Other BriefingsUAE Free Zones See High Foreign Establishment Demand
Boom time in Dubai for foreign investors as corporate rents competition incentivizes tenant overheads lower
Free zones in the UAE are celebrating their status as the go-to places for new businesses – both domestic and foreign investors – as it becomes clear that businesses based in qualifying free zones can apply for a 0 per cent tax rate, provided certain key conditions are met.
Free zones have been attracting strong interest in 2023, especially with new businesses to the UAE seeking office space. Demand for commercial space in free zones has sky-rocketed since the new tax code was introduced in June.
The UAEs free zones include the Jebel Ali Free Zone (currently undergoing another round of expansion), DWTC, the DMCC hub, Kezad in Abu Dhabi, and DIFC.
At the beginning of the year, there had been speculation that new/existing businesses would take a wait-and-see approach on whether they should opt for a free zone base or opt for the mainland license. This had to do with the introduction of the UAE’s corporate tax, and business owners want to know what sort of advantages a free zone presence would provide them. More specifically, what would exempt them from the 0 per cent tax rate.
Today, more of these incoming businesses require actual ‘physical’ rather than just a ‘virtual’ office.
In comparison to last year, there has been a 21% increase in foreign investors coming into the UAE for the first time and choosing physical office space over virtual workspaces (available in select free zones).
Free zone lease rates
In Dubai and elsewhere, free zone leases rates have been on the rise, although businesses can still get a broad range of pricing options and then take a decision on where they should be.
In areas like JLT, the average lease rate is around 200 Dirhams per square feet due to many available buildings. In places such as DIFC, the average is about 300 Dirhams per square foot. Generally, prices are increasing.
While DIFC has seen a raft of new global fund managers take up swank offices through the recent past, other free zones in Dubai – such as Internet and Media cities – continue to draw in tech businesses.
Free zone or mainland?
The landscape has evolved in terms of the decision-making factors businesses consider choosing between a free zone or mainland. While corporate tax used to be a dominant factor influencing this choice, a more nuanced picture is emerging.
Businesses are now opting for more intricate and well-considered structures, reflecting a deeper understanding of the various advantages each setup offers.
Aggressive rental incentives
The other growth area for free zones when it comes to leasing is from crypto businesses, with ADGM, DWTC and DMCC seeing a good number of newly licensed entities. Ras Al Khaimah has its Digital Asset Oasis looking for its share of these entities.
Regardless of whether an investor is involved in blockchain, Web3 or crypto, new business activity still has lots of room to develop in the UAE. These businesses will naturally gravitate towards a handful of free zone hubs, because they want to be part of the same environment.
Some of the leasing incentives free zones are offering are unprecedented, plus all the licensing approvals that come with it. All of which is making corporate locational issues an easy ride for UAE free zones – and their foreign investors.
Dezan Shira & Associates assist foreign investors into Asia and have done since 1992. We provide business research and comparisons, legal, tax planning and related business support services to foreign investors in the UAE, including a proven portfolio of real estate agents we trust.
Please see our ‘Doing Business In Dubai’ guide below or contact Maria Kotova at dubai@dezshira.com
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Middle East Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Dubai (UAE), China, India, Vietnam, Singapore, Indonesia, Italy, Germany, and USA. We also have partner firms in Malaysia, Bangladesh, the Philippines, Thailand, and Australia.
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