When it comes to company formation, the Freezones are the first choice for every investor due to the various benefits like tax-free zone, 100% foreign ownership, and the ease of setting up a business.
However, as your business grows there will be a stage where you would want to expand your business out of the Freezones.
A company established in Freezone can carry out business in Mainland subject to the restrictions imposed by the law of the UAE.
A Trading Company can set up a branch of Free Zone company or as a 100% subsidiary of the Free Zone company in the mainland. While setting up the branch, a UAE Citizen shall be appointed as the Local Service Agent.
The Free Zone trading company can export the goods to the Mainland companies by following the UAE Customs procedures.
Though Free Zone is situated within the UAE geographically, it is considered as a separate jurisdiction for such trading activities.
Freezones and Customs Duty Exemption
Freezones are considered to be outside the customs territory but are subject to customs control. The Freezone importer must have a valid importer code from the UAE Customs Department.
Freezone companies are eligible to import goods and equipment from overseas markets to the UAE without paying the customs duties.
To get clearance from the customs on the imports to Freezone, there are certain documents to be submitted to the Customs Department of UAE.
The customs will issue the Freezone Transit Inn (Freezone Bills of Entry) for the clearance of goods into the Freezones.
The issuance of bill from the customs after the necessary clearance checks will allow the Freezone companies to sell their commodities to the local companies in the UAE or in GCC Countries.
Freezone trading companies must ensure all their customs paperwork, information of the goods, trade license, importer code, required bills, etc., are in place to ensure a smooth transfer of goods into the UAE market.
Also, for carrying out trading, distribution, and retail business in the mainland of the UAE, the Freezone company can take the assistance of a distributor/retailer who operates a business in the Mainland of UAE.
The distributor has to obtain a trade license issued by the Department of Economic Development (DED) for carrying out operations in the Mainland.
The DED is the governing body for all the economic activities conducted outside the Free Zone areas of Dubai. The DED issues all company licenses for businesses and individuals to operate a business in the mainland of Dubai.
What are the Options for Freezones to Expand their Business to the Mainland of Dubai?
There few options for the Freezone businesses to expand their business operations to the mainland, let’s take a quick look at what are the available solutions for that:
1. Opening a Branch of the Freezone company with DED
A Freezone company can open its business in the mainland by registering their branch with the Ministry of Economy and the DED.
The branch must conduct the same business activity as the parent company and must have to be the same name as the parent company.
The branch can be wholly owned by the Freezone entity and it will have the same trade name as the parent company. There is also a requirement of appointing a UAE local service agent.
If the Freezone company is owned 51% or more by UAE nationals, there is no requirement of appointing a local service agent.
It is to be noted that the local service agent does not have any role in the business operation of the branch. The role of a local service agent is to ensure the branch is able to continue its business in Dubai.
They shall have no legal, management, business profit sharing or asset ownership of the branch.
Restricted Activities for a Freezone Entity’s Branch
There are few restrictions on activities that can be conducted in the Mainland by the Freezone company. Activities like trading, labor supply service, commercial agencies, restaurant license are not issued to Freezone branches.
What are the Requirements for Forming a Branch?
- Trade name approval certificate will be issued by the DED
- Passport copy of the general manager and local service agent
- Copy of the corporate documents of the free zone entity including duly notarized resolution of branch opening and power of attorney for general manager,
- Local service agent agreement duly notarized in public
- Bank guarantee of AED 50000 in favor of Ministry of Economy
- Payment of AED 15,000 as the Ministry of Economy fees.
In the case of Freezone company carries on business in violation of law in the mainland without having appropriate approval is subject to a penalty of AED 100,000.
2. Forming a Civil Work Company
Civil work company is established to carry on professional activities. It can be owned by a foreigner or foreign corporate entity (100% Ownership) registered in Freezones provided that the activities of the Corporate body match with the activities of the Civil Work Company.
A UAE Local Service Agent (LSA) must be appointed in the Civil Work Company. LSAs do not hold any stake in your company, like the local sponsors.
The role of LSAs is to liaise with the government department on your behalf and assist you with all legal procedures like license approvals, work permit processing, and visa applications.etc.
3. Forming an LLC Company
For registering an LLC Company, a UAE national must legally hold 51% of the LLC company shares. an LLC company can have shareholders between 2-50.
Each of the shareholders is liable to the extent of their share in the capital of the company.
A Freezone company can be one of the partners of the mainland LLC and operate a business in the mainland of Dubai.
An easy way out for most of the trading companies registered with the Freezones is to contact a local distributor who is having a DED license in order to target the local market and do business in Dubai Mainland as well.
Hence, as the business grows there will be a requirement to expand your geographies and businesses in the Freezones can leverage on this opportunity of expansion.
The licensing process of DED is seamless and transparent similar to the company registration in the Freezones.
The business entities can approach the DED for the application form submission and pay the fees for issuance of the company license that permits conducting of the mainland business operations.
Business consultants like Aurion are here to assist you with top-notch consulting and document processing to get your DED license cleared in the fastest possible time.
Contact: Aurion Business Consultants