An optimal location for a company searches and identifies those locations that are compatible with its needs and objectives. Generally, this means the firm will attempt to maximise opportunity while minimising costs and risks.
The UAE, with its 40-plus free zones, gives investors ample choices to launch businesses, while at the same time presenting dilemmas when it comes to making a decision on the right free zone.
The investor has to bear in mind the costs — rent, licence fees, visa costs, power charges and transportation charges — against optimum benefits, such as less operational hassles in subsequent years, additional visas, better facilities, access to ports, freedom to do business and a simple exit route.
Which then is the best free zone? There is no simple answer.
The key factors should take into account the business plan of each investor; the first-year costs and operating costs in the subsequent years; visa requirements; footprint of the business activity; and the type of facilities required.
Throw into the mix access to logistic facilities such as connectivity to airports and seaports; a prestigious business location; connectivity to places of accommodation; environmental regulations and the water and electricity charges.
For example, for activities such as IT, media and education, there are the dedicated free zones in Dubai and Ras Al Khaimah. It's a no-brainer that these locations would better serve the promoters' purposes than the general free zones.
Each free zone has its own advantages and disadvantages. As a case in point, an Indian investor dealing in futures and commodities would be better off forming a company in DMCC free zone. Otherwise he will face the problem of foreign exchange regulations while remitting funds from India.
An investor must bear in mind that a free zone company cannot operate outside its premises. Even a trading company has to appoint an agent to sell goods in the local market and pay a 5 per cent customs duty.
For example, a consulting firm operating from one of the general free zones is permitted to serve free zone clients only and has to operate within the boundary of the free zone. From the point of view of connectivity to ports and transportation, each zone has its own strengths and weaknesses. Therefore, an investor must evaluate and compare.
As for ease in liquidating a company, many investors are not aware that closure of a company requires visas to be cancelled before liquidation and the licence to be active. Some free zones even require publishing a notice in newspapers.
Some investors say it is easy to open a company but a nightmare to close it.
Investors should also know whether it is permitted to move a company from one free zone to another. When you choose a free zone, make sure that when the company grows, the same free zone should be able to provide additional facilities.
For example, if you want to move from a small office to warehouse, you should get warehouse facilities. Moving to other free zone requires closure of the company, and you cannot shift or convert a licence from one emirate or free zone to another.