Free zone firms not allowed to operate outside jurisdiction, says DED

Posted on Mon Nov 19 2012

The Department of Economic Development (DED) in Dubai has come forth to clear the confusion around free zone companies doing business in Dubai.

It has announced that free zone companies are not allowed to conduct business within Dubai (outside their free zone) unless they have a DED license or set up a branch in mainland Dubai in accordance with the conditions stated in Law No. 13 of 2011 on business registration and licensing in the Emirate.

“Issued by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President and Prime Minister and Ruler of Dubai, the Law No.13 of 2011 is meant to enable free zone companies to open branches in Dubai while maintaining their presence in the free zone,” a press release from the DED states.

As a rule, free zone companies are restricted from doing business in mainland UAE, outside the free zone they are operating in. While some say there has been a lack of awareness of this fact among free zone companies, others note that several companies are well-aware but continue to trade outside the free zone as it is considered a norm.

“Under no circumstances can a free zone company in Dubai operate outside its jurisdiction unless it has a branch licensed by DED,” reiterates Mohammed Shael Al Saadi, chief executive officer of the Business Registration & Licensing (BRL) Sector, DED. “The same applies to companies in any free zone in the UAE. Alternatively, such companies may appoint an intermediary to sell their products or services in Dubai but the intermediary should have a DED license.”

“Recently, we have been receiving complaints from various free zone companies, most of them operating outside Dubai, that their licensors had promised they can do business in Dubai under the free zone license,” he adds. “We have clarified to them that there is an established route to doing business in Dubai.”

For most kinds of businesses in the mainland UAE (specially an LLC), foreign nationals are mandated to have a UAE national sponsor who owns 51% of the business. According to the Law No.13 of 2011, free zone companies can set up a branch in Dubai to trade legally, without the need of a local sponsor. They will, however, need to have a local service agent. “A local service agent is a UAE national or UAE company who will sponsor employees for the Dubai branch of a free zone company at the Ministry of Labour. The local service agent will have no rights of voting or decision-making in the company,” states the release.

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