FTZ -Areas with special economic status
In modern practice, the advanced system of economic relations is used more and more often. This system provides for the creation of the specialized areas with special economic status on the territory of the country (FTZ). The so-called free economic trade zones provide business with the profitable and attractive environment. It is important to note that the country uses such areas in order to increase the investment activity and to involve the foreign direct investments into the national economy.
Free Trade Economic Zones: the concept and the purpose
In fact, specialized zones are particular areas of country, and which have territorial restrictions. Preferential terms for implementation of foreign-economic activity are provided on the territory of such free trade economic zones. Companies and enterprises which are registered in a zone are provided with a wide range of the investment instruments and complete freedom of actions in the economic activity.
Speaking about the main purpose of special economic areas (FTZ), several fundamental principles can be singled out, among them there are:
- Activation and stimulation of the growth of industry in a zone;
- Providing the local market with quality products and goods;
- Development of the international trade and foreign economic relations;
- Sectoral development of import and export;
- attracting the direct investments from abroad;
- Stimulation of the development of the particular regions and districts;
- Attraction of the highly skilled labour force and etc.
Free Trade economic zones with special economic status are characterized by several typical features of the corporate relations of the state and private business. The governmental loyalty to the investors and entrepreneurs can be reflected in the following:
- No restrictions on the movement, withdrawal and output and distribution of the investment assets and income;
- Preferential tax and customs regime;
- No restrictions on the involvement of the foreign labor force and etc.
Varieties and types of the economic zones (FTZ)
Specialized economic zones can occupy both the territories of the whole regions and the relatively small areas of several square kilometers. In the international practice, free economic zones are divided depending on the orientation of the foreign economic activity and profile, type of the benefits and the strategic goals of the project. Thus, the following economic areas can be singled out among the most popular legal forms:
- Custom territories with the special economic status, which offer special conditions on the import and export of goods and services for business;
- Export zones for the industrial sector, which contribute to the development of industrial enterprises which are engaged in exports;
- Zones of free economic trade. These zones are characterized by a complete lack of limitations and quotas for trading;
- Zones for joint venturing, which are created for organizing the joint ventures, for the investors from the different countries;
- Specialized and integrated economic zones, which can have either a separate scope of activity or combine the multiple activities;
- Technological parks, which, as a rule, are created for the development of the progressive and advanced technologies.
The international practice shows that custom territories and export zones are the most effective for the state system. If such FTZ have the advantageous geographic and economic characteristics for business, they can provide an active development of the national economy. At the same time, such areas should possess a number of characteristics in order to meet the needs of the potential investors, among them there are:
- Preferential terms for entrepreneurial and economic activity;
- Availability of the necessary social and production infrastructure;
- Availability of the efficient transport solutions, respectively, rail, sea and air transport hubs;
- Relatively low tariffs on service and energy resources;
- Political and economic stability within the country.
It is worth noting that the large free trade economic zones, in the initial stages, require significant investments from the government. First of all, it is necessary for creation of the appropriate social and production infrastructure of the FTZ. That is why every major free trade economic zone is a long-term state project, which payback requires a lot of time.
A bit of history
The international practice has been familiar for a long time with the free trade economic zones. The desire to attract the foreign direct investments and to develop the economy has forced some states to provide specific economic conditions and preferential treatment on the territory of the country.
If to proceed from the traditional concept of the free trade economic zone, we can say that the first of them had appeared in Ireland, at the beginning of 1959. It was then that the authorities had decided to transform the territory of the Shannon International Airport into the FTZ with a special economic status. And by 1970-th, more than a dozen specialized areas had existed on the planet in the different countries.
By 1990 FTZ zones with a special economic status existed on the territory of 70 countries. According to the ыефеуьутеы of the international financial experts, the total aggregate turnover of such FTZ zones was more than 8% of the total world trade.
Let’s consider, as an illustrative example, the specialized economic zones in the United Arab Emirates, particularly in the Emirate of Dubai. It is a vivid example, when the attractive conditions for business and the unlimited opportunities have become the main incentives for the investors and actively contributed to the national welfare.
The UAE: free trade economic zones in Dubai
The phenomenal economic growth, the implementation of the most ambitious and large-scale international projects, excellent climatic conditions and a high standard of living – all these have made the Emirate of Dubai the become the largest travel and financial center in the Middle East.
Recently, the jurisdiction has become even more attractive to potential foreign investors. The Dubai government has determined the specialized areas in the Emirate, where the foreign citizens are allowed to acquire the real estate into the ownership. And it is no longer necessary to attract a local sponsor or a partner for carrying out the entrepreneurial and economic activities.
