Dubai & the UAE Freezones: a guide for the perplexed

We’ve all seen the videos - the influencers and entrepreneurs, the fast cars, fast money, and faster women, the towers rising above the desert. Come to Dubai, they say. We even have great chocolate. For the average blockchain entrepreneur, striving to build their business while bemoaning the regulatory, fiscal, and actual climate of their home state, such appeals can be very tempting. Comparatively few, however, are clear on what Dubai truly is, how it relates to the rest of the UAE, what it offers, and whether the free trade zones can truly serve them. Vibes are cool, but reality is what counts.

This is the first of a three part series on the UAE. In this blog post, we explore the free zones of the UAE. We take a look at what freezones are and how they differ from another, how this affects founders, and take a brief dive into the top 5 crypto-relevant zones. In our next post we will look at how to pick a free zone. In our third post, we will dive at greater depth into the intricacies of token issuance, web3 licensing, and web3 entity setups in the UAE. 

Core message: Free zones are tools for businesses. Like a hammer, screwdriver, or bike pump, these tools have different purposes. Pick the right tool for the job you need to do. When picking a free zone, you are not picking a price point alone - you are picking your trading activity and legal system.

What is a free trade zone?

Free trade zones are special areas where businesses are given some form of incentive to trade there. Typically but not exclusively, this will involve some sort of tax relief. They exist because states see benefits in attracting businesses to their territory; businesses, meanwhile, see benefits to operating within a business-friendly place.

In one form or another, free trade zones have been present since the distant beginnings of modern capitalism. The merchants of the Hanseatic League had free trade zones in cities across medieval Europe; the Venetians carved them from the decaying husk of the Byzantine Empire; even medieval trade fairs, subject as they were to special regulations & privileges, were free trade zones of a sort. Next time you are enjoying an extended brunch atop one of Dubai's many skyscrapers, feel free to bore your friend with the following reflection: the champagne we are now drinking originates from a region once known for trade fairs, mercantile privileges, and overlapping jurisdictions very similar to where we now sit. You will no doubt be considered the very life and soul of the party. 

Free trade zones have always been with us, but their modern birth is typically dated back to the Shannon Free Trade Zone, which began back in 1959. This impressed the Chinese, who favoured the place with a visit in 1980, and used it as a key inspiration to their export-led growth model. Still a sleepy fishing village in the 1960s, Shenzhen’s position as a SEZ transformed it into a megalopolis of 18 million people. Since then trade zones and their close cousin, offshore centres, have proliferated around the world. There are now over 5400 worldwide, and counting.

As a small and independent sub-jurisdiction of the UAE, free trade zones have developed into a key part of Dubai’s business strategy. The diversity of free trade zones in Dubai means that they can afford to specialise, creating sector-specific free trade zones through which to attract particular industries. 

What is the UAE?

A federal emirate

This may seem like an obvious point, but it bears some explanation. The UAE stands for ‘the United Arab Emirates’. It is a federal monarchy composed of seven emirates, with a legal regime primarily based on civil law and sharia law. Because it is a federal country, certain individual emirates have the power to pass their own laws, rather like Alabama or Maine can within the US federal system. As a result, certain emirates have chosen to develop free trade zones with varying laws, including use of the common law for, mainly, areas of law that serve corporate and commercial matters.

This federal system accounts for the diversity of free trade zones within the UAE. Dubai has 26 zones, but the emirates of Abu Dhabi, Ras al Kaima, and Sharja also have their own special free trade areas. 

The UAE therefore has a mix of French-based civil law, Islam-based sharia law, and English-style common law, with all of these applying in different places, in different ways, and at different times. Complicated!

For foreign businesses looking to set up in the UAE, these zones can be divided into 3 categories

Financial Freezones (‘FFZs’) 

These zones have fully incorporated a different legal regime into their own quasi-jurisdiction, and as such have a separate legal system to the rest of the UAE, designed specifically to service the international finance industry. These are international premium jurisdictions who have designed their corporate and financial rules to appeal to international customers. 

The DIFC and ADGM run under ‘FFZ’ law. Each jurisdiction has incorporated English-style common  law for their corporate and commercial related legal needs, and has common-law based courts. 

