Companies in free economic zones

Free zones in the UAE

One of the main features of the legal system of the United Arab Emirates (UAE) is the strict requirement for participation in the capital of the company established in the UAE, of one or several national partners, which share should be at least 51%. Moreover, some types of commercial activities can only be conducted by the UAE citizens.

Nevertheless, the UAE today has a huge export potential, is developing rapidly and is a very attractive jurisdiction for investors from around the world. All this was achieved largely due to the functioning of free trade zones. Free trade zones in the UAE are areas that have a special taxation regime, customs and import operations and are governed by their own rules (except for the criminal law of the UAE). The UAE has several dozen of free zones in the emirates of Dubai, Abu Dhabi, Sharjah, Fujairah, Ajman, Ras Al Khaimah and Umm Al Quwain.

Free trade zones have such benefits:

100% foreign ownership of the enterprise;
100% exemption from import and export taxes;
100% repatriation of capital and profits;
Exemption from corporate tax for a period of up to 50 years;
Simplified registration process;
Ownership of real estate is permitted (25 years of leasing, storage facilities, availability of sites for production and installation, etc.);
Fair commissions for license renewal;
Confidentiality of business;
Opening of a bank account in Dubai is allowed;
There are no restrictions for performing several actions;
Possibility of liquidation of the company at the discretion of the owner;
Absence of personal income tax;
Assistance in employment and additional support services, such as sponsorship and housing.

Free zones in general can be classified as free seaports, free airport zones and continental free zones. Each free zone is for one or more business categories, and only grants licenses to companies in these categories. For example, Dubai Multi Commodities Center works with raw materials, Dubai Creative Cluster and Dubai Silicon Oasis work with technologies and media, Jebel Ali Free Zone and RAK Maritime City specialize in sea trade, Dubai Biotech is engaged in biotechnology, Masdar City specializes in renewable energy sources and etc. Sometimes the name of the free zone speaks for itself, for example, Dubai Gold and Diamond Park, Dubai Healthcare City, Dubai Cars and Automotive Zone, etc.

Each free zone is managed by an independent body that is responsible for issuing operating licenses for the free zone, as well as assisting companies in establishing their business in a free zone. Investors in the free trade zone can either register a new company in the form of Free Zone Establishment - FZE, or simply create a branch or representation of their existing/parent company based in the UAE or abroad. FZE is a limited liability company subject to the rules and regulations of the Free Zone in which it is established. Except for the acquisition of citizenship in the UAE, the provisions of the Commercial Companies Act do not apply to FZE, provided that there are special provisions in the Free Zones regulating such companies.

Financial Free Zones

Financial free zones are created according to the federal decree. Such a zone should have the status of a legal entity and be duly represented by the Chairman of the Board of Directors. He is solely responsible for the obligations arising from the practice of his activities. The actual presence of the location of companies and institutions licensed to work in the Free Zone is limited to the scope of this zone. Companies and institutions can create subsidiaries and branches in the state, as well as acquire companies operating in the state or shares in it in accordance with the laws and regulations operating in the state. Such companies and institutions can be licensed by financial free zones for work outside the state.

At the moment, there are 2 financial free zones in the UAE. They are created by the appropriate decrees:

Dubai International Financial Centre: Federal Decree Number 35 for the year 2004 To Establish Financial Free Zone in Dubai
Abu Dhabi Global Market: Federal Decree No. (15) of 2013 Concerning Establishing a Financial Free Zone in the Emirates of Abu Dhabi

Licensed organizations in both free financial zones are allowed to engage in activities and services in the banking, financial, insurance and financial markets, as well as related activities. Abu Dhabi Global Market (ADGM) and Dubai International Financial Center (DIFC) are exempted from the application of federal laws on civil and commercial law, and have the power to self-regulate in these areas. DIFC is, and ADGM is expected to be considered for legal purposes as “offshore” jurisdiction outside the UAE.

DIFC has its own independent civil and commercial legal system based on the common law of England and Wales. It has an independent regulator - the Dubai Financial Services Authority, the stock exchange (NASDAQ Dubai) and the independent common law judicial system - the DIFC Judiciary (known as the DIFC Courts). Unlike the Dubai Courts and the federal courts of the United Arab Emirates, DIFC courts operate in English, judicial procedures are modeled on English courts, and lawyers from other jurisdictions can make statements. There are reciprocal coercive measures between DIFC courts and Dubai courts, which makes the execution of the DIFC court decisions for the parties, and the decisions of the arbitration “onshore” courts in Dubai, ratified by the DIFC court, easier than the execution of foreign judicial and arbitral awards.

A similar judicial system is built up in ADGM. In April 2016, an agreement was concluded with the emirate of Abu Dhabi, which provides for cooperation, including in the legal sphere - through mutual recognition and enforcement of judgements and arbitral awards. All these factors can make arbitration courts DIFC and ADGM (or arbitration with a place in DIFC or ADGM) an attractive choice for counterparties on transactions with UAE companies, especially in those cases where enforcement is expected in “onshore” Dubai/Abu Dhabi. Legislation and practice in financial free zones are still developing, as these are still relatively new jurisdictions.

The most popular are the following free economic zones:

Jebel Ali Free Zone (JAFZ)
Dubai Airport Free Zone (DAFZ)
Dubai Internet City (DIC)
Dubai Media City (DMC)
Dubai Health Care City (DHCC)
Dubai International Financial Centre (DIFC)
Dubai Multi Commodities Centre (DMCC)
Dubai Knowledge Village
Dubai Silicon Oasis Authority (DSOA)
Sharjah Airport Free Zone (SAIF Zone)
Ajman Free Zone (AFZ)
Ras Al Khaimah Free Trade Zone (RAKFTZ)
Ras Al Khaimah Investment Authority (RAKIA)
Fujairah Free Zone (FFZ)
Fujairah Creative City
Umm Al Quwain Free Trade Zone (UAQ FTZ)