Many businesses have opened up in the various free zones dotted across the UAE. While the advantages of a free zone company are well known, one of the anomalies is that free zone companies are often prohibited from doing business with people (including companies) residing on the mainland,
a term often used to describe those parts of the UAE that are not free zones. This is often contained in the rules and regulations
of a free zone.
The rules regulating such business activity are set out in Law No. 13 of 2011 Regulating the Conduct of Economic Activities in the Emirate of Dubai. The law requires the Dubai Economy (DE, formerly known as the Department of Economic Development) to authorise any free zone company wishing to trade on the mainland. Free zone companies can set up branches in Dubai subject
to certain conditions.
Further, the law states that only the following types of companies may conduct business in Dubai:
- A sole proprietorship or a sole trader
- A civil works company
- A commercial company
- A branch of a national or free zone company
What they mean
A sole trader is pretty self-explanatory. A civil works company can be owned by non-UAE individuals or a free zone or foreign company, if the owner’s activities are the same as the company to be established on the mainland. A local UAE agent would need to be appointed.
A commercial company refers to a limited liability company, or LLC. This structure requires a UAE national to legally hold 51 per cent of the company’s shares. A branch can be established in the UAE and be owned by a free zone company and it will have to have the same name as its parent company. A local UAE service agent has to be appointed but there is an exemption if the parent free zone company is owned by a UAE national(s) who has at least 51 per cent of the ownership.
The local agent has no responsibility to the branch or the civil works company — his role is to ensure that the branch, or civil company, does business in Dubai; and it is clear that he has no interest in the management, operation, assets or finances of the company. So the risk to the business is minimal.
The Ministry of Economy regulates the permitted activities for branches and prior approval is necessary before commencing any trading activity. This is in addition to DE approval.
The ministry has set out the following steps to establish the branch:
- Obtain approval of the trade name and approval certificate from the DE
- Passport copy of both the general manager and the local service agent. If the local service agent is a corporate body, then a copy of the licence is needed.
- Copy of the corporate documents of the free zone entity including duly notarised resolution calling for opening the branch and power of attorney in favour of the branch’s general manager
- Local service agent agreement duly notarised at the notary public
- Bank guarantee of Dh50,000 in favour of the Ministry of Economy
- Payment of Dh15,000 as ministry fees
As you can see, setting up a branch is not a simple process and it is therefore advisable to consult a qualified lawyer.
— The writer is an English solicitor with extensive experience in corporate/ commercial, real estate and banking matters. He specialises in advising SMEs