Doing business in Abu Dhabi Free zones: benefits, risks, pitfalls

Mar, 2024

Abu Dhabi is a thriving business hub that offers a lot of opportunities for foreign investors to establish their businesses.

With several Free zones offering tax exemptions and 100% foreign ownership, Abu Dhabi has become a hot spot for businesses looking to set up in the Middle East.

In this article, we will explore the main benefits, risks and pitfalls of doing business in Abu Dhabi Free zones.

First up, let’s have a quick touch on Abu Dhabi’s selling points in terms of business formation.

Economic Diversification: The Abu Dhabi Economic Vision 2030 outlines a framework for diversification, focusing on aerospace, ICT, renewable energy, and tourism spheres, while still leveraging its strong oil and gas industry.
Pro-business Climate: The government of Abu Dhabi has implemented several reforms to promote favorable regulations, such as ease in getting licenses and permits, providing competitive tax environments (including no personal income tax), and offering long-term visas for investors and entrepreneurs.
Government Support: There are numerous government incentives and initiatives aimed at attracting foreign investors, such as the Abu Dhabi Investment Office (ADIO) which facilitates investment and supports growth.The government also encourages public-private partnerships (PPPs) and foreign investment.
Free Zones: Abu Dhabi has several Free zones that offer 100% foreign ownership, full repatriation of profits, and exemptions from import, export taxes and more. The most popular Free zones are Masdar City, Abu Dhabi Global Market (ADGM), and Khalifa Industrial Zone Abu Dhabi (KIZAD).

Despite Abu Dhabi’s friendly environment, every business owner should take into account certain nuances, especially the difference between business regulations in the Mainland and Free Zones.

Regulatory Compliance: Each Free zone in Abu Dhabi has its own set of rules and regulations, and businesses must ensure that they are in compliance to avoid fines and legal issues. If a company was founded in a Free zone, it won’t be allowed to do business on the Mainland. Having a local agent or a distributor is a must if you want to expand your business to Mainland. There’s also an option to establish a separate Mainland enterprise.
Market Competition: Free zones may attract many businesses in similar sectors, leading to intense competition. Larger enterprises try to dominate certain sectors, making it tough for smaller businesses to compete. To stand out among competitors, you need to organize detailed market research and strongly understand what niche you are working in.
Real Estate and Operating Costs: Though the corporate tax is low and there is no personal income tax, expenses of maintaining a business can be added up because of high rental costs and utility bills.
Workforce and Issues: Finding skilled labor can be a challenge, and there are often regulations surrounding the sponsorship and visa process for employees. This can make costs of hiring higher.

All these factors seem like stick points at first sight, but the benefits of setting up a business in Abu Dhabi are worth it!

In Gulf Bridge, we are always open to assist you on this exciting and challenging journey. Contact us and we will make sure to help you find your bridge to success.