The United Arab Emirates, particularly Dubai, has earned the status of being a global business hub, and entrepreneurs all over the world have flocked here. With its excellent position, first-rate infrastructure, and many free zones, Dubai provides the freezone company setup in Dubai with an exceptional opportunity to thrive. In order to enjoy a long-term existence, owners of a company have to know and fulfill the legal requirements apart from the benefits of setting up an operation in a free zone.
This article on ‘Legal Requirements and Compliance for Freezone Companies in Dubai: A Checklist for New Business Owners‘ offers a checklist for new entrepreneurs looking to establish their businesses within one of Dubai’s Freezones while keeping themselves abreast of regional legal requirements.
More than Just Tax Relief
The free zone refers to a specific region in the United Arab Emirates where enterprises operate, offering various financial and regulatory benefits. Companies in Freezones do not require a local partner or sponsor. Business setup in UAE freezone, unlike business enterprises on the mainland, can be 100 percent foreign-owned by citizens. Among the most attractive benefits is that corporate taxes and levies on imports and exports are not payable, which, of course, saves a lot on operating costs. There are no restrictions on 100 percent profit and capital repatriation of Freezone enterprises. Even though these advantages attract foreign companies, each Freezone has rules that differ.
An All-Inclusive Checklist for Compliance
Though registering a company in a Freezone is less complicated than on the mainland, a Freezone firm still has to undergo procedures that ensure legal compliance. Here is an all-inclusive checklist for businessmen who want to start a free zone firm.
Selecting the Most Suitable Freezone for Your Company’s Needs
There are near about thirty free zones in Dubai each specialized to a different sector. As an example, Dubai Silicon Oasis caters to Tech companies, and Dubai Media City is especially ideal for media companies. Selection of a free zone that aligns with the operations of your business would be essential since different standards might apply legally and regulatory among them.
Every Freezone has its own regulatory body, so it becomes difficult to select the right one unless one has knowledge regarding its rules for operations and licensing. Selection of free zone requires proper study as different free zones have restrictions for certain types of ventures.
Licenses and Registration of Companies
Once you have finalized a free zone, you will have to register the company and obtain a freezone license in Dubai. Amongst these are, but not limited to, a business plan and copies of the shareholders’ passports as well as identity documents. Depending on what your business will be, you will be required to bring along, amongst other things, tenancy contracts.
The nature of business trading, services, or industry often determines the type of licenses issued. Thus, the mode of licensing your business selects will determine the requirements of compliance that it must follow in terms of annual reporting, audit, and license renewal. Never forget to renew your license as this would lead to penalties or even suspension if overlooked.
ESR Economic Substance Regulations
Being a novelty in the legal framework of the UAE, Economic Substance Regulations aim to ensure that certain classes of businesses – holding companies or entities dealing with intellectual property – are able to demonstrate substantial economic presence within the country.
Freezone companies must, every year, file an ESR notice for activities relevant to the laws, and where they apply, with an economic activity report.
Non-compliance with ESR can have very strict ramifications or even cancellation of the business license.
Compliance with AML and Financial Transparency
AML regulations are pretty tight in the UAE and are meant to prevent some forms of financial wrongdoings. The policy would be applicable to all business operations, both to commercial activity within the free zones as well. They should have a policy mechanism in place to ensure that their operations are not being used as a tool for money laundering. Mechanisms such as records of all fiscal activities and unusual transactions are reported to the appropriate authority.
Pre-requisites include processes in corporate compliance as well as educating the staff on recognizing and reporting suspicious transactions for Freezone companies. Violations of AML requirements have serious legal consequences or penalties, including suspension of business operations by corporations.
Requirements in Financial Reporting and Compliance
Dubai freezones are firms that are indeed required to make financial statements. There are tax advantages of operating from freezones, though there are indeed rules businesses must observe honesty and transparency over financial transactions reporting.
Reporting and Registration of VAT
Value-added tax, introduced in 2018 in the UAE, is also applicable to companies running inside free zones. Companies earning more than 375,000 AED per year are required to register for VAT and file regularly. It is pretty much necessary to follow the rules of VAT, and failure to do so brings in very huge penalties.
VAT rules apply even when free zone companies are exempted from corporate tax. There must be effective VAT registration and reporting. Failure to report can lead to penalties or even the liquidation of a firm.
Annual Reviews of the Finances
Most Freezones require that corporations be subject to an annual audit which is, by an independent auditor qualified by examination. The purpose of the audit is mainly to prove the truthfulness of financial records and compliance with Freezone regulations and laws. Companies must, within a prescribed period submit to Freezone authorities audit reports prepared within a given period.
A periodic audit that maintains financial transparency ensures compliance with the laws and avoids disruptions in business activities. It is vital to involve professional auditors or accountants who are familiar with the UAE’s financial regulations.
UBO Disclosure and Corporate Governance
Therefore, the UBO in Freezones of the UAE requires proper corporate governance to ensure legal compliance. It ensures that each activity of a business is subject to compliance with shareholder agreements, board meetings, and decision-making procedures.
Disclosure of Ultimate Beneficial Ownership (UBO)
The UAE has passed laws that oblige companies to report Ultimate Beneficial Owner (UBO) details. UBOs are the individuals or parties who have direct or indirect ownership or control of 25% or more of the company. It is a step in the right direction in increasing transparency in the business but the expressed intention is much more directly oriented to anti-money laundering.
The companies should have a renewed UBO registration, and changes therein should be passed to the relevant authorities. Failure to comply with UBO laws would attract heavy fines and in extreme cases, deregistration of the company.
Freezone Compliance is a continuous Process
Businesses operating in Freezones must be observant of the emergent compliance trends due to the efforts made by the United Arab Emirates to reform its regulatory structure. The trend witnessed in recent years includes strict enforcement of legislation already in force, and the implementation of digital tools for reporting on compliance. Hence, there is a possibility that regulators might monitor corporations in real time; therefore, businesses must use these solutions.
