In this blog, the difference between Free Zones, Onshore and Offshore, is discussed for a company in Dubai. Examples and explicit comparisons have been provided to understand the three categories better.
Dubai Company develop and grow to a point where their profits allow them to expand and initiate newer projects beyond just the realm of the parent corporation. While these businesses continue in the mainland, they also extend into newer hemispheres and onto newer planes. In some cases, the business does not have to access local markets.
However, they can expand to grow unbridled due to much lesser stringent laws, unlike the ones on the mainland, and create better receiving racks for long and loyal markets clients. In the Free Trade Zones or Free Zones of UAE, offshore companies can grow and flourish with the easy-going and convenient ways of registering and conducting business outside of UAE in a duty-free and tax-free zone.
Moreover, though it is outside the jurisdiction, the avoidance of taxes is legal. Minimal tax payments also allow one to engage and interact with other local business frontiers. These steps were adopted because they served the public’s interests very well.
What Is an Onshore or Mainland Company in Dubai?
A business organization that adheres to the guidelines and laws of the mainland can also facilitate growing the business inside its country of residence. Onshore businesses are essentially meant for business and trade inside the premises of their country of residence.
The workers may be outsourced for the jobs, differentially and according to need. An onshore company can have businesses inside the UAE, and the workers shall all have the same time zones and little to no cultural differences.
The cost of onshore companies in Dubai is very high as compared to the cost of the free zone or offshore companies that actively focus on reducing the money lost to taxation and heavy rates of interest, undertaking every law or legal action involved because the law is stringent and doesn’t budge or exempt like offshore companies. Onshore companies need to have a physical office and licenses; thus, the cost of maintaining goes much higher than any other option.
Besides the ability and choice of premises in any part of Dubai and owning properties and real estate, interacting and engaging profits from the local markets, there is a wide scope of business developments on the mainland.
Easy access to great professional workers available locally, and the hunt for the perfect candidate isn’t long and tiring. Besides that, one doesn’t have to wander around searching for corporate service providers to be well-versed with the laws of the land because one is already clear, familiar and stable with the transparency of laws.
What Is an Offshore Company in Dubai?
Unlike what it may seem, offshore companies do not need to own branches, physical workplaces, or offices in a foreign country. This greatly saves up on a lot of funds besides the obvious recessions and tax exemptions and legal avoidance of the same. An offshore company Dubai Offshore companies are legally treated as a different entity from the owners or the entrepreneurs who set up the enterprise, incorporating it seedily into the law-and-order adhering marketing system. The debt, outstanding loans, culpable assets and drags incurred or harboured by the company do not automatically transfer to its owner or other shareholders involved.
Despite arriving with their fair share of dilemmas to resolve with documents and strategies, new ones could have a lot of learning to do after the business is set up and even before. One must decide what structure their business is best suited in. It could be a sole proprietorship or a joint venture.
The business structure of some offshore companies is that of a joint Shareholding company; they could be public or private. The business structure could also be classified between a Limited Liability Partnership (LLP), or a Limited Liability Company (LLC) which essentially differ in owners and shareholders being responsible for losses (just the ones due to their negligence or not properly strategizing in the former and exempting shareholders and owners of any charges whatsoever, to take responsibility for liability in the latter conducting business and undertaking banking transactions in the name of a legal entity, such as an offshore corporation, provides significant privacy and confidentiality benefits.
One of the most compelling and appealing benefits of Offshore Companies is the confidentiality of the assets. The financial debts and duties are all distinctly aloof from the public eye as self-identifiable entities, and they are, under law, a different entity from their owners. This safeguards and prevents the seizing of important assets of the directors or people linked to it even when the company is to be held accountable or the group of its shareholders has a lawsuit to fight against.
The resident country laws of the offshore companies don’t apply, and the accountability and taxes levied, if any, on the business project and profits made are much less. Besides, the foreign country cannot prod for company details or challenge its financial anonymity unless there is a criminal charge against it, that demands an investigation.
Advantages of Offshore Companies
Some of the major benefits of an offshore enterprise are the confidentiality they offer to the business, the financial non-intervention by neither the foreign government nor the one in the mainland, permission to create a bank account at a bank inside UAE and owning real estate in UAE. The additional securities include lawsuit protection and prevention of seizing of assets even if the shareholders are to be held accountable for a certain liability.
