What is the Difference Between LLC and Freezone?

Entrepreneurs planning to open business in Dubai have fast and affordable setup options. They can choose to establish their company in the freezone or get an LLC license.

A Limited Liability Company or LLC is the standard type of company in the UAE mainland. Its structure features complete protection from liability such as debts or court conjunctions. It can conduct any type of business activity permitted by the DED from finance to agriculture.

A freezone is a special economic area in the UAE, either attached to ports or industry-specific, designed to boost international trade. It makes the process of starting a company very simple and hassle-free. There are 45 freezones across the country with more under construction.

How would you know which business setup services to sign up for?

1. Ownership Structure

A freezone license allows 100% foreign ownership. Investors are not required to partner with a UAE national during the formation process.

It is mandatory for an LLC to provide the presence of a UAE national as a local partner or local service agent. For commercial and industrial licenses, 51% shares are in the hand of a local partner and 49% shares are owned by the expat partner. For professional licenses, 100% of the shares can be owned by the foreign partner, but a UAE national should act as a local service agent.

2. Scope of Business

Authorities of every freezone come with their own rules and regulations. A common restriction among business entities is that they are only allowed to operate within their specific freezone. It usually applies to commercial licenses. Professional licenses still have the liberty to provide services to the local market.

LLCs can trade directly with the local market, any free zone, or outside UAE without any restrictions. This applies to all commercial and professional licenses.

3. Office Space

A freezone license can be incorporated with or without a physical office. Authorities allow the use of flexi desks or smart offices for a minimum of 5 hours per week. You can easily find offices in Business Bay, Media City or JLT business centers.

An LLC license requires at least 200 sq ft of office space leased out on an annual basis. The certified tenancy contract should be presented to the Department of Economic Development (DED) upon application. Only then the DED will issue the LLC license.

4. Visas Eligibility

Freezone entities are limited to a certain number of visas. They are normally allowed 1 to 6 visa packages. If a company needs more than that, then they have to rent a physical space within their specific freezone.

LLCs receive an electronic quota from the Ministry of Labor (MOL) for their visa eligibility. The quota depends on the size of the office space. One visa is allocated per 80 sq ft and can be increased by increasing office size. Companies can apply for a separate quota for any staff not working in the office.

5. Authority Approvals

Freezones are governed by their respective authorities. You need to get the necessary approvals from relevant departments, by submitting the mandatory documents. Approvals from external authorities are generally not necessary, unless a special activity requires it.

An LLC license requires standard approvals from authorities such as DED, MOL, Ministry of Immigration (MOI), etc. The documents may vary in terms of Individual and Corporate Shareholder. Approvals from external authorities are sometimes required. For instance, education-related licenses should have approval from the Knowledge and Human Development Authority (KHDA).

Company Setup in Dubai

Company formation in the mainland or freezone is not that difficult and can be done within a week. However, foreign investors can get caught up with the legal aspect of procuring essential documents. To open business in Dubai smoothly, it’s best to seek help from a lawyer or business setup consultant.

If you need guidance in choosing the right business form, or experts to help you find instant offices, consult with us at Austria Business Center. We will ensure your license is exactly the one you need. Give us a call now at +971 4 454 9700 for inquiries!