The United Arab Emirates (UAE) has established itself as a prominent hub for international business, offering various company formation options to suit diverse investor needs. Among the most common setups are freezone, onshore, and offshore companies. Each entity type carries distinct advantages, regulations, and restrictions, making it essential for entrepreneurs to understand the differences to make informed decisions. In this article, we explore the key differences between freezone, onshore, and offshore companies in the UAE.
Location and Geographic Restrictions
- Freezone Companies:
Freezones are designated areas within the UAE that are exempt from certain taxes and custom duties. Freezone companies are restricted to operate solely within their respective Freezone areas and are not permitted to conduct business directly with the UAE market. Each freezone permits a specific activity and has their own set of regulations. Read about the growth of UAE freezones.
- Onshore Companies:
Onshore companies are registered within the mainland of the UAE and are allowed to conduct business both within the country and internationally. They can engage with UAE local markets, government entities, and individuals without any geographical restrictions.
- Offshore Companies:
Offshore companies are established in designated jurisdictions like Ras Al Khaimah (RAK) and Jebel Ali. Unlike onshore companies, offshore companies are barred from conducting business activities within the UAE. Their main purpose is to facilitate international trade, asset protection, and wealth management.
Foreign Ownership and Shareholding
- Freezone Companies:
Freezone companies is that they allow 100% foreign ownership. Entrepreneurs can fully own and operate their business without the need for a local sponsor or partner, no matter what activity they choose.
- Onshore Companies:
Onshore companies offer 100% foreign ownership for most activity types. A limited activities that fall under ‘strategic impact’ require a local sponsor or a UAE national partner, who holds a minimum of 51% of the company’s shares.
- Offshore Companies:
Offshore companies in the UAE do not require local partners, offering complete foreign ownership. This feature makes them an attractive option for investors seeking to maintain full control of their businesses.
Tax Implications
- Freezone Companies:
Freezone companies enjoy a tax-free environment for a specific period, typically up to 50 years. Additionally, they are exempt from customs duties on imports and exports.
- Onshore Companies:
Onshore companies are subject to a corporate tax of 9%, which came into effect on 1 June 2023. Find out how to register your UAE business for corporate tax.
- Offshore Companies:
Offshore companies are completely tax-exempt within the UAE.
Requirements for Physical Office Space
- Freezone Companies:
Most freezone companies are mandated to have physical office space within the freezone vicinity. This requirement is often manageable as freezones provide flexible and cost-effective office solutions.
- Onshore Companies:
Onshore companies must have a physical office space within the UAE, either leased or owned, to conduct their business operations.
- Offshore Companies:
Offshore companies are not required to have a physical office space in the UAE, contributing to their appeal for investors who do not require a local presence.
How CBD Can Assist
As a corporate services provider, we provide a wide range of services to support your business, from company formation and registration to business support. If you require assistance with setting up your business in the mainland or freezones in Dubai and the rest of the GCC, contact enquiries@cbdcorporateservices.com or call/Whatsapp +971 56 218 4695. Ensure that you remain up to date with new penalties for UAE companies. Read our guide to holding companies in the UAE.
Authored by Brad Williams, Consultant at CBD Corporate Services
