Dubai Financial Free Zones
By J. Richard Duke, Duke Law Firm, P.C., Alabama, USA
Dubai Federal Law No. 8 of 2004, titled “Regarding the Financial Free Zones in the United Arab Emirates” (Financial Free Zone Law), allows a Financial Free Zone to be established in any Emirate of the United Arab Emirates (UAE). The Financial Free Zone under this law allows the establishment of financial and banking activities and services, insurance and re-insurance, financial markets and supporting activities licensed to be carried out in the Financial Free Zone (Free Zone). Supporting activities include financial and cash brokerage services and the advice regarding setting up.
Some of the Dubai Free Zones include: Dubai Airport Free Zone (DAFZ); Dubai International Financial Centre (DIFC); Dubai Internet City; Dubai Media City; Economic Zones World (EZW); Jebel Ali Free Zone Authority; Dubai International Academic City (DIAC); Dubai Outsource Zone (DOZ); Dubai World Central (DWC); Energy and Environment Park (Enpark); International Media Production Zone; and The Dubai Biotechnology & Research Park (DuBiotech)1.
Dubai International Financial Centre
The DIFC, which opened in September 2004, is a 110-acre free zone, and a part of a larger vision of His Highness Sheikh Mohammed Bin Rashid Al Maktoum (His Highness), Vice-President and Prime Minister of the UAE and Ruler of Dubai, together with the government of Dubai. The DIFC resulted in creating an environment for progress in economic development in the UAE and the wider region.
The DIFC includes the rules, regulations and support for beginning and operating a business in the DIFC and is the foundation for much of the economic progress in Dubai2. The government of Dubai for the benefit of the UAE and the wider region as a whole conceived the DIFC. It creates a capital market, offering investors and issuers of capital world-class regulations and standards, and it attempts to operate with integrity, transparency and efficiency.
The DIFC has attracted a world-class stock exchange, NASDAQ Dubai (formerly known as the Dubai International Financial Exchange or DIFX), which opened in September 2005.
The DIFC offers a highly attractive investment environment to its participants, including:
• 100% foreign ownership;
• 0% tax rate on income and profits;
• a wide network of double taxation treaties available to UAE incorporated entities;
• no restrictions on foreign exchange or capital/profit repatriation;
• a dollar denominated environment;
• a transparent operating environment with high standards of rules and regulations;
• strict supervision and enforcement of money laundering laws;
• ultra modern office accommodation, state-of-the-art technology, sophisticated infrastructure, data protection/security, operational support and business continuity facilities of uncompromisingly high standards.
The focus of the DIFC is on several sectors of financial activity, including: Banking and Brokerage (Investment Banking, Corporate Banking & Private Banking); Capital Markets (Equity, Debt Instruments, Derivatives and Commodity Trading); Wealth Management (Asset Management, Fund Registration and Family Office); Insurance, Reinsurance and Captives; Islamic Finance & Ancillary Services.
Financial institutions are authorised to apply for licenses in the sector stated in the previous paragraph. Firms operating in the DIFC are eligible for benefits, including a zero tax rate on profits, 100% foreign ownership, no restrictions on foreign exchange or repatriation of capital and operational support in business continuity facilities. Financial services in the DIFC are regulated under international standards by the Dubai Financial Services Authority (DFSA)3.
