United Arab Emirates (UAE) is known for its numerous free zones, which have attracted a vast number of entrepreneurs and businesses from around the world. These free zones offer a range of benefits such as tax incentives, 100% foreign ownership, and simplified company setup procedures. However, aspiring entrepreneurs need to be aware of the limitations that come with operating a business in these free zones. In this article, we will explore some of the key limitations of free zones in the UAE. Visit this to check free zone license cost in Dubai.
Restricted geographic area:
One of the primary limitations of free zones in the UAE is their restricted geographic area. Each free zone operates within specific boundaries, and businesses registered in a particular free zone must conduct their operations within that designated area. This means that businesses may not be able to have a physical presence outside the free zone and may face restrictions in accessing the local market in other parts of the UAE.
Limited scope of business activities:
Each free zone is designed to cater to specific industries or business activities. While this specialization can be advantageous for companies operating within those industries, it may not suit businesses engaged in other sectors. For example, a free zone designed for manufacturing may not be suitable for a company offering professional services.
No direct access to local market:
Businesses operating in free zones are primarily meant for conducting international trade and export-oriented activities. While they can do business with companies outside the UAE, they are restricted from directly engaging in commercial activities with the local market. This limitation can be a drawback for businesses looking to target the local consumer base, which may be substantial in some industries.
Mandatory use of local agents:
In certain free zones, businesses may be required to engage a local agent or distributor to sell their products or services within the UAE. This requirement can add layer of complexity and cost to the business setup process, as companies need to negotiate terms and fees with the local agent.
Higher rental costs:
While free zones offer various incentives, such as exemption from corporate and income taxes, the cost of renting office or warehouse space within these zones can be relatively higher compared to locations outside the free zones. Prime free zone locations, such as Dubai Silicon Oasis or Dubai Internet City, often command premium rental rates.