Hybrid UAE Zones

These non-financial freezones have incorporated some international law. Typically this will include company rules based on those in common law countries. Core matters remain under UAE federal law. Where free zone regulations are silent on a given matter, the UAE’s commercial and civil code will therefore apply. Disputes will typically be heard in the UAE’ federal counts unless contracts stipulated another jurisdiction.

Examples: DMCC, Dubai Silicon Oasis, Meydan, IFZA 

Onshore UAE Zones

Onshore UAE freezones operate entirely under UAE law. Although they offer specific regulatory inducements to businesses, they have not incorporated other legal regimes into any of their internal rules. Entities will therefore be formed under UAE federal law, contracts governed by UAE federal law, and any disputes will go through the UAE’s court system.

Foreign businesses looking to set up in onshore UAE zones will typically be doing so to make use of tax breaks, obtain specific business licenses, or gain residency. For certain trading activities, parties may only have the option of choosing one of these freezones.

Examples: The Dubai Airport Free Zone (DAFZA), Jebel Ali Freezone (JAFZA), and others

What are the top free trade zones in the UAE?

The UAE has multiple jurisdictions and multiple zones. There are 25 different free trade zones in Dubai alone, each tailored to meet different requirements. They present a varying and fairly complicated picture; the different free trade zones can have different regulations, different regulators, different incentives, different laws,  and different underlying bases for those laws. In this section, we look at a selection of the top jurisdictions across the UAE.

DIFC

The Dubai International FInancial Centre specialises in finance. It focuses on financial business, and offers licenses for virtual‑asset services, banking, wealth‑management, insurance, securities, fund‑management, fintech, and professional services. It hosts many large professional services firms and multinationals.

Legal base: It is an independent jurisdiction under the Constitution of the United Arab Emirates, with its own civil and commercial laws distinct from those of Dubai & the wider UAE. Civil and commercial codes are modelled on English law and administered by the DIFC Court. The DIFC court is thus an independent common law court. English is the language of proceedings.  

Why this matters: Entities formed here behave, legally speaking, much like UK or Singaporean companies, particularly in areas such as shareholder rights, fiduciary duties, contractual interpretation, insolvency, and enforcement. DIFC Courts have jurisdiction over civil or commercial matters involving DIFC establishments, meaning they will not be subject to the UAE onshore courts.

Regulator: the DIFC has its own financial regulator - the DFSA.

Projects that suit this jurisdiction: Finance businesses - banking, insurers, fintech, regtech etc.

Why use it:High quality regulation that incorporates well-known international common law standards, case law, and operational requirements. A large agglomeration of professional anf financial services expertise, and highly credible

ADGM

The Abu Dhabi Global Market is not in Dubai - it is based in Abu Dhabi, the capital of the UAE. Like the DIFC, it focuses on financial business, and offers licenses for virtual‑asset services, banking, wealth‑management, insurance, securities, fund‑management, fintech, and professional services.

Legal base:  It has formally adopted English common law directly, rather than merely modelling its statutes on it. English common law applies as-is unless displaced by ADGM legislation.

The ADGM has a common law based judiciary, with exclusive jurisdiction over civil and commercial matters.

Why this matters: The legal base affects your ease of incorporation, company secretarial requirements, and dispute resolution.  The fact that the ADGM means that international businesses will have the same legal and operational standards as they would have in major common law jurisdictions like England, Hong Kong, and Singapore.

Regulator: The Financial Services Regulatory Authority (FSRA). The FSRA regulates a wide range of financial services, including banking, asset management, and digital asset activities. 

Main entity type: Private company limited by shares (a limited company). This is closely analogous to those found in England & Wales. Other important entity types include PCCs, LPs and LLPs, and foundations. The latter includes the ADGM DLT Foundation.

Projects that suit this jurisdiction: Finance businesses - it is good for capitalised businesses seeking a regulated jurisdiction More broadly, ADGM has positioned itself aggressively as a Web3 and digital asset hub, with bespoke frameworks for virtual assets, foundations, DAOs, and digital asset service providers. It offers an unusually clean legal wrapper for DAO-like governance through its foundation regime. 

Why use it: High quality regulation that fully incorporates well-known international common law standards, case law, and operational requirements. A large agglomeration of professional anf financial services expertise, and highly credible

DMCC

The Dubai Multiple Commodities Centre (DMCC) operates under UAE federal law. It is focused on the commodities trade and enterprise.