Operating in DIFC
The Registrar of Companies (ROC) is established under Article 7 of DIFC Law No. 3 of 2006 (Companies Law) as a statutory “Centre Body”, defined in DIFC Law No. 9 of 2004, pursuant to which the principal Centre Body was established in the DIFC and assigned respective roles and responsibilities. The ROC is staffed and administered under the supervision of the Office of the Chief Legal Officer (CLO). The incumbent ROC was appointed by resolution of the DIFC president, His Highness, on 17 September 2004 and is Dean A. Ferris, CLO of DIFC authority. The role assigned to the ROC staff is to advise on, receive, review and process all applications submitted to prospective DIFC registrants seeking to establish a presence in the DIFC in accordance with the Companies Law, the General Partnership Law, or the Limited Liability Partnerships Law, and implementing regulations applicable thereto. The available companies are discussed in Offshore Investment, July/August 2008 (issue 188) through October 2009 (issue 200). The types of companies available include:
• company limited by shares (LTD);
• branch office of a pre-existing foreign company (Recognised Company);
• transfer of incorporation of an existing company to the DIFC from another jurisdiction (Continued Company);
• limited liability partnership (LLP);
• branch of a pre-existing foreign limited liability partnership (RLLP);
• general partnership (GP);
• branch of a pre-existing foreign general partnership (RP);
• limited partnership (LP);
• branch of a pre-exiting limited partnership (RLP);
• transfer of existing limited partnership into DIFC from another jurisdiction (Continued Limited Partnership/Foreign Limited Partnership).
LTDs, LLCs, LLPs and LPs are “incorporated” entities, having separate and independent legal status from their incorporator(s). The Recognised Company and Recognised Partnerships are “registered” entities, thus being mere extensions (and, for purposes of legal authority and liability, are inseparable parts) of the foreign-incorporated company/partnership through whose head office it is registered in the DIFC. A 98-page guide titled “Doing Business in the Dubai International Financial Centre”, is available through the DIFC Web site4.
Dubai Airport Free Zone
The Dubai Airport Free Zone (DAFZ and also DAFZA) was established in 1996 and is located within the boundaries of the Dubai International Airport.
The DAFZA offers three different types of companies that can be set up on the premises. Each company offers different options and benefits to be able to match business requirements. The three choices are:
• Free Zone Establishment (FZE): formed with one shareholder, either an individual (a person) or a non-individual (a company). A minimum share capital of United Arab Emirates Dirham (AED) 1 million (USD272,500) is required.
• Free Zone Company (FZCO): formed by a minimum of two and a maximum of five shareholders. The shareholders can be individuals (persons) or non-individuals (companies) or a combination of both. A minimum share capital of AED500,000 (USD136,000) is required.
• Branch Office of an existing company: a foreign company can set up a branch of its existing company in the Dubai Airport Free Zone. No share capital is required.
The DAFZA leadership team consists of four Executive Directors and is managed by a Director General and an Assistant Director General. The primary role of the leadership team is to steer, evaluate and control the overall strategy of the DAFZA in line with its mission and vision. Its vision is to become the investor’s top choice; its mission is to succeed as a preferred investment destination through excellence, commitment and creative solutions. Its values include: customer is first; employees; innovation; competency; and social responsibility.
The services of the DAFZA include leasing, with property options; licensing; additional set-up support; and additional operational services. The Free Zone has state-of-the-art facilities providing comprehensive business support facilities. The support facilities include conference rooms, a lecture hall, a business lounge, presentation screens and presentation equipment, flip-charts, visualiser, stationery and catering facilities. The general facilities include a food court catering to various tastes for a quick lunch or more formal luncheon meetings. The complex includes a travel agent, medical clinic, car rental agency, spa, coffee shops, banking and postal services and generous parking on the premises.
The DAFZA Web site refers to “QHSE”, which stands for commitment to an integrated management system for quality, health, safety and environment with focus on environment protection, health and safety of people and social responsibility.
The incentives and advantages of setting up in DAFZA include the following:
• 100% corporate tax exemption;
• 100% import and export tax exemption;
• 100% personal income tax exemption;
• 100% foreign company ownership;
• 100% repatriation of capital and profits.
Dubai Internet City
The Dubai Internet City (DIC) began in 2000 to provide a strategic and cost effective platform for information and communications technology (ICT) companies targeting emerging markets in a vast region extending from the Middle East to the Indian subcontinent, and from Africa to Central Asia. Its mission is to create an infrastructure, environment and attitude enabling ICT enterprises to operate locally, regionally and globally from Dubai with significant competitive advantage. The ICT includes companies such as: Microsoft; Cisco Systems; IBM; HP; Dell; Siemens; Sun Microsystems; Computer Associates; PeopleSoft; and Sony Ericsson. Many small and medium businesses (SMBs) and promising entrepreneurial ventures are also part of the community. The cluster comprises companies from a variety of sectors: software development; business services; web based and e-commerce; consultancy; sales and marketing; and back office.
