Dubai free zones: Will businesses be allowed to shift operations to new base?
Dubai Free Zones Council 'hints' businesses will be allowed to switch base
Dubai: Businesses in Dubai – licensed and wanting to set up – could soon have the flexibility to decide which free zone they want to be in irrespective of the type of activity they are into.
“If Dubai gives the go ahead, it will give businesses extensive ‘operational’ flexibility rather than one on tax,” said a consultant. “The current rules require licensed businesses to stick to free zones that are operationally close to what they do.
“So, any change in that requirement would leave businesses in a good place.”
It was Wednesday (October 4) that the Dubai Free Zones Council said flexibility for businesses to choose free zones was one of the talking points at its last meeting.
Any move that would allow free zone companies to establish a branch on Dubai mainland by securing a license from DED would be significant...
Also up for discussion was regulating free zone licensed entities with operations on the mainland. These activities could include:
- Obtaining a permit from the respective licensing authority and coordinating with it.
- Opening a branch in the emirate to do business from the same location as the free zone.
“Recently, when Dubai announced its ‘D33’ vision, there was talk of allowing companies to choose their operational free zones,” said Pankaj S. Jain, Managing Director at AskPankaj Tax Advisors.
The best part is if the decision applies to existing licensed businesses and new entrants. The market will be awaiting clarity on that.
What do the current rules state?
In fact, the company incorporation regulations at ‘certain free zones in Dubai - DIFC and DMCC - already include provisions allowing companies to transfer to/or from the relevant free zone’, said Marco De Leo, Managing Partner at the law firm BonelliErede.
This option is referred to as ‘transfer in continuity’.
The applicant company either transfers to a new free zone from another jurisdiction or transfers away from its current free zone of incorporation. Either way, ‘this can involve another free zone in the UAE or a jurisdiction outside the UAE’, said De Leo.
The transfer process is document intensive and subject to thorough review by the relevant free zone authority.
“The transfer process is document intensive and subject to thorough review by the relevant free zone authority.”
“Any move that would allow free zone companies to establish a branch on Dubai mainland by securing a license from DED would be significant,” said Atik Munshi, Managing Partner at Finexpertiza UAE.
“This will also ease the corporate tax compliance as a mainland-based business could be easily carved out. It is expected that DED (Department of Economic Development) would permit Dubai free zone companies to open branch license on the mainland in the near future.
“Other emirates too may follow suit.”
Quite cost-effective
According to De Leo, the fees involved to complete a transfer of free zones generally ‘tend to be less’ than that for both liquidating one entity and incorporating a new one in the desired jurisdiction.
“Additionally, companies that transfer to a new free zone have the benefit of selecting larger premises in more central and prominent locations in Dubai,” he said.
“Since certain free zones are tailored towards particular industries/sectors, it is important for the transferring company to determine whether their choice actually offers the activity the company carries out in its existing free zone.
“Additionally, a transferring company needs to make sure that the new choice has adequate office or warehousing space to meet its current and future expansion ambitions.”