Company Formation - Licenses, Registrations & Approvals

COMPANY FORMATION IN FREE ZONE OF DUBAI

With the advent of globalisation, an increasing number of Indian enterprises are interested in doing business outside of their home country. They need to open a branch office or a subsidiary or enter into any foreign collaborations in another country. There are numerous advantages to doing so, including cost savings due to duty savings, ease of doing business, and the development of a global brand, among others.

WHAT IS A FREEZONE?

Free zones or free trade zones in Dubai are business zones where companies operating in them are exempt from all types taxation such as Value Added Tax (VAT), Income Tax, Corporate Tax and Customs. Business owners in the free zone areas in Dubai have 100% ownership of the business.

The aim of these zones is to encourage foreign investment and promote economic activity in the city. Dubai was actually the first emirate to introduce the free zone model in the UAE. 

WHY SET UP A BUSINESS IN A FREE TRADE ZONE OF DUBAI?

There are many advantages of setting up a business in a Dubai free zone. One of the biggest is 100% ownership of the business and full tax exemption. The tax exemption is an ideal option for foreign companies and business owners who want to utilise the UAE for regional manufacturing or as a distribution base.

The 100% ownership and full tax exemption in these dedicated economic zones in Dubai provide a lucrative investment opportunity for business owners. 

LIST OF FREE ZONES IN DUBAI

Currently, there are 24 free zones in Dubai, each catering to specific sectors and industries. They are divided into three major categories as per the official UAE Government website and are as follows:

The DCCA, now known as the Dubai Development Authority mandates the development of creative and knowledge-based industries in the city. The free zone areas in Dubai under the DCCA include:

  • Dubai Internet City
  • Dubai Media City
  • Dubai Production City
  • Dubai Studio City
  • Dubai Outsource City
  • Dubai Knowledge Park
  • Dubai International Academic City
  • Dubai Science Park
  • Dubai Design District (d3)

An Indian company can invest in any activity in which it has experience and competence (excluding those that are expressly barred). When engaging in financial sector operations, certain additional conditions established in Regulation may be observed.

Foreign investment is prohibited in the real estate and banking industries. However, provided they obtain authorisation under the Banking Regulation Act 1949, Indian banks operating in India can form joint ventures or wholly owned subsidiaries (JV/WOS) in other countries.

Only an Indian financial services business that meets the following standards is allowed to invest in the financial services sector:

  1. has made a profit from financial services activities in the previous three financial years;
  2. is registered with the appropriate regulatory authority in India for conducting financial services activities;
  3. has obtained approval from the regulatory authorities concerned both in India and abroad for venturing into such financial sector activity;
  4. has met the prudential capital adequacy norms as prescribed by the concerned regulatory authority.

Under the Automatic Route, the following criteria for overseas direct investment/financial commitment apply:

  1. The Indian Party is not on the Reserve Bank’s exporters’ caution list / list of defaulters to the banking system published/ circulated by the Credit Information Bureau of India Ltd. (CIBIL) / RBI or any other credit bureau;
  2. The Indian Party routes all transactions related to a WOS investment through a single branch of an approved dealer (AD bank) that the Indian Party designates.

“Financial commitment” refers to an Indian Party’s direct investments outside of India, which include:

  1. contributions to equity shares of its WOS abroad;
  2. loans to its WOS abroad;
  3. 100% of the amount of corporate guarantee issued on behalf of its overseas WOS;
  4. 100% of the amount of bank guarantees; and
  5. 50% of the amount of performance guarantee issued on behalf of its overseas WOS.

Procedure to be followed under the Automatic Route:

The Indian Party wishing to make an overseas direct investment through the automatic route must first complete form ODI online through AD bank, which must be accompanied by the documents listed therein, such as a certified copy of the Board Resolution, a Statutory Auditors certificate, and a valuation report (in the case of an existing company) that meets the valuation norms, before approaching an Authorized Dealer (designated Authorized Dealer) for the investment/remittance.

