Setting Up Business in a Free Zone

A number of free zones exist within Dubai and, as such, have a distinct

legal status within the UAE. Companies incorporated and operating

within the free zones are not subject to many of the restrictions

imposed by the Companies Law and other UAE laws and regulations.

Entities operating within the free zone may be 100 per cent foreign

owned and benefit from a guarantee that tax will not be applied for a

certain period of time, notwithstanding any subsequent change to

federal or local laws.

The free zones include the Jebel Ali Free Zone (the JAFZ), the Dubai

International Airport Free Zone (DAFZA), the Dubai Technology and

Media Free Zone (TECOM), the Dubai Cars & Automotive Zone, the

Dubai Health Care City, the Dubai Multi Commodities Centre and the

Gold and Diamond Park. We understand that additional free zones

will be established in the coming years.

The type of business that is to be set up dictates which free zone

should be used. For example, the DAFZA is intended for businesses

that import and export goods and the business activities permitted in

TECOM include ‘design, development, use and maintenance of

everything relevant to Information Technology, E-commerce and

Media’.

The largest free zone in Dubai is JAFZ. It was established in 1985 and

was the first zone to be set up in the UAE.

Each free zone is governed by an independent Free Zone Authority

(FZA), which among other things, is responsible for issuing to

businesses the necessary operating licences for operation within the

relevant free zone.

As an illustration of the types of operating licences issued by the free

zones, the following is a description of the operating licences issued by

the JAFZ:

Trade licence: This licence is available to companies who wish to import,

export, sell, distribute or store items identified on their licence. Sales

cannot be made directly to the UAE. Any company wishing to sell goods

from the JAFZ into the UAE must appoint a distributor or agent in the

UAE.

Industrial licence: Industrial licences are intended for companies

wishing to carry out manufacturing activities. Restrictions on selling

products into UAE also apply to industrial licensees and a distributor or

agent must be appointed in the UAE in order to sell products into the

UAE.

Service licence: A service licence permits the licensee to provide services

within the free zone. Services provided by the free zone licensee must be

the same as those stipulated in the parent company’s licence in the UAE

or abroad.

National Industrial licence: A national industrial licence permits the

holder to import raw materials, manufacture specified products and

export the finished products. However, a minimum 51 per cent of the

shareholding must be owned by Gulf Co-operation Council (GCC)

nationals. In addition to this restriction, a minimum 40 per cent of the

value of the final product must have been added in the free zone.

From the above description of the relevant licences, it should be noted

that a licence holder cannot operate outside the free zone using its free

zone licence. A distributor or agent must be appointed within the

UAE. However, potential customers from the UAE may visit the

premises of the licence holder to view the goods

Vithul V Murali 
Al Zaeim Corporate Services 
Dubai Mobile : +971 50 55 73 538

Email  :Vithul@a2zconsultus.com

Skype : Vithul.murali