Difference between Free Zone and LLC companies: The most common business entity in the UAE is the limited liability company (LLC). An LLC is a company with two or more shareholders that have limited liability for the company’s debts and liabilities. Free zone companies are similar to LLCs but are established in special economic zones that offer specific tax and regulatory benefits. Free zone companies must do business within the free zone in which they are set and cannot conduct business outside the free area. LLCs can operate anywhere in the UAE.
Both free zone companies and LLCs must have a UAE national sponsor who owns at least 51% of the company. The sponsor provides expertise, local market knowledge, and connections in exchange for a portion of the company’s profits. In addition, free zone companies and LLCs must have a local service agent who handles the company’s visa and licensing requirements.
What should you know?
Before starting a business in the UAE, entrepreneurs should be aware of a few key differences between free zone companies and LLCs. First, free zone companies are typically exempt from corporate taxes, while LLCs are not. Free zone companies are also not subject to foreign ownership restrictions, meaning 100% foreign ownership is possible. On the other hand, LLCs must have at least 51% UAE national ownership.
Another key difference is that free zone companies can be established with just one shareholder, while LLCs must have at least two. Free zone companies are also not required to have a physical office in the UAE and can operate online. On the other hand, LLCs must have a physical presence in the UAE and maintain a registered office address.
Finally, free zone companies can be 100% foreign-owned, while LLCs cannot. Therefore, a free zone company may be the best option for entrepreneurs who want complete control over their business in the UAE. However, LLCs offer more flexibility and can be better suited for companies that want to operate in multiple emirates or interact directly with the local market.
Entrepreneurs should consider their business goals and need when choosing between a free zone company and an LLC. For example, free zone companies are best suited for businesses looking for tax exemptions and 100% foreign ownership. On the other hand, LLCs offer more flexibility. They can be a good choice for businesses that want to operate in multiple emirates or have a physical presence in the UAE. Ultimately, the best business structure for your company will depend on your specific business goals and needs.
Difference between Free zone and LLC companies: Investments/ Capital Needed
In Abu Dhabi, there is no minimum capital requirement. You can create an LLC in KIZAD with a minimum paid-up capital requirement of AED 150,000.
You can set up a free zone firm at the Dubai Airport Free Zone. Having an AED 1,000 minimum share capital. Each share should have a value of AED 1000.
The required share capital to establish a free zone company in DMCC is AED 50,000 for the company and AED 10,000 for each shareholder. A firm must have a minimum of AED 1 million in share capital to be granted a general trading license.
You can establish an FZE in the Hamriyah Free Zone with an equity capital of AED 150,000.
Everything you need to know
Let’s Get Started:
Eligibility for visas
Entities in free zones are restricted to a set number of visas. Typically, they are permitted 1 to 6 visa packages. A business must rent a physical location within its free zone if it requires more.
The Ministry of Labor (MOL) issues an electronic quota to LLCs to determine their visa eligibility. The percentage is based on how big the office is. One visa is allotted for every 80 square feet of space, and the number of tickets is expandable.
At least 200 square feet of office space must be rented out annually to qualify for an LLC license. The certified tenancy agreement must be provided to the Department of Economic Development (DED) upon application. The DED won’t grant the LLC license until after that. Businesses may request a separate quota for employees who are not in the office.
Ownership Organization
100% foreign ownership is permitted with a free zone license. During the formation procedure, investors are not obliged to partner with a citizen of the UAE.
A UAE national as a local partner or service agent is required for an LLC. A local partner holds 51% of the shares for commercial and industrial licenses, while a foreign partner holds 49% of the shares. The foreign partner may control 100% of the claims for professional rights, but an Emirati national must serve as the local service agent.
Office Area
It is possible to incorporate a free zone license with and without a physical office. Flexi desks and smart offices are permitted for a minimum of 5 hours per week by the authorities. Business Bay, Media City, and JLT business centers are excellent places to find offices.
At least 200 square feet of office space must be rented out annually to qualify for an LLC license. The certified tenancy agreement must be provided to the Department of Economic Development (DED) upon application. The DED won’t grant the LLC license until after that.
Business Scope
Each free zone’s administration has its own set of rules and guidelines. Business entities frequently have the restriction of being able to operate just in their particular free area. Typically, it applies to licensing for businesses. However, professional licensees are still free to offer services to the neighborhood market.
LLCs are not subject to any restrictions while trading with the local market, any free zone, or calls outside the United Arab Emirates. However, all professional and business licenses must comply with this.
Regulatory approvals
Authorities in each free zone have their own rules and regulations. You must obtain clearances from the concerned departments by presenting the required documentation. Unless a unique action necessitates it, approvals from outside authorities are not required.
Standard permissions from agencies like DED, MOL, and the Ministry of Immigration (MOI) are necessary for an LLC license. However, the paperwork may differ in terms of Individual and Corporate Shareholders. In addition, sometimes, it’s required to obtain approval from outside authorities. For instance, the Knowledge and Human Development Authority (KHDA) must approve national educational permits.
Difference between Free zone and LLC companies: Conclusion
As you can see, there are many things to consider when setting up a business in the UAE. However, the process is relatively straightforward, and accessible zones make it even easier for foreign investors. We hope this guide has been helpful and gives you a better understanding of what’s required.
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