30 May 2019

One Licence for all Dubai Free Zones

Authored by: Patrick Tweedale and Sara Berger

In brief:

  • Dubai Free Zones Council considers providing one licence to companies which would allow operation in multiple free zones.
  • In light of the new foreign ownership legislation, this new licence could potentially encourage existing businesses to remain in the Dubai free zones and new businesses to incorporate within the Dubai free zones.
  • Details of how this will work in practice have yet to be announced – for example it remains to be seen whether there will be restrictions regarding who may apply for such a licence, the costs involved and which free zones the licence will allow companies to operate from.

Background

The Dubai Free Zones Council (DFZ Council) has recently announced its ‘One Free Zone Passport Initiative’, which will allow companies to operate in multiple free zones under one single licence.  

Foreign Ownership

Currently, pursuant to Article 10 of the UAE Commercial Companies Law No. 2 of 2015 (as amended) (CCL), foreign ownership of companies established onshore in the UAE is limited to a maximum of 49 per cent. The remaining 51 per cent (or more) of the shares in a company established onshore in the UAE must be owned by a UAE national shareholder or a company wholly owned by UAE national(s).

The Foreign Direct Investment Law (Federal Law No.19 of 2018) (the FDI Law) came into force on 23 September 2018.  The FDI Law provides a framework for the UAE Cabinet to permit foreign shareholders to own up to 100 per cent of companies in certain designated sectors. The sectors in which greater levels of foreign ownership will be permitted are not yet clear and, in addition, it is possible that other requirements may be imposed on companies wishing to take advantage of the new regime (for example, minimum capital requirements, Emiratisation requirements etc.).

One of the key advantages of free zones is that they allow for 100% foreign ownership. Therefore, the FDI Law could potentially make the free zones less attractive and it is generally thought that the free zones will therefore need to introduce new measures in order to boost their attractiveness to foreign investors and remain competitive. The One Free Zone Passport Initiative could be seen as a means of achieving this.

Conclusion

This is an interesting development which could potentially make it easier and cheaper to operate in multiple free zones across Dubai, thereby boosting the attractiveness of free zones and countering the potentially damaging effect of the FDI Law.  However, details of how the new licensing regime will work in practice are not yet clear - for example it remains to be seen whether there will be restrictions regarding who may apply for such a licence, the costs involved and which free zones the licence will allow companies to operate from.  Moreover, once the UAE Cabinet has issued resolutions to further clarify the FDI Law it may become more apparent what effect this will be likely to have on the free zones.  We will be monitoring these developments closely and will issue further updates as and when there are any developments.