In conversation with Miraziz Makhamatzhanov, CEO of Corplex
What are the differences between mainland and free zone companies?
Mainland companies, also known as onshore companies, are registered and licensed by the Department of Economic Development in each emirate. If you are an expat, you need to have a local service agent or a local partner, depending on the business activity and the company type, to register a mainland company. Generally speaking, mainland companies can conduct business activities within the local market.
However, free zone companies are registered in one of the free zones in the UAE and they can conduct business activities within the UAE as well as internationally. Free zone companies enjoy several benefits, such as:
100 per cent foreign ownership
No customs duty for import and export
Some free zones are categorised as Designated Zones under the UAE VAT laws, where business owners enjoy certain VAT exemptions
Cost-effective business set-up
No need to have a local partner or agent
Ready office, warehouses and manufacturing facilities are available at free zones
Shareholders, directors and employees can get UAE residency
What are offshore companies?
While offshore companies can be registered in some of the UAE free zones, they function differently from the free zone entities. Unlike the free zone companies, all the activities of offshore companies must be carried out outside of the UAE. These are the most practical option for companies who are looking to have a business address in the UAE without a physical presence.
What are the types of businesses that can be operated from a free zone?
Here are the general company structures in free zones:
Free zone establishment (FZE) Companies with one shareholder can be registered as a FZE.
Free zone company (FZC or FZ-LLC) When there is more than one shareholder, this is called FZC or FZ-LLC.
Branch Both local and foreign companies in the UAE can register their branches in UAE free zones.
However, it’s important to note that the company structures may vary in certain free zones in the UAE.
What are the various types of licences available in free zones?
While each free zone has its own classification of licences, the majority of free zones have the following:
Trading licence This allows trading, import, export and re-export of specific products.
E-commerce licence This allows companies to do business through online platforms.
Service licence This allows companies to provide specific services or consultancies within the free zone.
Industrial licence This is issued for manufacturing activities.
General trading licence This allows trading, import, export and re-export of almost all types of product, with the exception of a few.
Could you give us an idea about the tax incentives and repatriation of profits at free zones?
Some free zones are categorised as Designated Zones under the UAE VAT laws and there are certain VAT exemptions. Companies operating in other free zones that are not considered as Designated Zones, are treated as normal on-shore companies and they need to charge the standard 5 per cent VAT for supply of goods or services after meeting the criteria for VAT registration.
Other than VAT, there is no taxation in fee zones.
Also, there is no restriction on the repatriation of capital or profits across all free zones in the UAE.
If the shareholders are based overseas or travel often and expect the general managers to run the whole business in their absence, it is essential for the shareholders to issue a separate Power of Attorney (POA) to the general manager, listing each and every decision and action that they can take on behalf of the shareholders.
Why do free zone companies need a Power of Attorney (POA) for managers?
Generally, details on the power of a general manager or a director in any company are stipulated in the Memorandum of Association (MOA) and the Articles of Association.
Majority of free zones in the UAE provide their own standard MOA, allowing only minimal changes. A typical MOA assigns, if at all, very minimum authorities to a general manager and does not list some of the pivotal functions such as opening bank accounts, buying or selling assets, appointing lawyers, accountants or tax agents. This can work if the shareholders run the business on their own, giving a very limited power to a manager.
However, in many cases, this doesn’t work. If the shareholders are based overseas or travel often and expect the general managers to run the whole business in their absence, it is essential for the shareholders to issue a separate POA to the general manager, listing each and every decision and action that they can take on behalf of the shareholders.