Share capital in free zone companies: What’s the full story?

A key factor in the UAE’s economic success has been the rapid growth of free zones since the 1980s. The model, which has been described as ‘one of the UAE’s main business attractions,’ allows foreign owners to rapidly set up a business in the UAE, while benefitting from 0% tax and ready access to facilities.

Read our recent blog on why you should set up a business in a UAE free zone here. While free zones offer many benefits, they can also be confusing for entrepreneurs who are new to the concept. Each free zone can set its own laws pertaining to how companies can be formed within its jurisdiction – and one topic that causes a lot of uncertainty is share capital.

Essentially, different free zones have different requirements when it comes to declaring share capital in your business during the application process. There may be no requirement at all to declare share capital in some free zones, while in other cases you may have to provide evidence of share capital worth up to AED 1m.

So let’s explore the requirements around share capital in UAE free zone companies, so you can be clear what’s needed for your business.

What is share capital?

The term ‘share capital’ refers to the amount of money that has been put into the business by investors and the business owner. The owner and other investors will do this in return for shares and (usually) a seat on the board. They then get paid dividends when the business turns a profit. Where a limited liability company [LLC] is concerned, this means that if the business goes bankrupt, the owner and other investors will only lose the cash they put in.

The term ‘share capital’ refers to the amount of money that has been put into the business by investors and the business owner.

Why do some UAE free zones require you to declare share capital?

If you have decided to set up a business in a UAE free zone, you may have to declare the amount of share capital your business holds.

Share capitalHere’s why some free zones demand to see evidence of share capital:

  • Free zones want to ensure new businesses launching on their premises are built on solid foundations and will become profitable – they do not want to take the risk of letting office space to companies that will fold in a few months. Share capital shows that the business has access to enough cash to pay for rent, salaries and business development.
  • It demonstrates that investors are confident that the business will work.

Free zones have different rules about showing share capital

Different free zones have different rules about share capital and how it needs to be declared. The rules can change, so it’s important to check on the website of your desired free zone to get an idea of its share capital requirements.

A few points to keep in mind:

Many free zones have no standard requirements: This means share capital does not need to be demonstrated. TwoFour54 in Abu Dhabi, for instance, has no such requirement.

Some free zones have varying share capital requirements: In some free zones, the amount of share capital you need to demonstrate varies depending on the kind of business you run – the Dubai Knowledge Park, for instance, has this kind of policy.

Some free zones require you to demonstrate share capital only on paper: In some free zones, such as SHAMS and Fujairah, you only need to list share capital on paper as part of your application process – there is no obligation to provide evidence.

Some free zones do have minimum share capital requirements: Finally, some free zones require you to demonstrate share capital up front, with evidence. The Jebel Ali Free Zone, for instance, requires applicants to provide proof that they have AED 1m in share capital as a minimum.

Paperpwork

The share capital process

If you are planning on setting up a business in a UAE free zone, an essential part of your research will be to find out the share capital requirements of your chosen free zone. This information can be easily found on the website of your preferred location.

If you are planning on setting up a business in a UAE free zone, an essential part of your research will be to find out the share capital requirements of your chosen free zone.

If you have chosen to launch your business in a free zone which requires evidence of your share capital, you will need to include this in your application process. In order to do this, you would need to:

  • Open a UAE business bank account
  • Deposit your share capital in this account
  • Create a copy of your bank statement
  • List shareholders and the amount of your business they own
  • Enclose a copy of your bank statement

The share capital process made easy

Every UAE free zone aims to attract different kinds of businesses and so share capital requirements make up an important part of the application process in some jurisdictions. But this doesn’t have to be a headache. Working with a company formation specialist will help make the process seamless and straightforward, ensuring your application conforms with all the requirements of your preferred free zone.

And you’ll soon be generating healthy dividends for your happy shareholders.

Setting up your own business has never been easier. Virtuzone takes care of it all so you can focus on what matters – building your business. For more information about company formation in the UAE mainland or free zones, please call us on +971 4 457 8200, send an email to info@vz.ae, or click here.

About the author: Olga Melnik, Senior Formation Advisor, Virtuzone.
About the author: Olga Melnik, Senior Formation Advisor, Virtuzone.

Olga Melnik is a expert on all things related to setting up a business in the UAE. She is the Senior Formation Advisor for Virtuzone Mainland, a sub company of Virtuzone Group. She is always in high spirits and is friendly. Her tone should be straightforward, professional, and with a bit of flavour.