The United Arab Emirates (UAE) has firmly established itself as a global hub for business, offering diverse company formation options to accommodate international investors. The most common structures are Freezone, Onshore, and Offshore companies, each offering distinct advantages, regulations, and limitations. Understanding these differences is crucial for entrepreneurs looking to establish or expand their business in the UAE. Below is a breakdown of the key differences between these three setups.
1. Location and Geographic Restrictions
Freezone Companies: Freezones are designated areas exempt from certain taxes and customs duties. Freezone companies are limited to operating within their specific Freezone area and cannot directly engage with the UAE local market. Each Freezone permits specific activities and has its own regulations.
Onshore Companies: Onshore companies are registered in the UAE mainland and can conduct business within the UAE and internationally. They have no geographic restrictions and can engage with local markets, government entities, and individuals.
Offshore Companies: Offshore companies are established in designated jurisdictions such as Ras Al Khaimah (RAK) and Jebel Ali. Unlike Onshore companies, they cannot conduct business within the UAE but are ideal for international trade, asset protection, and wealth management.
2. Foreign Ownership and Shareholding
Freezone Companies: Freezone companies offer 100% foreign ownership. Entrepreneurs can fully own and operate their businesses without needing a local sponsor or partner.
Onshore Companies: Onshore companies now allow 100% foreign ownership for most business activities. However, for specific activities deemed to have a ‘strategic impact,’ a local sponsor or UAE national partner holding 51% of shares may be required.
Offshore Companies: Offshore companies provide 100% foreign ownership, making them a popular choice for international investors seeking full control over their business operations.
3. Tax Implications
Freezone Companies: Freezone companies benefit from a tax-free environment for up to 50 years and are exempt from customs duties on imports and exports.
Onshore Companies: Onshore companies are subject to a 9% corporate tax, effective from 1 June 2023.
Offshore Companies: Offshore companies enjoy complete tax exemption, making them attractive for businesses focused on international trade and wealth management.
4. Physical Office Space Requirements
Freezone Companies: Freezone companies are typically required to have physical office space within their Freezone. However, Freezones offer flexible and cost-effective office solutions to meet these requirements.
Onshore Companies: Onshore companies must have a physical office space within the UAE, whether leased or owned, to conduct business operations.
Offshore Companies: Offshore companies do not require physical office space, making them ideal for businesses that do not need a local presence.
