University of Modern Sciences (UMS)

College of Business Administration

International Business
BUSN 407
Fall 2015/2016
Assignment

Free Zones in UAE

Submitted to
Dr. Mohammed Rizwan Alam
Submitted by
Musallam Alameri
20131334
Section 1
Introduction

UAE Free Zones has always been eager to assist investors and businessmen in making a reality
of their goal of experiencing the most talked about business freedom in the UAE Free zones.

UAE is ranked as the 2nd best nation in the Middle East and Africa for doing business based on
its economy and regulatory environment, for Doing Business Report by The World Bank Group
and UAE Free Trade Zones, offer 100% foreign ownership and zero taxes, to attract foreign
investors.

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What is a Free Zone?

A free zone is a portion of clearly defined and isolated land or setting, with a special tax, customs
and imports regime, that is different from the mainland area (country) usually involving a status
of extra-territoriality.

The main idea of establishing free zones in the UAE was for them to serve as a central business
hub for companies willing to conduct business with the outer world, not specifically in the UAE.
Therefore, UAE free zone companies are intended to operate within the corresponding free zone
as a hub for the worldwide operations and are not licensed to operate within the rest of the UAE.
As a result most of the free zone companies during the initial days were engaged in import and
re-export activities. But today, a large majority of such free zone companies do business with
their clients in UAE and GCC through their local distributors.

Famous Free Trade Zones in UAE

Dubai Airport Free Zone

Dubai Internet City

Dubai Media City

Dubai Metal and Commodities Center

Dubai Investment Park

Dubai Silicon Oasis

Jebel Ali Free Zone

Hamriya Free Zone in Sharjah

Sharjah Airport International Free Zone

Ajman Free Zone Authority

Ras Al Khaimah Free Trade Zone

Fujairah Free Zone

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Pros and Cons of Setting up a Business in Free Zone

Any foreign company that wants to enter the UAE market has two options. Either register a
Limited Liability Company that can operate anywhere in the United Arab Emirates or register a
company inside one of the many Free Zones in UAE. Over the past several years, many Free
Zones have been created in UAE in order to attract higher foreign direct investment. These free
zones offer several advantages to foreign companies and are seen as one of the best ways to
setup an office in UAE. However, there are several pros and cons of setting up an office inside a
Free Zone and some of them are as follows:

Pros:

Any company registered inside the Free Zones can have 100 per cent foreign ownership. This is
an important advantage as otherwise UAE does not allow foreigners to own a company based in
the city completely. They are not even allowed to own majority stake and can have a maximum
of 49 per cent stake in a limited liability company. However, there is no such restriction when it
comes to any of the Free Zones in UAE and foreign nationals are free to own as much as they
want in their Company inside the free zone.

The other significant advantage of doing business inside a free zone is the tax exemption given to
all companies. Businesses insides the free zone do not have to pay any taxes whatsoever for a
certain number of years. This can be anything between 10 to 15 years and the exemption is
renewable as well.

Free zones usually have an excellent infrastructure and business environment. All possible
amenities can be found in these free zones and companies have an immaculate platform from
which to conduct their business activities. There is a lot of government support as well for
development of the free zones and hence several benefits are passed on to companies operating
inside these free zones.

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Cons:

While free zones feel like a good idea, there are a few cons of operating inside these zones as
well. First and foremost, any company setup inside the free zone must confine their business
activities to these zones only. They cannot expand beyond the free zone into other markets in
UAE. They cannot cater to customers in other parts of from a free zone. This is a huge restriction
especially if your company intends to service the entire UAE market.

The other important disadvantage is you cannot operate any type of company in a free zone.
Each free zone is designated for a particular type of business. Examples of these include free
zones dedicated to import and export business and free zones meant for technology related
companies. Hence your business activities are confined to the type of free zone where you have
setup your office in the zone.