All the companies, which are registered on the territory of the special free trade economic zones, are provided with the long-term tax holidays (up to 50 years). In addition, the state excludes the currency exchange regulation and does not restrict the investors when withdrawing the assets outside the country.
The Dubai government has developed a simplified scheme of registration or incorporation of the foreign company. The entrepreneurs can count on the maximal support from the public authorities. Moreover, the system eliminates the bureaucratic barriers and runaround when registering a company or licensing the entrepreneurial activity in FTZ.
Dubai: list of the free zones with a special economic status
- Dubai Academic City – educational sphere;
- Dubai Media City – national communications and mass media;
- Jebel Ali Free Zone – Jebel Ali International Airport;
- Dubai Internet City – communications and information technologies;
- Dubai Outsource Zone – professional outsourcing and consulting;
- Dubai Knowledge Village – recruiting and educational sector;
- Dubai Cars & Automotive Zone – export and re-export of the motor transport;
- Dubai Airport Free Zone – Dubai International Airport;
- Dubai Aid City – activities of the humanitarian public organizations;
- Dubai Metals & Commodities Centre – commodity exchange;
- Gold & Diamond Park – trade in precious stones and metals;
- Dubai Maritime City – shipping and sea transport;
- International Media Production Zone – media technologies and publishing activities;
- Dubai Biotech & Research Park – biotechnologies and researches;
- Dubai Studio City – media market;
- Dubai Healthcare City – health care system and medicine;
- Dubai Silicon Oasis – leading technologies and electronics;
- Dubai International Financial Centre;
- Dubai Industrial City – industrial sector;
- Heavy Equipment & Trucks Free Zone – export and re-export of heavy machinery;
- Dubai Logistics City – international centre for transport logistics;
- Dubai Flower Centre – flower industry
- Auto Spare Parts Zone – spare and component parts;
- Building Material Zone – construction and materials;
- Dubai Carpet Free Zone – carpet products;
- Dubai City Energy – industrial power engineering;
- Dubai Textile City – textile industry;
- Dubai Design Centre – design and home interior.
The choice of an appropriate free trade economic zone
First of all, the choice of an appropriate free trade economic zone is determined depending on the planned business activity. It should be noted that in Dubai almost every FTZ has a certain orientation and profile. It can be eCommerce, trade, automobile industry, publishing, tourism industry and etc.
Potential investors and clients of the free trade economic zones are offered modern infrastructure that meets the international standards and which includes the international transport hubs. All FTZ are the complex clusters, which make it possible to optimize a lot of production processes and, therefore, to reduce the cost of production significantly. All FTZ are located in the vicinity of the traffic arteries and have a direct access to the urban and social infrastructure.
The procedure of registration of a foreign company
You will be required to submit, to the registering authority, a certain set of documents for registration of a foreign legal entity on the territory of special free trade economic zones. Registration requirements can differ on the territory of the different FTZ, but there is a common list of documents, which can be supplemented. In particular you will need the following documents:
- Application for registration of the company;
- Copies of the valid foreign passports of the company founders;
- Brief CV on the executives of the company;
- Documentation, which proves the financials of the founders;
- A business plan.
As the registration procedure involves the personal contact with the state registration and regulatory authorities, it is recommended to use the services of the specialized companies or a local agent.
Advantages for private business
Business, which operates on the territory of the special free trade economic zones in Dubai, can count on the following competitive advantages:
- Possibility of the 100% ownership by foreign citizens;
- Provision of the long-term tax remissions and customs facilities;
- No restrictions on distribution of the income and withdrawal of the investment assets outside the jurisdiction;
- No state currency exchange regulation;
- Perfect social and production infrastructure;
- Maximum safety and legal security of business;
- Possibility of obtaining a residence visa for the founders, their families and employees of the company;
- Flexible corporate policy and assistance of the state authorities.
According to the independent international experts, the following characteristics are relevant among the main criteria of the choice of FTZ:
- Location and distance to the major air and sea ports;
- Infrastructure of the zone and available institutions;
- Opportunities for investing in the real estate;
- List of the types of the permitted economic activities;
- Tariffs on energy resources, utilities, rent, etc.;
- The cost of licensing and registration requirements;
- Time and financial expenditures for the registration and administration.
The variety of legal forms for the foreign companies
The current UAE legislation provides for the possibility of registration the following types of companies on the territory of the specialized economic zones:
- Free Zone Establishment – a legal entity with the sole owner;
- Free Zone Company – the minimal number of founders is two;
- A branch of a local or foreign company;
- Offshore companies – involvement of the local registered agent is required.
The share capital requirements for the registered person can range from 30 thousand to 1 million Dirhams. The exception is the representative offices of the local and foreign companies.
To obtain a state license, the company must have a rented office or service desk. This requirement does not apply to the offshore companies and institutions.
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