Tuesday, September 16, 2014

Setting Up a Free Zone Entity

In our previous post, we discussed how a corporation can go about doing business in the Middle East, specifically in the United Arab Emirates. This week we will discuss how a corporation can set up an entity within the Trade Free Zone. The main benefit of a free zone entity is that it can be wholly owned by a foreigner.

Free zone entities are also granted certain ancillary financial benefits. A free zone entity will generally take one of the following three forms: a branch or representative office of a foreign company, a free zone company, or a free zone establishment. There is no minimum capital requirement for a branch or representative office, while in most free zones, a free zone establishment and a free zone company (UAE laws make a distinction between free zone establishment and a free zone company) are typically required to have a minimum capital of around AED 500,000, but the precise requirements vary from free zone to free zone. A free zone establishment may be owned by a single individual or company, whereas a free zone company typically requires two or more owners.

The key limitation of a free zone entity is that it is generally permitted to conduct business

solely within its relevant free zone and is limited to performing solely those activities
specified in its license. A free zone entity must typically hold one of the following
licenses issued by the relevant free zone authority: (i) trading license; (ii) service license;
(iii) manufacturing/industrial license. In order for a free zone entity to engage legally in
sales within the UAE (and outside of the relevant free zone), the entity will generally
have to retain a commercial agent or distributor. However, free zone entities with service
licenses have been known to provide services outside of their free zone.


An independent Free Zone Authority governs each free zone and is responsible for issuing FTZ operating licenses and assisting companies with establishing their business in the FTZ. Investors can either register a new company in the form of a Free Zone Establishment (FZE) -- a limited liability company governed by the rules and regulations of the Free Zone in which it is established -- or simply establish a branch or representative office of their existing company based within the UAE or abroad.

The procedures for establishing a business in a Free Trade Zone are usually very straightforward and can be generally completed quickly, especially if there are no environmental issues involved. Individual Free Zones may have specific requirements, but general steps are:

  • Questionnaire from the relevant Free Zone Authority which will assist in assessing a company's requirements.
  • License application, planning documents, and a consumer request for electricity.
  • Provisional approval and lease agreement.
  • Meetings with the authority to finalize details of the project.

Once a legal presence has been established in the Free Zone, the business will need to lease premises or land and acquire an operating license from the FZA. Different types of licenses apply in the different types of free zone, however, it is important to understand that companies with trade and industrial licenses can only conduct business within the Free Zone or abroad. To sell products in the UAE, a UAE official agent is required, and a joint venture needs to be formed.

When not to choose a Free Zone

There are a few scenarios in which a prospective company might not want to choose to do business in a Free Zone, and should instead opt for a regular joint partnership. These are if a company:

  • Practices a regulated profession.
  • Requires a lot of visas or warehouse/office space.
  • Plans a long presence in the UAE and wants to reach a wider portion of the UAE market.
  • Has a particular UAE company or individual with which to go into partnership.

Shahzad Qadri
Wong Fleming | Washington 

No comments:

Post a Comment