DIC provides an environment attracting all elements of the ICT value chain, and has developed several programmes that can be leveraged by the community to explore and expand channel development opportunities. Companies are privy to an advanced Metro Ethernet broadband infrastructure and a range of business-enabling services including government transactions. The benefits of operation with DIC include:
• 100% exemption from personal income tax for 50 years;
• 100% exemption from corporate taxes for 50 years;
• 100% foreign ownership;
• 100% repatriation of profits;
• Metro Ethernet environment;
• Dynamic international community;
• Opportunities for business interaction and networking;
• Opportunities for channel and market development;
• Communications infrastructure based on next-generation technologies;
• Digital voice and high-speed data services offered at competitive rates;
• World’s largest commercial IP telephone network.
Firststeps@DIC is a unique facility within Dubai Internet City that allows companies to lease short-term office space while exploring business and market opportunities. Specifically designed for ICT companies who wish to operate from Dubai to conduct feasibility studies, evaluate future potential, collaborate on joint ventures and/or scout for new business in the region, this facility eliminates the need for long term investment in large office spaces until they are fully ready for it.
Acting as an exclusive business centre, firststeps@DIC has a business oriented environment that allows new companies to create opportunities and also to collaborate with others in the community. Many established companies and entrepreneurial ventures from around the world have leveraged firststeps@DIC to establish a foothold in the market and then gone on to establish larger permanent offices. If the services and activities of the applying company are approved by the authority, the licensee will be granted a license to operate in the free zone. Companies can choose to lease space either for two to three months or for a year, during which period they can test the viability of their business plans before scaling up to full-fledged operations. The lease may be fully operational as a Branch or Foreign Company or Free Zone Limited Liability Company (FZ-LLC). Licenses are provided for a period of one year and are renewable on a yearly basis. Companies can also take land on a renewable lease of up to 50 years and build their own offices.
DIC provides a one-stop-shop environment for a variety of services required for setting up and running a business. A single point in DIC allows businesses to interact with different government entities such as the police, immigration, and postal authorities. DIC can assist in obtaining and authenticating vital documents and in obtaining customs clearances, and a fast track immigration process is designed to ensure swift access to talent and resources. Companies can host independent web and e-commerce sites with DIC’s sister company, eHosting DataFort (EHDF), which provides hosting services from a secure data centre, with strong service level agreements and collaborative platforms. Also on offer are satellite broadcasting and Internet services, through a dedicated teleport, and in-house services such as event management and hospitality.
Dubai Media City
Dubai Media City (DMC) is the only global media hub in the region where all media-related businesses thrive together. Strategically located in Dubai at the crossroads of the Middle East, Africa and South Asia, a business has the potential to profitably operate in the local and international markets from DMC.
DMC is a successful reflection of the vision of His Highness to transform Dubai into a knowledge-based society and economy. The stated vision of DMC is to become an efficient and leading provider of services to foster the growth of Dubai’s knowledge-based economy. Its mission is to create and market world class enabling services for the media industry. From this vision DMC creates a world-class environment for every kind of media business, which broadly includes media and marketing services, printing and publishing, music, film, new media, leisure and entertainment, broadcasting and information agencies. In this open and flexible environment, a company can operate with collective synergy and individual freedom. Being a dedicated media zone, DMC ensures that all media businesses are given the “Freedom to Create”.
The list of DMC based companies includes Reuters, CNN, CNBC, NBC, Sony, Showtime and Bertelsmann. DMC set up Media Business Centres to promote talent and entrepreneurship in the region. These unique facilities are targeted at freelancers and independent media professionals. Freelancers find the Centres an ideal base for gaining visibility and building relationships with the media industry.