Legal base: DMCC does not operate a common law system and does not have its own courts. Corporate and commercial matters are governed by DMCC regulations supplemented by UAE federal civil and commercial law. Disputes, absent arbitration, ultimately sit in the Dubai onshore courts.

Why this matters: Free zone regulations will apply first, but only within their express scope. Beyond this, the UAE’s federal law will fill in the gaps. The UAE’s federal courts will have jurisdiction unless contracting parties previously agreed otherwise. The UAE has a civil law system and thus will treat companies and company matters different to England, Singapore etc. 

Regulator: Virtual Assets Regulatory Authority (VARA) for any virtual asset related activities; Securities and Commodities Authority for any security or investment products.

Main entity type: DMCC Free Zone Company (FZ-LLC). The zone also allows holding companies(not always allowed due to UAE licensing requirements) and CLGs

What projects suit this jurisdiction: DMCC has become popular with crypto and trading businesses because it offers a relatively clear licensing path for proprietary trading, blockchain services, and certain token-adjacent activities without immediately pushing firms into a financial regulator

Why use it: fast, cheap, rapid incorporation

DSO

Dubai Silicon Valley Oasis (DSO) was designed as a technology park with a long-term physical and economic footprint: engineers, offices, labs, and infrastructure. It is focused on tech and R&D. Its company regulations assume a conventional business with identifiable owners, managers exercising real control, and revenue derived from commercial activity rather than protocol economics

Legal base: DSO operates under UAE federal law supplemented by zone-specific regulations. There is no common law framework and no independent judiciary. Disputes are resolved the UAE federal system

Why this matters: Free zone regulations will apply first, but only within their express scope. Beyond this, the UAE’s federal law will fill in the gaps. The UAE’s federal courts will have jurisdiction unless contracting parties previously agreed otherwise. The UAE has a civil law system and thus will treat companies and company matters different to England, Singapore etc. 

Regulator: Virtual Assets Regulatory Authority (VARA) for any virtual asset related activities; Securities and Commodities Authority for any security or investment products.

Main entity type: Free Zone LLC (FZ LLC)

What projects suit this jurisdiction: traditional operating companies, tech companies seeking a long-term hub, teams that need a physical base for prototyping and testing

Why use it: It is a tech first environment for builders.  Tech founders will be surrounded by peers, engineering partners, and physical resources that support deep tech innovation

Meydan 

It is a lightweight, commercial free zone designed for speed, flexibility, and cost efficiency. Rather than specialising in any particular activity or industry, Meydan is a generalist free zone.

Legal base: Like the DSO, Meydan is a hybrid regime. Alongside the Meydan corporate code, UAE federal and commercial law apply. Disputes are resolved through the UAE federal courts. 

Why this matters: Free zone regulations will apply first, but only within their express scope. Beyond this, the UAE’s federal law will fill in the gaps. The UAE’s federal courts will have jurisdiction unless contracting parties previously agreed otherwise. The UAE has a civil law system and thus will treat companies and company matters different to England, Singapore etc. 

Regulator: Virtual Assets Regulatory Authority (VARA) for any virtual asset related activities; Securities and Commodities Authority for any security or investment products.

Main entity type: Free Zone LLC (FZ LLC)

What projects suit this jurisdiction: Clients with comparatively simple ownership, who are conducting low risk, early stage, and non-regulated activities. It is particularly used by consultant businesses and other service providers. 

Why use it: fast, cheap, rapid incorporation. It also has comparatively broad licensing categories

RAK Innovation City (formerly RAK DAO)

Freezone based in Ras al-Khaima, the UAE’s northernmost emirate. Formerly known as RAK DAO, it has recently been rebranded as ‘Innovation City’. It has a strong focus on emerging technologies such as digital assets and AI, and is therefore capable of issuing business licenses tailored to digital asset, blockchain, and AI use cases.

Legal base: Like the DSO and Meydan. Meydan is a hybrid regime. Alongside a local corporate code, it applies UAE federal and commercial law. Disputes are resolved through the UAE federal courts. However, interpretation varies. RAK DAO was designed to service DLT structures

Regulator: It is an independent authority, but is under the federal Securities and Commodities Authority for regulated activities.  As it is a separate emirate to Dubai, it is not under VARA.