These Dubai free trade zones deal with a variety of industries that range from gold and jewellery to health care and manufacturing:

  • Jebel Ali Free Zone Authority (JAFZA)
  • Dubai Airport Free Zone Authority (DAFZA)
  • Dubai Silicon Oasis Authority
  • Dubai Healthcare City Authority
  • International Humanitarian City
  • Dubai World Trade Centre
  • Dubai Maritime City Authority
  • Gold and Diamond Park
  • Dubai South
  • Dubai Outsource City
  • Dubai International Financial Centre
  • Meydan
  • National Industries Park (TechnoPark)
  • Dubai CommerCity (DCC Free Zone)

Financial Commitment/Investment:

    1. Submitting Form ODI with the following attachments:
      • Certified copy of Board Resolution for Investment
      • Statutory Auditor’s Certificate
      • Share Valuation Report
    2. Obtain a Unique Identification Number (UIN) from AD Bank – this is necessary for all investments.
    3. After you’ve made your investment, make sure you get your share certificates or any other proof you need, and present it to the AD bank within six months.
    4. Report the details of the decisions taken by a WOS regarding diversification of its activities/setting up stepdown subsidiaries/altering its share holding pattern within 30 days of the approval of those decisions by the competent authority concerned of such WOS in terms of the local laws of the host country.

SETTING UP A BUSINESS IN A FREE ZONE

When setting up a business, free zones are particularly more popular with foreign entrepreneurs and for good reason – they offer 0% corporation and personal tax, 100% company ownership, 100% repatriation of capital and profits and no currency restrictions. 

Here are the 7 steps you’ll need to take to set up your business in the free zone:

The first step to starting your business and getting a licence is to determine the nature of your venture. There are over 2,100 business activities​ available to choose from, all falling into different groups within the industrial, commercial, professional and tourism space.
As stated before, there are over 30 free zones in Dubai to choose from. The nature of your business can have an effect on which free zone you chose to set up in. Generally, it often makes sense to set up in close proximity to businesses in the same sector.  DMCC – the world’s flagship Free Zone and Government of Dubai Authority on commodities trade and enterprise – has been awarded Global Free Zone of the Year by Financial Times’ fDi Magazine. 
When choosing your business name, it’s important that it conforms to the UAE’s strict naming conventions. Names that include offensive language, could be perceived offensive to religion, or refer to political groups or the mafia are forbidden. If you’re naming the business after a person, you’ll need to prove the person is a partner or owner of the company (no initials or abbreviations allowed).

You’ll need to apply for initial approval to ensure that the Dubai DED has no objections to you starting a business so that you can get started in the next steps for your licence. You can apply for this online, in person or through a third party (like through a law firm). The documents you’ll need to provide will depend on your business nature, but generally are:

  • Business registration and licensing form
  • Copy of your passport or ID
  • Copy of your residence permit/ visa
  • The company’s articles of association
  • Feasibility study of the project
Once you’ve been approved and received back all the necessary documents, you can now open a corporate bank account. The UAE has many banks, both local and international, to choose from. These include HSBC, Citibank, Barclays, Abu Dhabi Commercial Bank, Commercial Bank of Dubai and many more.
It’s compulsory for all businesses in Dubai to have a physical address. Fortunately, setting up in a free zone will help you find your new office space easily.

You’ll need to prepare all your documents, location addresses, and legal information to submit for final approval. In some circumstances, you’ll need to apply for licensing approval from other authorities. Once ready, you’ll need to submit:

  • Initial approval receipt and all the previously-submitted documents
  • The lease contract provided by the Real Estate Regulatory Agency (RERA)
  • Duly attested service agent contract (for civil establishments and companies that are 100% owned by non-GCC nationals), the UAE involving a local service agent
  • Approval from other government entities concerned

Finally, you’ll need to pay for the licence through various approved payment channels – and your business is ready to run. 

Licenses, Registrations &Approval

The Dubai Department of Economic Development (DED) issues the following six categories of business licenses:

 

  • Trade License: This license permits the holder to carry out trading activities including import, export, re-export, distribution and storage of goods / activities specified in the license.
  • Service License:  This license is suitable for service-oriented businesses; it allows the holder to provide services specified in their license.
  • Industrial License: This license permits for light manufacturing, assembly and packaging of goods specified in the license.
  • E-Commerce License: This is a trade or service license combined with e-commerce activity allowing the holder to trade goods and services online as specified in their license. This is not a virtual license but similar to a trade or a service license also facilitating online trade of goods or services.
  • General Trading License: This license permits the holder to trade in general activities, including import, export, re-export, storage and distribution.
  • Dual License with DED: This license allows the company registered in Dubai CommerCity to apply for a DED (Dubai Department of Economic Development) License without the need for physical office space on the mainland. Once registered with Dubai CommerCity, the company can apply for a DED License while operating out of DCC.
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