Dubai’s pioneering free zone concept, which enables international businesses to flourish unencumbered by red tape, has been pivotal in positioning the emirate as the Gulf’s trading hotspot
Free zones account for the vast proportion of foreign commercial activity in Dubai and have been instrumental in positioning the emirate as the commercial hub of the Arabian Gulf, and as a leading international trans-shipment centre.
The zones present a Western-style means to conduct business within the territory, but not within the import and customs boundaries of Dubai, or the UAE.
The free zone concept was certainly pioneering, and has led the world, let alone the region – even to the extent that Dubai is currently advising other countries on how to create and introduce the model
In every respect, they set out to be hassle-free so that companies taking space in the zones can open and operate in a great business environment. They generally permit the registration of wholly-owned branch offices of foreign companies, or the incorporation of single or multiple shareholder corporate entities with 100 per cent foreign ownership – only possible in the free zone structure.
Best of all, among the investment incentives available in the free zones are few, if any, taxes, and no restrictions on the repatriation of capital and profits. Moreover, as the name implies, there are generally no customs or other import duties or taxes with respect to imports into, or exports out of, the various free zones, provided that goods are not then imported into the UAE proper.
When Anna Zhukov opened her publishing company a decade ago, she says Dubai was “awash with opportunity”, and the package of benefits being offered to tenants by the new, widely advertised, media free zone was just too good to ignore.
St Petersburg-born Zhukov took the bold step and set up WNN in Dubai Media City and, ten years on, she’s celebrating another birthday of Destinations of the World News magazine.
When Dubai Media City first opened, in January 2001, Zhukov says it was something so “new, different and exciting”. It embodied Dubai’s pioneering spirit in every way. “It was a visionary concept that Dubai promised to the world under the banner of ‘Freedom to Create’.”
The financial terms were “spectacular” for the time, and it was easy for Zhukov to register as a proprietor. In addition, the paperwork was fast and efficient, and the support package just the ticket for an independent entrepreneur.
“The infrastructure in Dubai Media City has always been very good, and things like the administration of visas are very fair and very professional. More than 90 per cent of the people we work with at DMC are young locals, and they are doing a good job. They are well educated, know the law and go by the book,” says Zhukov.
Altogether, it’s been a great journey, despite the global economic downturn. And now, it’s “home”. “Yes, I’m a Dubai-ee!” says Zhukov.
After a tumultuous year or so, she says things are improving. “But, where we were and where we are now are two different places. The world has changed absolutely, and Dubai has evolved.
“People should remember what Dubai has achieved in this one decade, things that other countries would have done over a century.
“I remember pitching for the corporate identity work for the Dubai Metro in 2004, and thinking that it would be impossible for the project to open in 2009 as promised. But it did, on 09/09/09.”
The free zone concept was certainly pioneering, and has led the world, let alone the region – even to the extent that Dubai is currently advising other countries on how to create and introduce the model.
The oldest and most successful free zone is the Jebel Ali Free Zone (JAFZA), which was set up in 1980 and has the world’s largest man-made port. The addition of the vast new Al Maktoum International Airport on the free zone site, which immediately became the world’s largest cargo airport, makes JAFZA the only free zone with both an international port and an airport. The combination of these in a free zone business environment, together with Dubai’s strategic geographic location, enables JAFZA partners the fastest possible access to a market of more than 2bn people in South and West Asia, the CIS and Africa.
Newer free zones have tended to follow the economic cluster model focusing on particular types of industries or services.
Dubai was particularly quick on its feet to embrace e-commerce and other rapid technological development. The establishment of Dubai Internet City in October 2000 and Dubai Media City, soon after, helped ensure that the majority of the world’s major business players in these sectors have a presence in Dubai. Both offer their clients state-of-the-art infrastructure and a raft of assistance and other business incentives. Together with Dubai Knowledge Village they make up the thriving Dubai Technology, E-Commerce and Media Free Zone (known locally as ‘TECOM’).
Dubai also moved into the world of international finance, when it opened the Dubai International Financial Centre (‘DIFC’) in 2002, which Sheikh Mohammed rightly predicted would, “be a bridge for financial services between our region and the international markets 24 hours a day and seven days a week.”
Other free zones include Dubai Healthcare City, Dubai Metals and Commodities Centre, Dubai Maritime City, and Dubai Silicon Oasis. More are planned.
Each free zone has its own special-purpose business regulatory schemes, but the rules and practices for business activities are quite similar from zone to zone. However, it is important to note that free zone companies cannot engage in business in the UAE proper without independent licensing or some other arrangement permitting the specific business activities outside the free zone. For employees it’s different: working for a free zone branch or company means you can live anywhere in Dubai or indeed the UAE.
Nearly all of the fundamentals that made free zones so attractive to international businesses before the global economic crisis still hold true: no taxes, corporate or personal, easy set-up, the ability to own your business in its entirety (and repatriate profits), a great infrastructure, the superb geographic position of Dubai straddling East and West, a pool of skilled international and local labour, and a strong regional market. Indeed, some would say there are more reasons than ever to believe the free zone model will re-emerge stronger than ever in Dubai after the downturn. There is more common sense post-crash: altogether a more sensible, less rash approach with better planning and increased governance, much of it self-imposed, although some zones, and one in particular, DIFC, are continually tightening rules and controls to enhance their role and stature in the international markets.
And there is clearly more caution among the lenders, although they are still lending through tough times, unlike their European counterparts.
Dubai’s free zones remain light years ahead of others, in all respects. There is no reason this should not remain the case long-term, providing they continue to meet and surpass the hopes and dreams of the international entrepreneur.