Why this matters: Free zone regulations will apply first, but only within their express scope. Beyond this, the UAE’s federal law will fill in the gaps. The UAE’s federal courts will have jurisdiction unless contracting parties previously agreed otherwise. The UAE has a civil law system and thus will treat companies and company matters different to England, Singapore etc. 

Main entity type: FZ LLC, RAK DAO Associations

What projects suit this jurisdiction: Virtual asset projects. DAOs are particularly welcome, as RAK DAO offers its own DAO wrapper

Will I get taxed in the free zones?

As of 2023, the UAE has a 9% tax on corporate income over AED 375,000. However, free zone companies can still benefit from a 0% corporate tax rate on “Qualifying Income” if they meet the conditions to be treated as a Qualifying Free Zone Person (QFZP) under the Federal Corporate Tax Law. This generally requires:

• Maintaining adequate substance in the free zone
• Earning qualifying types of income (e.g., certain transactions with other free zone entities or foreign customers)
• Not electing to be subject to the standard regime

There remains 0% personal income tax across the UAE, and generally no withholding tax.

How to select a UAE free zone for your business

To select a free zone, you should consider the following questions

1. What law will govern the entity if I set up in this zone?

Ensure you understand what law will apply to an entity you set up within this zone. Will it be wholly under the auspices of English-style common law, as in DIFC or ADGM? Will it be a hybrid system, with company codes based on common law standards, with UAE federal law applying elsewhere, like say DMCC? Or is it a zone entirely without any influence of foreign legal frameworks? All of this will have big implications for your feed of incorporation, your ongoing filing requirements, general convenience, and how any disputes will get handled

2. Does this zone have its own company code?

If a zone does not have its own company law, the formation and ongoing administration of the company will fall under UAE law. So too may any contracts made by this company. The UAE’s civil-law influenced federal code is clunky and slow-moving when it comes to the needs of businesses. Also, be aware that some company codes are better articulated than others.

In particular, this has practical implications for topics like share transfers, director duties, and corporate actions.

3. Does it have the right trade license for your trading activity? 

In the UAE Zones, you need to have the right trade license for your activity. Not every jurisdiction will allow every activity, so you will need to pick a place that will suit your plans. 

Remember as well that if you are conducting a regulated activity, you may need to get a license from the relevant regulator for that activity as well as a general commercial license.

4. What do I need my UAE entity for?

Different jurisdictions can be used in different ways. Are you looking for an operating entity with which to wrap some consulting work? Are you wanting to set up a holding company? Are you simply looking to get a Dubai residency? Are you in fact looking to set up a licensed and regulated token issuance proposition? The answers to these questions will help determine what zone to go for.

ADGM and DIFC are good for finance businesses and businesses conducting regulated activities. Meydan and IFZA are good for consultancy and operations businesses. 

5. How much do I care about cost?

The different zones vary widely in cost. The ADGM and DIFC tend to be the most expensive.

6. Am I regulation-happy, or a total degen?

Certain freezones offer rapid and flexible formations for those needing to rapidly get going, with trade licenses that allow for relatively broad activities. For projects that want to issue tokens and / or engage in more regulated activities, the ADGM andDIFC have specific licensing routes and startup licenses for such projects, and many onshore freezones require a trading activity involving virtual assets to have a NOC or MVP license issued by VARA prior to trading. Setting up under the auspices of engaging in virtual asset services is a multi-layered and complex exercise and requires expert advice prior to execution. 

7. What sort of regulations do I want? Do I want specialised digital asset regulation

Some businesses may desire to be regulated under digital asset-specific rules. Others may prefer a more tech-agnostic approach to financial activities. For the latter, the ADGM licensing regime may be appropriate, where financial services regulation take a broad approach and do not distinguish between the form of asset, but rather focus on the activity.. Parties looking to provide VASP services outside of the ADGM or DIFC will also have to be licensed by VARA - and if there is an element to the project that deals in securities or commodities, by the SCA as well, or by the Central Bank as well if providing finance related services such as payments or wallet infrastructure. 

Want to learn more?

If you would like go into more details about how to pick a UAE free zone, get in touch with us on contact@daospv.com