Five Advantages of Running your Business from a Free Trade Zone
Businesses that are involved in international trade are challenged with heavy tariffs and customs duties. These tariffs increase the cost of operation and make it quite difficult to run the business. Entrepreneurs can avoid paying heavy custom duties by registering to operate in a free trade zone. Businesses can import and export products or raw materials freely without interference from customs.
Running a business in a free trade zone comes with a lot of advantages other than reducing custom duties. Free trade zones provide the opportunity to increase cash flow and logistics efficiency.
What is a Free Zone?
A Free Trade Zone is a special economic area in a country that exempts businesses operating there, from specific charges. These charges usually include but are not limited to custom surcharges and other import & export tariffs. In a free trade zone, companies are free to import, store, process, manufacture, re-export products under certain regulations. It is common to find these trade zones near seaports, international airports, and other areas that highly support international trade.
Free trade zones have different names in different countries. For example, in the United States, they are known as Foreign Trade Zones. In other countries, they are called names like duty-free export processing zones, export-free zones, free export zones, and so on. Though the name differs from one place to another, the function of these zones remains the same everywhere.
Reduction in taxes and customs duties is one of the major privileges that companies in free zones enjoy. Establishing a business in a free trade zone also comes with lesser restrictions. These reductions and restrictions in a way help to enhance economic activities in a country and provide more employment.
Free Trade Zones can lead to deflation in the prices of goods and services in a country. Importers who have access to less expensive and high-quality products can import with little or no tariff. This will make products available at a reduced price and increase the standard of living.
UAE as a Trade Hub
In 1996, the United Arab Emirates became a member of the World Trade Organization. Since then, the country has witnessed a significant development in the area of international trade. UAE bolsters open trade and has developed a good relationship with over 100 countries when it comes to international trade. UAE is strategically positioned in the middle of the Eastern and Western parts of the world.
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Its strategic position, in conjunction with its support for open trade, has made UAE a recognized trade hub. The country, through its over 40 free trade zones, supports exports and imports commodities for manufacturing, transport equipment, precious metals and stones, crude oil, and so on. The free zones also incentivize entrepreneurs and creatives in the media, art, and design industries to create within their ever-growing economy.
Five Advantages of Running Business in a Free Zone
The United Arab Emirates has Free Trade Zones in its major industrial and business areas. From Dubai to Sharjah, and across the expanse of the Emirati borders, free zones are run with business freedom for foreign investors worldwide. Here are five advantages of running a business in a free zone;
- Reduction or Removal of Charges: A free trade zone operates in a country but they are exempted from the custom requirements of that country. Companies operating in UAE’s free trade zone can import products, reassemble or use them for manufacturing. When the products are ready, they can be exported or introduced into the Emirati economy. All of these can be done by paying little or no duty costs.
- Less Inverted Tariffs: Some manufacturing companies import raw materials and export the finished product. The import tariff is sometimes higher than the export tariff. This puts the company at a significant loss. When the import tariff is higher than the export tariff, it is called an inverted tariff. The best way for a company to avoid running on loss due to inverted tariff is by operating in a free trade zone. A free trade zone protects a manufacturing company from inverted tariffs. Import charges will be reduced to zero and companies can save more profits.
- Zero Tax on Company Profit: The government of the UAE has a record of helping foreign investors set up business in the country without hassles. They incentivize foreign investors with zero taxes on company profit. If you’re a small business looking to expand your reach into the global market without losing much money to taxes, the Emirati Free Zones are your best bet.
- Duty Elimination on By-products: Duty charges are usually measured based on the weight or size of a product. The duty exemption on re-exports means that a manufacturer will not pay any charge until it wants to export products. This means manufacturers do not have to pay for the by-products of the manufacturing process. Scrap materials and other waste products will not be factored in the duty charge.
- Setting up a business in a Free Zone is Inexpensive: Starting a business in Emirati free zones is very cheap because and fast. Compared to all other places where you need tons and tons of paperwork to get started, you don’t need all that stress to startup here. freecompany.ae has affordable plans to startup and incorporate your company in no time, and from anywhere in the world.
Final Notes
Free Trade Zones give businesses more freedom and provide the opportunity to make more profit. You can start your company in the UAE and enjoy multiple benefits by registering with freecompany.ae. You can get a business bank account, local director, virtual office, residence permits, accounting services, and an online marketplace account. Easy Peasy!
