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Free Zones: Incentives and Limitations

Provided By Lesley Yap for Khalifa Fund for Enterprise DevelopmentSME Toolkit UAE

Establishing a business entity in one of the UAE’s Free Zones can be an attractive route for foreign investors. Free Zones have been setup across the Emirates to facilitate business activities and attract foreign investors looking to start up business relatively quickly and with ease. They are geographically distinguished areas subject to laws and regulations different from the laws governing resident companies of the UAE. Companies operating within Free Zones are legally treated as foreign companies or companies operating outside the UAE. Each Free Zone in the UAE has its own Free Zone Authority to govern, handle registration and operating licensing, etc. Although Free Zones across the Emirates vary, the basic principles remain the same.

UAE Free Zones (sometimes called free economic zones, duty free zones, tax free zones, trade free zones or free trade zones), offer significant incentives for investors. The advantages of setting up a business in a UAE Free Zone are:

  • 100% ownership, i.e. full control of activities
  • 100% repatriation of capital and profits
  • 100% exemption from import and export duties
  • No tax on corporate gains or personal incomes in most cases
  • No currency restrictions
  • Low cost of operations
  • Pre-built offices, factories, warehouses
  • Fast-track start-up and licensing procedures
  • Single window clearances, i.e. one-stop-shop administration services
  • Assistance with labor recruitment and additional support services, such as sponsorship and on-site housing
  • Abundant and inexpensive energy
  • Transportation links by air, by sea and by road
  • Excellent infrastructure, communications and attractive working environment
  • Ability to operate 24 hours a day


Listed below are some of the limitations of setting up a business in a UAE Free Zone:

  • Costly setup, average minimum investment is AED 150,000
  • Each Free Zone is designated for a particular type of business, i.e. cannot operate any type of business in any zone
  • Free Zone entities must operate within their zone boundaries and are not licensed to operate elsewhere in UAE, i.e. not permitted to trade directly with UAE market
  • Can conduct business with resident companies only through a locally appointed distributor
  • 5% customs duty on goods sold to UAE market through distributor
  • Free Zone entities can be subject to audits
  • Offices can only be rented within designated Free Zone
  • Minimum requirements for office and or warehouse space can apply
  • Restrictions on maximum allowed employment visas
  • Long waiting lists to enter in some of the more popular zones


It is important to note that the above is a general overview. Each Free Zone has its own advantages and disadvantages. For more specific information on different Free Zones within the Emirates and each zone’s requirements, please see the United Arab Emirates Ministry of Economy – Investors Guide to the UAE and United Arab Emirates Ministry of Economy – Procedure and Fees Guide for Investment Projects in the UAE.



Abu Dhabi Government. (2013) International Trade.

United Arab Emirates Ministry of Economy. (2013). Investor’s Guide to the UAE 201 – 2011.

United Arab Emirates Ministry of Economy. (2013). Procedures and Fees Guide for Investment Projects in UAE.

UAE Embassy – Washington Trade & Commercial Office. United Arab Emirate Ministry of Economy. (2013) Doing Business in the UAE.

UAE Investment Map. (2013) Free Zones.

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