A free zone is a designated geographic area within a country that operates under a distinct regulatory, tax, and ownership framework designed to attract foreign investment and international business. In the UAE and Bahrain, free zones are a central instrument of economic development policy, offering conditions that differ significantly from the mainland commercial environment.
Key Features
Free zones in the Gulf typically offer several advantages. Foreign ownership: 100 percent foreign ownership of companies is permitted, without the requirement for a local partner (though the UAE reformed mainland ownership rules in 2020-2021, reducing this differential). Tax incentives: historically zero percent corporate tax, though the UAE’s 2023 federal corporate tax now applies to free zone entities earning qualifying income above certain thresholds. Customs benefits: duty-free import of goods for use within the zone or for re-export. Streamlined regulation: simplified licensing, company formation, and administrative procedures.
Abu Dhabi Free Zones
Abu Dhabi operates several major free zones. ADGM (Abu Dhabi Global Market) is the financial free zone operating under English common law. KIZAD (Khalifa Industrial Zone Abu Dhabi) is an industrial and logistics free zone adjacent to Khalifa Port. Masdar City Free Zone targets clean technology and sustainability companies. twofour54 supports media and entertainment businesses. Each zone has a specific sectoral focus and regulatory framework.
Bahrain
Bahrain’s regulatory environment functions differently. The kingdom does not operate a traditional free zone model to the same extent as the UAE. Instead, Bahrain permits 100 percent foreign ownership across most sectors on a nationwide basis, effectively making the entire country function with ownership rules comparable to a free zone. The Bahrain International Investment Park and Bahrain Logistics Zone provide specific industrial and logistics facilities with additional incentives.
Criticism
Free zones have been criticised for creating dual economies — one for international companies with preferential terms and another for local businesses operating under standard regulation. The regulatory divergence can create competitive distortions and complicate national economic governance.
Role in Vision 2030
Free zones are essential instruments for both Vision 2030 programmes. In Abu Dhabi, they attract the international companies, capital, and talent that drive diversification. In Bahrain, the kingdom’s open regulatory approach serves a comparable function. Both visions depend on creating business environments that international firms find attractive enough to locate operations in the Gulf.