Role of Free Trade Zone in helping foreign investors

Free trade zones in UAE facilitate investors on all levels whether they are large manufacturers,
small business and even an individual person. It provides various additional incentives for
businessmen establishing their manufacturing plants and service centers in these zones.
Government implement specific laws related to ownership, hiring labor and tax payment. As we
all know that whole world has become a global village and it has become a common trend of
investors to make investments in other countries. Free trade zones facilitate foreign investors to
make profitable investments with negligible taxes and tariffs. Government of UAE is paying
special attention to make these areas well equipped with all amenities encompassing strong
communication system requires to setup business.

In UAE anyone can utilize free trade zone whether he belongs to manufacturing business, service
provider and import/export business.

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Influence of Free Trade Zone on Business in UAE

It has been observed that since 1970s number of countries across the globe has started thinking to
buildup free trade zone to facilitate investors and business people to establish their business. It is
actually a specific area which is free from tariffs and taxes and allows companies to import
goods for manufacturing of different items and export of their products at reduced manufacturing
cost. Developed countries allocate certain specific areas within their borders for this purpose.
Establishing such zones actually support foreign investors to make investment in other countries.
It also minimizes trade barriers and enable investors to do export and import under good
economic conditions. Many business owners are not aware with free trade zones and their
advantages. Besides eliminating taxes and tariffs, it also reduces routine rules and regulation.
Free trade zones play very important role to improve global market and successfully attract
foreign investors to make investments across the borders.

Free Trade Zones are ideally located near entry ports of any country. Choosing locations near to
air port and seaport for this zone is just to facilitate foreign investors and business persons. But in
some cases its better to build this zone in other areas near to oil refineries and large
manufacturing sites as it is not possible to move such industries from their original location.
Investors belong to any business category including manufacturing, import or export can take
benefits of establishing their businesses here. Common economic benefits they will be enjoying
include elimination of all custom duties, certain tax exemptions and tariff relief. Such areas also
facilitate other business related operations like excellent storage facilities, enhanced security and
insurance on goods and exceptional operating facilities.

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Conclusion

United Arab Emirates (UAE) is today recognized the world over as a perfect business hub, where
the East meets and interacts with the west and develops a unique synergy that benefits both. In
fact, the status of the UAE as a trade and commercial meeting place is centuries old not just for
the Middle East region, but for the whole world. UAE supports a liberal economy and is
committed to free trade and is a signatory of the General Agreement on Tariffs and Trade.
Traders from various parts people of the UAE.

UAE understands the needs of the 21st century entrepreneur. Politically stable, labour costs are
competitive, corporate tax and personal taxes are nil, free convertible currency, no restrictions on
profit transfer or capital repatriation, low import duties and assuring total security to property
and person, the country also has a rich and varied human resource pool that suits the demanding
requirements of any business makes it an extremely attraction option for stating or expanding
business.

UAE has 18 official free zones (with many in the pipeline), which offer the business community
the freedom to incubate, nature, establish and spread out their business.

The selection of the right free zone for your business depends on the type of activity (trading,
software development, e-commerce, automotive, heavy industry, broadcasting, publishing, etc.)
And also the infrastructure and facilities required by the business (warehousing, airport and
seaport access, high band-width data transfer, sound stage, etc.).

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Recommendation

Selected sites, planned land use, planned phased development, selected alternatives,
developed environmental plans, facilitated development of goals and objectives,
researched and developed recommendations for administration, and researched and
recommended regulatory systems
Developed Free Zone model based on case studies of international Free Zones, including
legal and legislative structure
Developed regulatory and administrative guidelines for the operation of Free Zones
Identified viable Free Zone development and infrastructure projects and Free Zone spin-
off projects complementary to Free Zones

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References

http://uaefreezones.me/default.asp
http://www.uaefreezones.com/
https://en.wikipedia.org/wiki/List_of_Free_Trade_Zones_in_the_United_Arab_Emirates
http://www.uaefreezones.me/
http://www.dubaifaqs.com/free-zones-uae.php
http://www.emiratesfreezone.com/
http://jafza.ae/
http://allfreezones.ae/
http://rakftz.com/

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