infrastructure;
- State-of-the-art urban
infrastructure: cost competitive, flexible office space and world
class housing, medical and education facilities;
- Access to talent pool: large pool of
high skill, low cost knowledge workers;
Straight-forward laws and regulations: easy and fast company
registration laws, hassle-free immigration process and straight
forward legal procedures;
- Supportive environment: Government
backed e-business initiatives, business incubators, venture capital
funds and e-education programs;
Gateway to markets: access to regional markets in Middle East, North
Africa, Indian Subcontinent and CIS.
In line with Dubai's liberal economic
policies and regulations, Dubai Internet City offers foreign companies
100% tax-free ownership, 100% repatriation of capital and profits, no
currency restrictions, easy registration and licensing, stringent
cyber regulations, protection of intellectual property.
Dubai Internet City
In February 2000, Dubai's
then ruler Sheikh Maktoum bin Rashid al-Maktoum issued a decree setting
up a free-trade zone for electronic commerce and technology.
The decree established an
independent body, the free zone authority headed by Crown Prince Sheikh
Mohammed bin Rashid al-Maktoum, which would operate under the Dubai
government to spearhead the emirate's drive to become a regional centre
for electronic commerce, technology and information.
"Among the objectives of the
free zone, as outlined by the law, is to draft strategies and policies
to make Dubai a centre for technology and electronic commerce,' said an
announcement.
The free zone authority
oversees the establishment of the necessary infrastructure at the zone,
licenses companies wishing to set up shop there and leases land and
property to them for up to 50 years. The authority also runs the zone,
and levies fees for its services. Companies are allowed 100 per cent
foreign ownership in the zone. Goods imported to the zone and products
for export are exempt from custom duties and companies are exempt from
taxes, including income tax.
Companies can choose to incorporate in one
of three ways:
-
Branch of Foreign Company;
-
Branch of UAE-based Company (including
other UAE Free Zone licensees);
-
Free Zone Limited Liability Company (FZ
LLC).
Submission of the License application form
can be done electronically through the Dubai Internet City site.
The physical location of the
Internet City is on Sheikh Zayed Road, next to the American University.
DIC highlights include:
- World class technical infrastructure:
high bandwidth, low cost telecom infrastructure and secure, high speed
support infrastructure;
- State-of-the-art urban infrastructure:
cost competitive, flexible office space and world class housing,
medical and education facilities;
- Access to talent pool: large pool of
high skill, low cost knowledge workers;
- Straight-forward laws and regulations:
easy and fast company registration laws, hassle-free immigration
process and straight forward legal procedures;
- Supportive environment: Government
backed e-business initiatives, business incubators, venture capital
funds and e-education programs;
- Gateway to markets: access to regional
markets in Middle East, North Africa, Indian Subcontinent and CIS.
In September 2000 Dubai officials
announced that more than a hundred information technology companies
had been granted licences to operate in the City. The companies, which
included industry giants Microsoft, Oracle and Compaq, were investing
$250 million in the technology, e-commerce and media free zone, DIC
director-general Mohammed al-Gergawi said at a press conference.
Another 350 firms were awaiting approval, he said. By mid-2004, the
number of companies operating out of the DIC had risen to more than
500.
The DIC's 2005-2006 Partner
Profiles 2005-2006 directory, meanwhile revealed that there were then
over 700 companies, from across the ICT industry spectrum, operating out
of the City.
Celebrating its fifth
anniversary in 2005, the DIC authorities revealed that as part of the
Internet City's 'Going Global' mission, they were in talks with
authorities in India, Pakistan, Iran and Malta to set up facilities in
various cities.
To complete Dubai's aim to
become the super e-commerce hub in the Middle East region, Dubai's cyber
laws - more formally known as the E-Commerce Facilitation Laws - were
passed at the end of 2001.
The Electronic Transactions and Commerce Law No.2
was additionally passed in 2002.
In June, 2004, Dubai
Internet City announced the Dubai Outsource Zone (DOZ), the world’s
first ’free zone’ dedicated to the outsourcing industry. The
announcement was made by Dr. Omar Bin Sulaiman, CEO of Dubai Internet
City at Europe’s biggest conference on outsourcing, Outsource World held
in London.
Dubai Outsource Zone
provides a comprehensive infrastructure and environment for outsourcing
companies to set up global or regional hubs servicing the worldwide
market. DOZ’s offering includes 100% exemption from taxes, arguably the
world’s most reliable technology and communications infrastructure, a
one-stop shop of support services and the best possible working
environment.
Dubai Outsource Zone
provides a base for companies wishing to provide mid- to high-end IT and
business process outsourcing (BPO) services. Some of the key sectors
targeted include finance, accounting, IT, payroll processing, healthcare,
insurance, engineering, biotech, multimedia, R&D and design. DOZ also
serves as a centre for disaster recovery facilities for call centres
located offshore elsewhere in the world. The Zone offers facilities both
to ‘captive’ BPO operations, ie. companies who have their own offshore
BPO facilities, and to third-party BPO service providers, from Europe,
the US, the Middle East, Asia and Africa.
“Having established vigorous
growth in the ICT industry, we are now seeking to transfer that momentum
to new high-growth sectors like Outsourcing,” said Dr. Omar Bin Sulaiman,
CEO of Dubai Internet City. “We had been studying the outsourcing sector
for a long time to design the perfect combination of services that will
provide value to the global and regional outsourcing industry. At the
heart of the Dubai Outsource Zone concept is a commitment to offer
relevant facilities to global companies to enable them to create an
effective globally distributed delivery model. DOZ will go a long way in
strengthening Dubai’s status as a knowledge-economy hub,” he added.
“The establishment of DOZ
and the expected growth of the outsourcing industry will bring in
several economic benefits for the UAE and the region,” said Dr. Bin
Sulaiman. In the UAE alone, apart from the infusion of talent from other
countries, it will to provide a significant boost to the development of
the country’s own human capital. The industry promises several
opportunities for fresh graduates to gain valuable exposure in various
emerging sectors of the economy through both full-time and part-time
employment opportunities,” he concluded.
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