Free Trade zones are certain areas that compared to the main area have a special legal status and favorable trade conditions for local and foreign companies. The main purpose of creation of such free trade zones worldwide including the UAE is effective solution of tasks of the strategic development of country as a whole and of individual areas of the country in particular.
Different countries create free trade zones (FTZs) with different conditions and opportunities. One of such countries offering free trade zones with very different positioning and specialization is the UAE (United Arab Emirates). FTZs are created in the world to achieve the following goals:
- Promotion of foreign investments
- Innovative technology development
- favorable production development
- Service sector development
- Creation of new jobs
- Development and expansion of the export base of the country
- Effective import substitution
- Attraction of know-how and new technologies
The advantages of free trade zones as a whole and in the UAE in particular directly for investors are as follows:
- Putting closer production and potential consumers
- Optimization of customs duties on export and import of goods and services
- Direct access to modern infrastructure
- Optimization of expenditures for the payment of labor force
- Reduction of possible administrative barriers and costs
- Effective use of the FTZ infrastructure provided for business
What are the legal and tax features characteristic for free trade zones:
- The optimization of tax payment, as a rule, is a partial or complete exemption of companies from taxation. In case of the UAE it is the full tax exemption.
- The partial or full exemption from customs duties / fees for the import and export of products or services. In case of the UAE it is a full exemption from customs duties upon the import and export of goods through the free trade zone.
- Financial advantages which may include various benefits and subsidies, reduced rates for the rental and utility payments, etc. In the example of the UAE these are the provision of full infrastructure – all the necessary connections, roads, office buildings, production and warehouse facilities, etc., as well as access to energy on favorable terms.
- Administrative advantages – as a rule, in such free trade zones the company registration procedure is more simplified, and there are opportunities for unrestricted repatriation of investment assets. As for the UAE this is an opportunity to register companies to conduct virtually all types of permitted activities, free movement of capitals and quick and simple registration procedure of resident visas for shareholders and employees of companies.
In the current global economy free trade zones can be divided into several basic types. Let’s consider the main ones.
1. Free trade zone with “Industrial Zone” status.
Industrial free trade zones are areas located in industrial areas. The main advantages defining the features of such FTZs are direct access to established infrastructure, close proximity of the industrial facilities to the resource bases and main transport arteries. Such location of production facilities allows increasing the level of competitiveness of the manufactured products by reducing the total production costs.
The priority areas of the industrial zones often are:
- Motor industry
- Production of construction materials
- Petrochemical industry
- Manufacturing of various equipment
- Manufacturing of household appliances
- Production of medicines
In addition to these areas, there are, clearly, opportunities to open production in any other industrial sectors – processing of raw and recycled materials, paper production, food processing, medical equipment manufacturing, etc.
2. Free trade zones with “Innovation Zone” status
The innovation zones are often located in major educational and research centers which have recognized scientific schools and scientific traditions. Such location of FTZs ensures the development of innovative trends in business and economy, followed by access to the international market.
The customs privileges and tax mitigation, access to skilled workers make the innovative FTZs in the UAE substantially attractive for the manufacturers of high-technology goods.
The priority areas for the innovation zones are, for example:
- Biological and nanotechnologies
- Communication means and electronics
- Medical and information technologies
- Precision instrument industry
There are several FTZs in the UAE alloted for these purposes. These are Silicon Free Zone with companies engaged in technology development, Health Care City, where, along with various clinics and hospitals, there are various companies developing medicines and the FTZs in Dubai – Internet City – a place where new Internet technologies are developed and implemented, and others.
3. Free trade zones in the UAE with “Port Zone” status.
The port free zones are located close to the main seaports or immediately adjacent to them. Such location provides such FTZs with direct access to the most demanded type of logistic service by sea. Since the UAE are located at the crossroads of maritime trade routes, there are several ports in the country and each of these ports has a free trade zone.
4. Free trade zones of the UAE with status of specialization in a certain area
An example of such specialized free zones can be free trade zones established for certain specialized areas of business or service sector. For example, in case of the UAE, an example of such FTZ is the Media City free zone. It’s a free trade zone designed primarily for companies involved in the media business. Another example is the free zone in Abu Dhabi – Two Four 54 created primarily for the production of medium content aimed at the local market.
The official authorities of the United Arab Emirates, for the diversification of the economy from the oil industry, provided the concept of free trade zones, which allows to significantly increase the flow of direct foreign investments into the country’s economy and contributes to the development of all businesses in the UAE and the economy of the country as a whole, was chosen as one of the country’s development concept.
To date, the UAE free trade zones provide a steady inflow of foreign investors to the region. It is not a secret that in the Middle East the UAE is the first country which started to actively to develop this sector, and is of interest for potential investors from around the world.
The free trade zones are managed by independent governmental authorities engaged in the issuance of the relevant licenses for companies. Each UAE free trade zone has its specific advantages and benefits.
Some of the central and core advantages of the UAE free trade zones are as follow:
- Full or partial exemption from customs duties
- Provision of tax benefits
- Possibility of hiring inexpensive highly skilled labor force
- Removal of the bureaucratic and administrative barriers
- Assurance of full protection and security
- High level organization of communication, service sector and transport service
- Stability of the monetary system of the country
- Possibility of free movement of finance resources
- Simplified procedures for company registration
- Possibility of 100 % participation of foreign nationals in the authorized share capital of the company
- Free repatriation of invested capitals
Summarizing all the above mentioned, we can firmly country that the UAE and the free trade zones available in the country are a great place for international business, as well as the business in the region.
The Emirates provide the most favorable conditions for life and work. Another important factor for choosing a location for doing business, work and life is not only the business opportunities, but also a steady growth of the economy, security and quality of life in the country. From this viewpoint the UAE is a perfect combination of business and living opportunities.
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