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When establishing a new business in Abu Dhabi, one of the first decisions one makes is whether to do so on the mainland (sometimes referred to as ‘onshore’) or in a free zone (sometimes referred to as ‘offshore’).
Abu Dhabi has five free zones that cover multiple industries and sectors. This article aims to give a broad overview of the different free zone options available in Abu Dhabi. We will also briefly describe the differences between mainland and free zone companies.
A free zone is a defined geographic area that is governed by a set of economic and business incentives that are different from the ones generally applicable in the jurisdiction in which it is based. The aim of a free zone is to support the development of a business or industry cluster, encourage foreign investment, boost employment, promote trade and diversify the economy.
In Abu Dhabi, the free zones form part of The Abu Dhabi Economic Vision 2030 (published in November 2008) plan to support Abu Dhabi’s long-term economic growth whilst building a sustainable economy.
The UAE Federal No. 2 of 2015 Concerning Commercial Companies (‘Commercial Companies Law’) requires companies incorporated in the UAE to have at least 51 per cent UAE national ownership. The same law excludes its application in the free zones, and allows up to 100 per cent foreign national ownership of the companies incorporated in those zones.
To further boost foreign direct investment in the UAE, the UAE Cabinet issued Federal Decree Law No. 19 of 2018 on Foreign Direct Investment (‘FDI Law’). The FDI Law permits up to 100 per cent foreign ownership of limited liability companies seeking to perform activities on the mainland, so long as: (1) the intended business activities fall within a specified ‘positive list’ as issued by the Cabinet and (2) the companies satisfy certain investment thresholds. For a more in depth discussion on the FDI Law, please see our article entitled ‘The Highlight of 2018: A New Foreign Direct Investment Decree in the UAE’ and our client update on the ‘UAE Foreign Direct Investment Developments’.
On the mainland, the Department of Economic Development or equivalent (‘DED’) in each of the UAE’s seven Emirates is the licensing authority and corporate regulator of companies. However, each free zone is established by a decree which also establishes the free zone’s own licensing authority and corporate regulator. Each free zone also has its own set of companies’ and licencing regulations.
Strictly speaking, companies that are licenced in a free zone should not conduct commercial activities on the UAE mainland. In practice however, free zone companies can conduct certain activities there.
In a recent development, local DEDs and free zones have co-operated and approved a ‘dual licensing’ concept. With a dual licence, businesses registered in a free zone can be licensed to do business on the mainland of that Emirate. This is granted on a case-by-case basis and is subject to approval by the relevant authorities.
ADAFZ is a free zone area covering several of Abu Dhabi’s airports. It provides free zone facilities, business parks, a logistics park, and business centres at Abu Dhabi International Airport, Al Ain International Airport and Al Bateen Executive Airport.
Generally, businesses that can set up in the ADAFZ broadly fall under the following categories (non-exhaustive.:
ADAFZ allows for setting up limited liability companies (‘LLC’) and branches.
The share capital requirements of the ADAFZ differ depending on the type of activity selected, and whether the shareholder is a corporate entity or natural individual:
(ADAFZ can change these requirements without notice.)
ADAFZ also requires companies to have at least one shareholder, at least one director, and a general manager.
ADGM is a financial free zone that was established in late 2015. It is a common law jurisdiction, with rules and regulations supported by the common law of England and Wales. ADGM is the most recent free zone in Abu Dhabi and it is Abu Dhabi’s only financial free zone. In addition, ADGM has a separate court system, the ADGM Courts, that can hear commercial cases of ADGM companies and of other businesses that ‘opt in’.
ADGM allows for a wide variety of financial, non-financial, and retail business to be conducted, including:
ADGM allows for setting up different types of legal structures and corporate vehicles. These include:
ADGM also approves the use of trust instruments so long as the trust is compliant with ADGM’s trust law provisions. These are directly applied from UK trust laws and amended in certain aspects.
ADGM companies have no minimum share capital requirement. They also require at least one shareholder, one authorised signatory, and one director. Appointing a company secretary is optional for private companies. However, if the company is to operate in the financial sector and be regulated by ADGM’s Financial Services Regulatory Authority (‘FSRA’), it is possible that there may be additional requirements imposed on the company.
Masdar (Abu Dhabi Future Energy Company), which was founded in 2006, aims to establish the UAE as a global leader in renewable energy and sustainable urban development. It seeks to develop the UAE’s role in the renewable and clean energy sectors with the objective of making sustainability solutions commercially viable. Masdar City Free Zone is a business hub based in Masdar City (the urban community) located just outside the capital of Abu Dhabi.
In line with Masdar’s mandate, the permitted activities at Masdar City broadly fall under the following categories (non-exhaustive.:
Masdar City also allows for non-energy activities such as those listed below, aimed at developing a thriving business ecosystem:
Masdar City allows for setting up LLCs and branches. It can also issue licenses for association (non-profit) activities.
The LLC share capital requirements at Masdar City are AED 50,000 (approx. US$13,600).
Masdar City also requires companies to have at least one shareholder, a director, a general manager, and a company secretary.
KIZAD is Abu Dhabi’s first integrated, trade, logistics, industrial free zone. It officially opened in 2012 and is part of Abu Dhabi Ports Company, the entity that owns, operates and manages ports and terminals in Abu Dhabi. KIZAD is located at Al Tawila between Abu Dhabi and Dubai, and has access to Khalifa Port.
KIZAD can issue the following types of licenses:
this permits the import of raw materials, and the manufacturing, processing, assembling, packaging and export of intermediate and/or finished products. The list is non-exhaustive and other industrial activities are allowed.
this permits trading activities that include import, export, distribution, stocking, warehousing of products and items specified on the licence. The list is non-exhaustive and other trading activities are allowed.
Trading activities that can be specified on the licence include trading in agricultural products, flowers and plants, aircraft and trains, building materials, jewellery etc.
this permits service activities such as management and economic consulting services, marketing services, logistical support services such as cargo and freight forwarding, restaurants, retail food outlets, catering services, and travel agencies. The list is non-exhaustive and other service activities are permitted.
KIZAD allows for setting up LLCs and branches.
The minimum share capital requirements at KIZAD are AED 150,000 (approx. US$40,800) although the KIZAD registrar may require more.
KIZAD requires companies to have at least one shareholder, at least two directors, a general manage, and a company secretary.
In terms of customs’ duties, a KIZAD company is considered to be performing industrial manufacturing activities if:
Twofour54 is a media free zone aimed at building a creative and media cluster in Abu Dhabi. It is a driving force in the development of Abu Dhabi as a filming location, and is a major supporter of developing both local content and local talent.
twofour54’s activities are generally limited to the creative media space. Among others, the activities include:
Twofour54 allows for setting up LLCs and branches. It can also issue freelancer licenses.
There are no minimum share capital requirements at twofour54.
Twofour54 requires companies to have at least one shareholder, one director, a general manager, and a company secretary.
As shown above, Abu Dhabi’s five free zones broadly cover the aviation (ADAFZ), finance and financial services (ADGM), renewable energy (Masdar City), manufacturing & logistics (KIZAD., media (twofour54) sectors and their related support activities. Each of these hubs endeavours to develop its respective sector in Abu Dhabi, with the aim of building Abu Dhabi into a competitive and world-class business location that attracts local and international business investment.