In July 2003, DMC launched the International Media Production Zone (iMPZ), the first free zone in the region dedicated to media-related production activities, focusing on the printing, publishing and packaging sectors.
In December 2004, it launched the Dubai International Film Festival, which showcased 76 films from around the world at six venues in Dubai and attracted international celebrities and an audience of approximately 40,000 people.
The DMC created a new initiative, Dubai Studio City (DSC). Announced in February 2005, DSC is dedicated to the production of music, film, TV commercials and broadcasting. It appears that it is set to further expand its infrastructure to provide value-added services for a more diverse community.
Dubai Knowledge Village
The Dubai Knowledge Village (DKV) was launched in 2003 and places the Middle East on the map as the first and largest community for human resources management professionals. The 1 kilometer-long picturesque community provides an environment for a variety of knowledge-based entities that includes diverse Human Resources Management and Support Organisations.
This thriving knowledge community was founded as part of a long-term economic strategy to develop the region’s talent pool and accelerate its move into a knowledge-based economy. The DKV vision is to be the leading regional destination for human resources management providers. Its mission is to provide quality infrastructure, services and support to the human resources management community to enable their growth and support Dubai’s moves into a knowledge-based economy.
DKV brings businesses in close proximity to their peers and enables them to share the same supply value chain. This unique advantage offers companies a wealth of networking and knowledge sharing opportunities, while providing better economies of scale and promoting business-to-business synergy. The institutions operating within it include universities, training centers, professional centres and human resource companies. Benefits for DKV partners include 100% foreign ownership, 100% tax free, 100% repatriation of assets and profits, and effortless licensing, registration and government services.
DKV also offers first-rate infrastructure and facilities for the use of its human resource business partners and their clients, including serene landscapes, a food court, retail facilities and other services. DKV has over 450 business partners, which include professional training centres, human resource consultancies, linguistic centres and assessment centres. DKV also enjoys the distinction of being the world’s only Free Zone cluster totally dedicated to human resources management professionals.
DKV seeks to develop the talent pool for the regions and accelerate its move to the knowledge economy by providing the infrastructure for developing, sharing and applying knowledge. DKV also facilitates, promotes and is a flagship for e-learning and access to the new learning described as lifelong learning. DKV offers a variety of conference centre facilities including an auditorium, conference rooms and executive meeting rooms, all equipped with state-of-the-art audio-video presentation equipment.
The DKV provides services with respect to commercial offices, including the process of setting up at DKV and help with respect to real estate services. It also helps with government services including Employment/Residency Visas, Visit and other Visas, Dubai police services, counsellor services and other government related services. DKV also offers business partners registration and provides the legal structure required to set up a business. This registration is required to secure legal protection and tax exemptions and obtain credit and raise capital. The registration procedure is simplified and involves minimal costs.
Services offered with respect to a business centre include the setting up process, helping with licensing activities and licensing, and selection of offices. It also provides help with sponsorship regulation that includes obtaining ID cards, Health Cards, Entry Permits, Residency Permits, Visit Visas, Visa Extensions and Renewals, and Entry and Residency Permits for dependents and maids. It also includes IT and telecom services and community support services.
Business partners in the DKV can incorporate in three ways:
• branch of foreign company (any offshore company should be at least two years old to be incorporated by DKV);
• branch of UAE-based company (including other UAE Free Zone licensees);
• free Zone limited liability company (FZ-LLC).
The next issue of Dubai Digest continues the discussion of Dubai Financial Free Zones.
END NOTES:
1. See http://www.indexuae.com/Top/Business_ and_Economy/Free_Trade_Zones.
2. See July/August 2008, 6, issue no. 188, Offshore Investment
3. See November 2009, 6, issue no. 201, Offshore Investment.
4. See http://www.difc.ae/operating/doing_ business/Doing Business in the DIFC - April 2006.pdf
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