4 Key Differences Between Offshore and Free Zone Companies in UAE

Offshore companies and free zone companies have become extremely popular in the UAE for various reasons. It is important that you understand the key differences between these two (2) types of entities based on your business needs before making any decision to proceed with the formation of your company in the UAE. They offer different business models and rationales. We have outlined four (4) key differences between free zone and offshore companies in the UAE to help you make your decision:

Related: 5 Key Benefits of RAK ICC Premium Product

1. Location of Doing Business

Free Zone Companies

Free zone companies established in the UAE are permitted to carry out any business activity in the free zone and to an extent within the UAE (depending upon the flexibility offered in the legislation). These companies are typically exempt from any income or corporate taxes and can be owned by any foreign national without the need for a UAE national shareholder owning any shares.

These free zone companies are also required to register with the Federal Tax Authority for the Value Added Tax (VAT) collection and payments as per the UAE laws. There are only a handful examples where a free zone may be declared as exempt from the collection and payment of the VAT.

Some of the free zones in the UAE also require the companies to meet with the annual filing and reporting requirements.

Offshore Companies

Offshore companies in the UAE such as RAK offshore company are only permitted to carry out business activities outside the UAE. These are typically international business companies established to carry out international business activities by shareholders.

Offshore companies are also considered as important vehicles for holding assets such as shares in other companies, intellectual property, trademarks and patents. Unlike the business activities that can be carried out by the offshore companies only internationally, these assets can be owned by the offshore companies inside the UAE.

Some shareholders consider forming offshore companies to hold real estate properties. However, the location of the real estate asset is carefully considered keeping in view whether the offshore company in a particular jurisdiction may be accepted to hold real estate property in that jurisdiction. For example, the real estate properties in Dubai are only permitted to be owned by RAK offshore and Jebel Ali companies. Ajman offshore companies are not permitted to own any real estate properties in Dubai.

Related: Wills and Estate Planning for RAK Offshore Companies

2. UAE Residence Visas

Free Zone Companies

Free zone companies are permitted to obtain UAE residence visas for their shareholders as well as employees. Free zones offer different packages allocating quota for the issuance of the UAE residence visas for each company established in the free zone. These visas are typically issued for a period of three (3) years each and renewed upon expiry at the end of the three (3) year period.

Offshore companies

As the offshore companies are not permitted to carry out any business activity (other than holding assets) inside the UAE, it is not possible to obtain UAE residence visas under any offshore companies in the UAE.

3. Cost of setting-up

Free Zone Companies

The cost of setting up a free zone company typically ranges from AED 11,500 to AED 70,000 depending upon the free zone in which the company is being incorporated. This cost is heavily influenced by the location and reputation of the free zone and the type of activity being carried out by the company. In some free zones, the cost of setting-up is also determined by the number of UAE residence visas allocated to the company license. The yearly renewal charges payable to the free zone also vary depending upon the same factors.

Offshore Companies

Offshore companies in the UAE are substantially cheaper to incorporate and maintain. The price for setting up offshore companies in the UE ranges from AED 10,000 to AED 18,000 depending upon the place of incorporation of the offshore company. The yearly maintenance cost payment to the offshore jurisdiction and the registered agent ranges from AED 5,000 to AED 8,000.

4. Place of Incorporation

Free Zone Companies

There are around 45 free zones in the UAE where anyone can incorporate a company depending upon unique the requirements of the business. Each of the seven (7) Emirates in the UAE have a number of free zones to choose from. Any foreign nationals can own 100% shares in the free zone companies.

Offshore Companies

There are only three (3) jurisdictions which offshore the formation of offshore companies in the UAE. These jurisdictions are:

  1. RAK International Corporate Centre (RAK ICC)
  2. Jebel Ali Free Zone
  3. Ajman Free Zone

Two of the above jurisdictions are free zones which offer free zone company as well as offshore company formations. RAK ICC is the only jurisdiction which specializes in the formation of offshore companies. For this reason, RAK ICC is highly specialized in this area and widely considered to be the best offshore jurisdiction in the UAE.

Offshore companies can only be incorporated through the registered agents as none of the offshore jurisdictions offer any direct contact with the shareholders. InZone is a registered agent and helps its clients in formation of offshore companies in the UAE with end-to-end assistance on opening corporate bank accounts.

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