The UAE’s Commercial Zones and Legal Jurisdictions. Part One

29 Jan, 2018 - UAE Life & Economy

The United Arab Emirates is a country of seven emirates. An emirate could be compared to a county in the UK, operating with its own government and civil services. Differing to the UK however, different emirates offer companies various ways to set up business and conduct legal affairs, similar to how things work across the 50 US states. Here, we list the various ways companies can establish in the UAE.

The most common type of business in the UAE is via an ‘onshore’ set up. A company registered on the UAE’s mainland will be able to conduct all types of business activities with companies nationally and internationally. There are different types of company (Sole Proprietorship, LLC Foreign Branch etc), and upon application for a trade licence a company needs to specify the activity it will undertake. But generally speaking, an onshore company is free to operate with very few restrictions.

There is one caveat however and that is all companies registered onshore must have a degree of Emirati involvement.  For example, a Limited Liability Company must have 51% of its shares locally held; a Foreign Branch is 100% overseas owned, but requires a UAE National Service Agent to for visa & administrative purposes. The local element could be provided by an individual or a business. The BCB model is via the Foreign Branch route, and we manage all of the essential elements through Dubai Government.  A business registered as a Sole Proprietorship however can only be owned wholly by a GCC national.

Free Zone
A company registered in one of the UAE’s many Free Zones can be 100% foreign owned. Free Zones are arguably the reason the UAE has become so popular with global companies. A company registered in a Free Zone is free to conduct business with other Free Zone companies and overseas but is legally not allowed to conduct business with a UAE onshore company.

As one example, many of the large international software & tech firms will have their regional headquarters in the UAE’s Free Zones.  However, they are not actually selling in the UAE, rather all transactions, subscriptions & sales are being done through established market channels of agents & distributors, who are correctly licensed to do so in onshore UAE.  

Designated [Free] Zone
The introduction of VAT in 2018 created a new type of Free Zone, known as a Designated Zone by the Federal Tax Authority. A Designated Zone is a Free Zone that has maintained its tax-free status due to a fenced/controlled border. Jebel Ali Free Zone Area (JAFZA) is one such Designated Zone.

To enter and leave JAFZA one must pass through a security checkpoint and cars usually undergo a brief boot and sometimes bonnet search. There are no restrictions on who enters the Free Zone but goods imported into the zone from overseas do so without import charge, the checkpoint exists to make sure nothing enters mainland UAE illegally, without taxes being paid.

By way of comparison, Dubai Media City can be entered freely by anybody: there is no identifiable or controlled ‘border’. Even though it is a Free Zone it is a district of Dubai like any other with shops, public transport, and office buildings. Companies registered in Free Zones without a physical border are subject to VAT, the same as onshore companies; those in zones with a fence/border are not.

If you need more information on doing business in the UAE please contact us.

The second part of this article will be published next week