What is the difference between Free Zone and Offshore?

While conducting business in the United Arab Emirates, it is important for a company to be familiar with the concepts of free zone and offshore. An organization will need to understand the difference between these two types of companies so that the business can smoothly proceed.

Each of these types can offer certain liberties to the organization while conducting business. When an organization is trying to get registered in the United Arab Emirates to conduct business activities, they need to mention which kind of setup they want inside the country. The limitations imposed on free zone companies will be different from offshore companies. These liberties and limitations will need to be taken into consideration beforehand.

Free Zone Company

The free zone is a concept that was developed to help the promotion, growth and development of the businesses. Many countries have similar models and this concept is well known in the international business community. The United Arab Emirates had established Free Zones in order to attract companies that dealt in the trade and export. So far, this model has been extremely successful at its purpose.

A company can have one of its branches inside the free zone. In this scenario, the branch office is not considered to be an individual company but is simply an extension of the main company. When a company wishes to incorporate itself as a free zone entity, it will need to showcase its solvency. The procedure is quite simple. A bank account will need to be opened in the name of the company in any bank that is licensed to the United Arab Emirates. The share capital will have to be deposited in the account. The bank statement will be required to make the Free Zone Authority. After the setup of the company is satisfactorily completed, the capital will be released and can be used by the company.

There are certain requirements with regards to the initial share capital that is required to be registered in the Free Zone. These requirements vary between the various Free Zones and are dependent on the purpose of the company. Companies in the Free Zone need to construct a physical office inside the designated area. Virtual offices can be rented if a full scale office is not required. A free zone company will have certain restrictions when conducting business inside the United Arab Emirates.

Offshore Company

An offshore company is a concept that is used to denote a corporate entity that is flexible enough to have a mixture of features. An Offshore company is also registered in a free zone and enjoys many benefits that an average Free Zone company gets. However, it cannot be used as a substitute for a Free Zone company.

The major difference between a Free Zone company and an offshore company is that offshore companies are allowed to conduct their business outside the United Arab Emirates. They cannot have business activities inside the country.

An Offshore company is allowed to open bank accounts with the banks based in the UAE and operate them as needed. It will also have the ability to own investments inside the United Arab Emirates and also outside it. An offshore company can purchase and own real estate in certain pre-designated areas inside Dubai. Any income that the company gains from its investments can be kept with the bank account operated by the company.

Offshore companies do not have any requirements for the minimum capital that needs to be deposited before incorporation unlike a Free Zone company. Offshore companies are usually used as holding or asset companies for other business organizations which operate inside or even outside the United Arab Emirates.