Special Economic Zones in the UAE: The Full Transcript
We’re excited to share with you the full transcript for our webinar on special economic zones in the UAE.
First of all, we’d like to thank our two UAE-based panelists, Dr. Peter Wilson of PB First Global Tax Advisors and Andrew Morris of Banks Legal, who shared plenty of knowledge and insight into how to set up a company in the UAE’s main free zones. There’s plenty of food for thought here!
If you’re curious to read what was shared, please feel free to download the full transcript below.
And if you have any follow-up questions for our panelists, make sure to submit them in the pertinent discussion forum.
For now, here are some of the event’s main highlights!
What exactly is a UAE special economic zone?
Andrew Morris: “When it comes to SEZs, the UAE is a bit more complicated than most. We have probably around more than 50 these days, so we thought it’d be good to quickly explain in an UAE context what we actually mean by SEZs. So it’s helpful to quickly understand the legal and regulatory framework that we deal with here. The UAE is a federation of seven nation states. At the top level we have federal law, which includes the federal companies law, and then each Emirate, within certain parameters, is able to pass their own legislation, which does include matters pertaining to corporate structuring. And it’s at the Emirate level where the majority of SEZs or free zones are actually established, and so the exception being the financial free zones in Abu Dhabi and Dubai, which are actually established by federal legislation. It’s important to distinguish between SEZs that are established by law and that’s where many of the benefits are established. We also have other zones that are economic zones but they exist on what we call the mainland or onshore, which basically means outside of the SEZs established by law. So they are targeted at certain industries and provide facilities, but they don’t necessarily have the benefits of the legally established SEZs.”
What are some of the UAE SEZs’ main financial and tax advantages?
Peter Wilson: “Well, for the uninitiated, one of the great benefits of the UAE, other than for certain companies and industries we do not need to talk about now, is that there’s no corporate tax. So it doesn’t matter whether you’re in a zone or out of a zone for those, there’s no corporation tax. Another benefit is there’s no personal income tax, so that doesn't matter whether you happen to have your residence inside a zone or outside a zone.”
“What has become important since the beginning of 2018 when the UAE introduced a VAT is that for certain of the zones they have been carved out to almost become a designated area and, if you’re trading with another party within the designated zone, you will not have any VAT liability, assuming there would be if it was a transaction that ordinarily there would be a liability to VAT. And if you’re trading with a party that’s in another designated zone—so let’s make it a cross-zone transaction—when the good goes across the free zone into onshore and goes into another designated zone, there’s no VAT on that transaction as well. That does not apply to all zones; there are some specific requirements, fences and regulations, and all this sort of stuff that designates which of the 50 or so free zones qualifies as a designated zone for this purpose. So all this is designed to improve the free flow of goods and services generally across borders and intra-zone so when the goods or services coming out of a zone and going onshore, that that’s the first point that the VAT becomes applicable.”
In your opinion, what needs to be improved to attract greater FDI to the UAE’s SEZs?
Andrew Morris: “I think I’ll answer that question by sharing a few of the frustrations that our clients deal with. There’s, as I mentioned, a restriction on what a free zone company can do. As much as Peter is correct that the range is broad, you’re restricted to operating in and from that free zone. They started to address this by offering in some cases the ability to branch onshore. A continuation of that will add greater flexibility to what these entities can do, which is particularly important when companies that are focused on operating in the UAE, they are often dealing across the Emirates. If you are operating across all seven Emirates, the laws of each Emirate would say that you need to register a company and have a license in each Emirate. That’s of course completely impractical and, at a practical level, you wont’ see that type of enforcement. We’re already seeing development in that area and if that area continues to develop, that’s good.”
Peter Wilson: “Once there’s no corporate tax in the UAE, you have to relicense your company each year. And everybody who’s a non-Emirati needs to have a visa, and the visas can either be annual, 3-years or now 10-years, I think. I just renewed my company yesterday and I could do it online and it cost me 15 thousand dirhams. So each year I’m paying a fee to the regulator for the price of doing business, which I don’t mind, but I question whether it’s realistic in today’s world to be charging that fee every year. Should there be a loyalty bonus of some kind like if I’m going to Costa Coffee?”
“Yes, the visa concept and the re-registering enable the authorities to know who’s in their country and there’s nothing wrong with that. But I’m just wondering, maybe it’s 7 thousand dirhams per year, I cannot remember how much it is, but you do have to pay each year for these things. And I’m just wondering whether either those fees should be rationalized or maybe the powers that may be should create a new zone where there’s a one-time fee for a license and a visa. Ok, there are these 10-year visas but I think that they are not freely available; you have to be almost a Superman. I recently heard of a fabulously wealthy gentleman from a country who managed to get a 10-year visa on the basis of investing a huge amount of money in the UAE. Is that the way of the world? Do you get a 10-year of visa for investing a huge amount of money? But does that mean that if you invest half that amount of money you can get a 5-year visa? I think there should be a bit more transparency for the ordinary man on the street and what’s going on there to attract more FDI.”