Offshore vs free zone company in the UAE: holding or trading

An offshore company (RAK ICC, JAFZA Offshore) exists to own shares, approved property and IP. It has no visas and no UAE office, and it is incorporated through a registered agent approved by the registry, typically from about AED 8,000. A free zone FZCO exists to operate: it holds a licence for named activities, sponsors visas and banks like a trading business. A budget-zone company with one visa costs about AED 13,000–15,000 in the first year. Both are incorporated under UAE law, so both are resident for UAE corporate tax. Choose the vehicle by what it has to do; tax and banking follow from that.

Offshore and free zone companies: two different jobs

An offshore company, such as a RAK ICC or JAFZA Offshore company, is a holding vehicle. It exists to own shares in other companies, approved UAE real estate, intellectual property, portfolios and loans. It has no UAE residence visas, no leased office and no right to trade onshore, and it does not invoice local customers. It is incorporated and maintained through a registered agent approved by the registry, and its running costs are low: the agent’s fee and an annual renewal.

A free zone FZCO is an operating company. It holds a licence for named activities, sponsors residence visas for owners and staff, invoices clients, imports and exports, and banks like a trading business. That costs more each year than an offshore: licence renewal, bookkeeping and, in many zones and for every QFZP, audited accounts. As a rule of thumb, if the company will ever employ someone, sponsor a visa or send an invoice, you need an FZCO.

Offshore vs FZCO, side by side

The two differ on almost every practical point, and the set-up price matters least. What usually decides the structure is visas, banking and whether the company needs to trade.

Bank accounts for offshore and free zone companies

Banking is often what settles the choice. An FZCO opens a UAE current account routinely: the bank sees a licence, an office, a visa and a resident manager, and the file makes sense. An offshore company opens accounts selectively and slowly. Banks apply enhanced due diligence to a company with no local presence, and some decline. It can be done, especially with a clear source-of-funds file, but allow weeks rather than days.

If the company needs a working UAE account for payroll, suppliers or card payments, that alone often points to an FZCO. An offshore company with an account at an international or specialist bank outside the UAE is a common, legitimate arrangement, but decide on it before incorporating. Our guide to why UAE bank accounts get rejected covers what banks look for.

Corporate tax for offshore and free zone companies

Neither label sets a tax rate. Since June 2023 UAE corporate tax is 0% on taxable income up to AED 375,000 and 9% above it. A free zone company that meets the QFZP conditions pays 0% on qualifying income and 9% on other taxable income, with no AED 375,000 band; the conditions include real substance in the zone, audited accounts and non-qualifying revenue within the de minimis limit (the lower of 5% of revenue or AED 5,000,000). Our guide on who pays 0% corporate tax covers the details.

An offshore company is often assumed to sit outside UAE tax. It does not. Article 11(3)(a) of Federal Decree-Law 47/2022 makes any juridical person incorporated under UAE legislation a resident person, and RAK ICC and JAFZA Offshore companies are incorporated under UAE law. They must register for corporate tax and file returns. A holding company can still pay little in practice, because dividends and gains on qualifying shareholdings can be exempt under the participation rules, but that exemption is claimed in the return.

Visas and residency

Residence visas are the clearest dividing line. A free zone FZCO can sponsor residence visas for the owner, family and employees, at roughly AED 3,500–6,000 each depending on the zone, on top of an establishment card of around AED 2,000 (market estimates). An offshore company sponsors none: it is an owner, not an employer, and gives no right to live in the UAE.

If residency for you or your team is part of the goal, only the operating company provides it directly. Founders who want residency without running a business often look at the AED 2 million property route to a golden visa, which is separate from company set-up; see our guide to golden visa routes. An offshore company does not come with a visa.

Holding company over an operating company

The two can also be combined. A common structure for a growing business is a RAK ICC holding company that owns the shares of an operating free zone FZCO. Succession and asset protection sit in the holding company; licensed activity, staff and banking sit in the FZCO. Founders use it to keep ownership stable while the operating company changes, and to separate accumulated assets from operating risk.

The structure costs both sets of fees and adds intercompany accounting, so it makes sense when there is a specific reason: several shareholders, a planned sale, family succession, or valuable IP to separate. For a solo founder with one business and no assets to protect, a single FZCO is usually enough.

How to choose between offshore and free zone

Start from what the company has to do. If it will only own shares, approved property or IP, and never needs a visa or a local invoice, an offshore company fits. If it will trade, employ, sponsor residency or need a working UAE bank account, choose a free zone company. If you need both, set up both deliberately.

Either way, model the first-year numbers in the setup-cost calculator before you commit: licence, establishment card and visas together.

This is general information on UAE rules. It is not legal, tax or immigration advice for your situation. Rules and government fees change; we confirm the position for your facts in writing before you act.