Since assets are bound to remain secure in offshore companies, come what may (with an exception to investigation), even in the face of lawsuits and legal consequences against the company or its shareholders. Hence, to stay put the important liabilities and assets of a company away from the hands of legal trouble, even the ones of onshore companies or on the mainland, they are transferred to offshore companies to avoid risks that can overrun their free and usable status, and seize it till the lawsuit is not resolved.
Since the company functions as a different entity and its losses, interests and loans do not get transferred directly to the owner or shareholder, even if it’s solely their negligence is what they should have to account for, if anything. Hence, it safeguards assets and credits and provides effective feigning away of financial details from the public eye, with huge amounts of money saved due to out-of-jurisdiction but legal tax avoidance.
As offshore companies are different entities than their owner or shareholder, if assets are transferred to these companies, they no longer belong in their name, and quite effectively so. During legal consequences or lawsuits, the opponent may target the owner or stakeholder’s assets, which can only be kept safe if removed from one’s name and kept in business by transferring them onto the offshore companies.
An additional benefit is simplicity and ease of operation. The ease of operation of offshore companies has made them a great hit among new entrepreneurs and business people looking to grow their tributaries and also encash the tax avoidance legally. Since this process was greatly adopted in the public interest, special checks have to be maintained. Most overseas jurisdictions make it simple for anyone to incorporate. The statutory obligations in the running of the offshore entity have also been simplified.
The stakes of offshore companies are not usually doubted unless of course, in events of suspected terrorism or criminal actions that demand inspection and legal proceedings with proof of a person’s belongings and assets, among all other things.
What is a Free Trade Zone or Free Zone of a Company in Dubai
As for a company in Dubai, there are a few noted similarities between Free Zone and Offshore companies in the UAE. Before choosing a business structure and then a company type for the same, in UAE, it is imperative to know what a Freezone is and how offshore companies still stand a league ahead of it.
Both Free Zone and Offshore Companies can be completely foreign-owned, with 100% expatriate ownership. They would not need the assistance of a local sponsor, partner, or corporate service provider to find a local company that enables them to set up.
It is also required by the Offshore company and Free Trade Zone company to have a bank account at a bank in UAE. Since it’s the tax leeward side or zone, duties and taxes are relatively less or none for the businesses, and the income is unbridled due to almost zero deduction of cash.
Also, it is noted that while offshore companies do not identify as branches of mainland onshore companies because they don’t have a physical office, free trade zone companies often have one.
To name some of the similarities, both types of companies can be owned fully (100%) by an expatriate without associating with a local partner (sponsor), the companies are entitled to have a bank account in the UAE banks, and most importantly, both companies are registered and licensed by Free Zone Authorities.
Nevertheless, the are some crucial differences between these two types of companies. However, again, neither of these companies owning bank accounts and properties in the UAE are still not allowed to engage and form business associations with the local market of the UAE.
Free Trade Zone Companies in the UAE
The free zones in Dubai started from seaports or airports, which were essentially the hubs of a trade by alluring business clients, who would like to trade with the outlets owing to the advantages they had over other trading companies, such as little to no tax and duties, complete ownership. These Free Trade Zones offer much more than import and export trading and marketing today.
- Tax Avoidance- legal, out of the jurisdiction in the tax haven
- All heavy duties and taxes are reduced or nullified in such businesses
- These businesses are to be set up on one’s own; no assistance is required to be facilitated by the local sponsor
- Complete cent per cent foreign/ expatriate ownership of the business in Freezone Companies
Examples of Onshore, Offshore and Free Zone:
- Jebel Ali Free Zone (JAFZA), in Dubai, functional since 1985 is the oldest and largest Free Zone in the UAE.
- Offshore- Ras Al Khaimah, Jebel Ali Offshore Company (owns real estate in UAE)
- Onshore- Department of Economic Development UAE sanctions permissions to these companies.
Conclusion
One of the most compelling and appealing benefits of Offshore Companies is the confidentiality of the assets. The free zone companies are equally resplendent in their offers to businesses ready to set up a physical outlet and carry out several import and export trading, industrial marketing etc.
The unhindered growth hence, of such economies is hence duly worth appreciation. It can help many late businesses catch up with the profits of their counterparts, avoid huge loads of corporate tax, avoid the build-up of outstanding debts, increase credit scores, and overall development on the business frontier. For any help regarding this, get in touch with Vakilsearch.
