DUBAI - Offshore centres in the UAE have been recording much faster growth rates than free trade zones thanks to some key advantages they enjoy in terms of lower operating cost and the facility to enable multiple services under a single licence, a study by Jitendra Business Associates, a leading business consultancy said.
“The UAE still remains a preferred destination for investors, compared to other GCC countries, because of improved transparency, better infrastructure, single-window solution and high comfort level in dealing with the government and free zone officials,” said Jitendra Gianchandani, Managing Partner of Jitendra Business Associates.
“So far in 2010, we have seen dramatic increase in the number of inquiries for business incorporation this year. We have incorporated 100 companies, a number that is almost similar to 2008, before the financial crisis,” he said.
Since the first offshore company came into existence in Jebel Ali in 2003, more than 15,000 offshore companies have been set up across UAE’s free zone offshore centres, including one in Jebel Ali, a two in Ras Al Khaimah.
“Compared to the more restrictive registration laws of the free zones, offshore centres offer liberal and flexible rules to enable smoother and hassle free operation,” said Gianchandani.
Offshore companies have been growing at an impressive pace in the UAE by recording a 30 per cent growth. For instance, at Ras Al Khaimah Free Trade Zone, the number of offshore firms has increased from 900 in 2009 to 1,250 in 2010, he said.
Offshore companies have an edge compared to free zones on several fronts. Gianchandani said the UAE offshore facility and the free zones complement each other and companies can choose between the two, depending on the nature of their business and individual requirements.
“The concept of setting up offshore company is gaining ground in the UAE,” said Gianchandani. “Various emirates are competing with each other to offer best offshore setup facilities, and we anticipate this trend will pick up momentum, especially in the post-recession scenario.”
Setting up a company through RAK Offshore costs around Dh2,200 for the first year, without agent fees, and an annual fee of Dh1,500 subsequently.
At Ras Al Khaimah Investment Authority, or Rakia, offshore office setup costs Dh4,050 for the first year, without agent fees, and Dh2,500 as annual fees subsequently. Rakia Offshore licensed 3,111 companies between 2007 and 2009, and approximately more than 800 companies have been opened so far in 2010.
At Jebel Ali Offshore, the setup cost is Dh10,000 for the first year, without agent fees, and subsequently an annual fee of Dh2,500. Jebel Ali Offshore has incorporated 3,891 companies between 2007 and 2009.
“Investors consider UAE offshore as a good option due to lower costs and multiple services that can be incorporated in one company compared to limitation on the type of activity imposed in the free zones,” said Gianchandani.
“UAE offshore is preferred over foreign offshore, due to ease of incorporation, speed of procedures, tax advantages, better international image as the UAE is one of the jurisdictions that has substantially implemented the internationally agreed tax standard set by the Organisation of Econ. Besides, the UAE has an efficient banking system and no attestation of the documents are required from the Ministry of Foreign Affairs for opening bank accounts unlike other foreign offshore centres,” said Gianchandani
The UAE offshore centres have a distinct edge over virtual offices in free zones, especially for investors who want to do business outside of the UAE. In addition, renewal is not compulsory, thus allowing easy closure while free zone deregistration is very complicated and requires time and money, he said. “However, offshore setups have certain limitations as well. For example, visas are not possible and offshore companies cannot do business in the UAE market,” said Gianchandani.
On the other hand, the UAE free zones still offer favourable terms, and are attracting small investors and high networth individuals, or HNIs, because of competitive incorporation costs, easy visa facilities and flexi-desk arrangements, he said.
“Corporates and HNIs prefer offshore companies rather than expensive companies with virtual offices in free zones for joint ventures, investment and to set up holding company,” ?said Gianchandani.
“International investors, mainly SMEs and HNIs, find UAE offshore more practical and preferred choice compared to virtual offices in free zones, which restricts trading and professional services under one licence unlike UAE offshore which allows general trading, services, training, brokerage and any consultancy activity outside UAE,” he said.
Different emirates are either refining their existing free zones or launching new free zones in a bid to attract small and medium enterprises, or SMEs and HNIs. The new developments include the Fujairah Creative City Free Zone, which is targeting investors from the media sector. In addition, special incentives were announced by Rakia, RAK Offshore, Dubai Multi Commodities Centre and others.
The Emirate of Fujairah has recently launched Creative City Free Zone to target investors from the media sector. Here, the cost of incorporating a company is $5,450, with the facility of one visa and a Flexi Desk. Fujairah has also launched the Aviation Free Zone to cater to the aviation industry.
Rakia now offers normal trading licence at $3,815, with no visa and single shareholder status. Renewal for the subsequent year costs only $2,180. If up to three visas are taken, the cost is $7,493, with subsequent annual renewal at $4,360.