100% ownership change
does not mean these benefits will get diluted
This year
has kept businesses on their toes, forcing them to react to various challenges
and planning a stable future.
One welcome change is the
announcement of 100 per cent foreign ownership for UAE mainland licenses. This
news created a buzz in the corporate landscape, opening up
opportunities as well as raising questions for those already operating in
the UAE. The prospect of having full control is obviously attractive.
Still, if you’re a free zone
company considering making the jump to onshore/mainland, there are important
points to consider.
Sphere of operations
An industry-specific free zone may
be more appropriate for your business. Jebel Ali Free Zone or Dubai
Airport Free Zone have well-established infrastructure that may suit a
trading and logistics company over a mainland location. JAFZA has direct access
to its port, and DAFZA access to the airport, making customs and processes much
more efficient.
Companies
established in Dubai Silicon Oasis or Dubai Healthcare City may benefit from
being surrounded by similar businesses that can complement their offering, help
win contracts, outsource work, refer clients or potentially join forces.
Structure and activities
Each free zone authority has its
own governing rules and regulations. Some offer certain structures and business
activities that a mainland licensing authority may not, and industry-specific
free zones can have a flexible list of activities that may be more suitable.
If you are considering
transferring your license to the mainland, you will need to ensure that your
activity and setup structure is available to continue operating under a new
governing authority. The pre-requisites for a free zone and mainland Department
of Economic Development (DED) authority may also differ.
Plus, free zone licensing issuance
and approvals often involve less red-tape, making the license setup and or
renewal process much quicker than mainland.
Shareholder profile
A key detail to research
before making the switch is what educational qualifications are required for each
stakeholder and staff member. Corporate and personal documentation may need to
be translated, stamped by the Ministry of Foreign Affairs, and external
third-party government approvals may be required for certain activities.
A general
manager or shareholder may be required to hold a qualification or complete a
mandatory course to operate the business. Real estate companies require courses
and qualifications to be completed. Most architectural licenses require a local
Emirati to hold certain qualifications and to be listed on the license as the
shareholder. (There is no certainty as to whether this may be waived.)
Most mainland consultancy licenses
require the general manager or shareholder to complete a management skills
placement course and test with the American University in Dubai.
Premises and visas
When registering any UAE company,
regardless of mainland or free zone, you must have a registered business
address linked to the license. Mainland licenses do not offer flexi-desk or
smart desk business facilities, which free zones offer.
The number of residency visas
under your company are linked to your business facility rental agreement. One
main difference is mainland residency visas are valid for two years
whereas free zones' are for three years. Free zone office rental is
more expensive, and limited to the free zone jurisdiction than mainland
options.
UAE residency visas are limited to
the size of the office and can be costly for free zone businesses when they
need larger office space and more visas. However, on the mainland, there
is a wider choice of space at much cheaper rates than some free zone private
offices. There are some bargain mainland real estate options currently on the
market that may be suitable.
Flexibility
With a free zone licensed company,
you are limited to operating within your free zone jurisdiction. Companies
licensed within a free zone and conduct business within the mainland are not
compliant with UAE Commercial Companies Law (CCL). The shareholder and general
manager can be fined and licenses revoked.
With a mainland license, you will
have complete freedom to operate and conduct business directly without
having to use a third-party agent or distributor. Furthermore, you can register
with the chamber of commerce and be eligible to work with the UAE government.
Keep in mind
A free zone company cannot be
transferred to the mainland. The free zone company will need to be formally
liquidated and there are several costs associated. All residency visas, current
contracts with suppliers and customers will need to be cancelled and re-drafted
under the new company, and therefore legal and consulting costs should be
considered. Other associated concerns include the corporate bank account, VAT
lodgements and trading history.
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