Businesses in Dubai have already experienced significant flexibility in terms of licensing and operational reach. The potential for companies to select their free zone base would further enhance this flexibility. A consultant noted that such a decision would provide businesses with extensive operational flexibility, rather than solely focusing on tax considerations. Currently, licensed businesses are required to operate within free zones that are operationally aligned with their activities. Any change to this requirement would be advantageous for businesses.
The Dubai Free Zones Council recently discussed the possibility of allowing businesses to choose their free zones, as well as regulating free zone licensed entities with operations on the mainland. This could involve obtaining a permit from the relevant licensing authority and opening a branch in the emirate to conduct business from the same location as the free zone.
Pankaj S. Jain, Managing Director at AskPankaj Tax Advisors, noted that the potential decision to allow companies to choose their operational free zones was previously discussed in relation to Dubai’s ‘D33’ vision. The market is eagerly awaiting clarity on whether this decision would apply to both existing licensed businesses and new entrants.What are the current regulations in place? According to Marco De Leo, Managing Partner at the consultancy BonelliErede, the company incorporation regulations in certain free zones in Dubai, namely DIFC and DMCC, already contain provisions that permit companies to transfer to or from the relevant free zone. This option is commonly referred to as “transfer in continuity.” The applicant company may choose to transfer to a new free zone from another jurisdiction or transfer away from its current free zone of incorporation, which may involve another free zone in the UAE or a jurisdiction outside the UAE. However, the transfer process is document-intensive and subject to thorough review by the relevant free zone authority.
MAINLAND PRESENCE FOR COMPANIES IN DUBAI FREE ZONES
According to current laws in the UAE, a free zone entity can only establish a mainland business through the use of agents. Atik Munshi, Managing Partner at Finexpertiza UA, stated that any move allowing free zone companies to establish a branch on Dubai mainland by obtaining a license from the Department of Economic Development (DED) would be significant. This would also simplify corporate tax compliance, as a mainland-based business could be easily separated. It is expected that the DED will soon permit Dubai free zone companies to open branch licenses on the mainland, and other emirates may follow suit.
Cost-effectiveness is another advantage of transferring to a new free zone. According to De Leo, the fees involved in completing a transfer of free zones are generally lower than those for liquidating an entity or incorporating a new one in the desired jurisdiction. Additionally, companies that transfer to a new free zone have the opportunity to select larger premises in more central and prominent locations in Dubai.
It is important for the transferring company to determine whether their chosen free zone offers the specific activity that the company carries out in its existing free zone, as certain free zones are tailored towards particular industries or sectors. Furthermore, the transferring company must ensure that the new choice provides sufficient office or warehousing space to meet its current and future expansion goals.