What is the main source of law authorising this entity form?

Initially, each free zone authority obtains its own rules and regulations, if a certain set of rules are not provided within the free zone authority, the UAE Commercial Companies Law must be followed.

Give a brief summary of this entity form, including

Does the entity possess separate legal personality?

Free zone entities are treated as separate legal entities.

(Maximum) period of existence

Period of existence will depend on the period agreed upon by the shareholders based on the Articles and Memorandum of Association of the free zone entities. Note that free zone entities can exist for an indefinite period.

Governing document(s)

Certificate of Formation/Incorporation, Certificate of Incumbency, Trade License, signed Memorandum of Association and share certificates, Board Resolution, Parent Company Documents (if corporate), and Passport copies of Shareholders, Managers, and Directors.

Liability of incorporators / shareholders

The shareholders' liability is limited to the extent of their shares in the free zone entity.

(Governing) bodies

Governed by manager(s) and the Board of Directors.

Other particularities

100% foreign ownership.

Activity of the free zone entity can only be carried out within the free zone and/or free zone to free zone as well as outside of UAE. A free zone entity can only carry out its activities in the mainland through a local agent/distributor.

Lease agreement will be prepared by the relevant authority and is required to incorporate;

Approvals may be required from the respective government authorities based on the type of activity to be registered; and

Annual renewal is possible.

100% Repatriation of Capital and Profits.

100% Exemption from Customs Duty.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Free Zones are allowed to be involved in international transactions and restructuring in their own free zone and internationally but are not permitted to trade with customers in Dubai and the UAE mainland unless through a local agent, however this may vary on the type of business activity.

Limited to share acquisition (there are no asset/equity acquisitions).

Conversion from FZE to FZCO and vice versa is possible.

Conversion from one (1) form to another is possible, provided that the provisions of the law and the rules and regulations of the applicable authorities are complied with.

Can this type of entity be publicly listed or held?

No, free zone entities cannot be publicly listed.

Can this type of entity be used for a non-profit or charitable organization?

Yes, but subject to the approval of the free zone authority and any governmental approval (i.e. Community Development Authority).

Give a brief summary of the process of incorporation, formation, or organization, including

Main documents required

The process depends on the specific free zone authority as each has its separate forms, applications and required execution of the required documentation. Typical/common documents for incorporation include:

For an individual –

• passport copy.
• residence visa and emirates ID (if available).
• No Objection Certificate (if employed in another company).
• Proof of address

For a corporation –

• certificate of Incorporation (notarised and attested).
• Articles and Memorandum of Association (notarised and attested).
• Board Resolution appointing manager/director (notarised and attested).
• Power of attorney given to manager/director (notarised and attested).
• Memorandum and Articles of Association (notarised and attested).
• Specimen signature of manager/director (notarised and attested).
• Passport copy of manager/director.
• Share capital information including details of Ultimate Beneficial Owner (UBO).

Kindly note that the above corporation documents can either be in English or in Arabic.

Involvement of notary, company register, governmental authorities

NA

Timing (estimate)

Depending on the free zone authority.

Main costs, including registration and similar fees (excluding legal fees)

Depending on the free zone authority.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

Yes

Minimum number of incorporators / shareholders and residency requirements

Free Zone Establishment (FZE): one shareholder

Free Zone Company (FZCO): to establish FZCO, the maximum number of shareholders is 50 and the minimum is (2) shareholders (except FZE).

No residency requirements.

Minimum number of directors (or other applicable officers) and residency requirements

Depending on the rules and regulations of the free zone authority; no residency requirement except for the manager.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

Depending on the rules and regulations of the free zone authority.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

Physical presence of the incorporators/directors may be required in the jurisdiction for incorporation or can be represented by an appointee via duly executed and legalised Power of Attorney. This depends on the rules and regulations of each free zone authority.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

Value Added Tax (VAT) was first introduced in the UAE on 1 January 2018 whereby the rate of 5 percent (5%) is levied at the point of sale. It is mandatory for businesses to register for VAT in the following cases: (1) if the taxable supplies and imports of a UAE-based business exceed AED 375,000 per annum (2) if a non UAE-based business makes taxable supplies in the UAE. Meanwhile, VAT is optional for businesses whose supplies and imports exceed AED 187,500 per annum.

What is the title of the applicable company registry?

The applicable company registry is listed in the register of the free zone authority website and national economic website.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles , Ownership identification (direct and/or indirect ownership, 'beneficial owners') , Group structure , Share capital , Directors , Accounts , Insolvency, good-standing, liquidation , Liens and encumbrances on the shares , Liens and encumbrances on assets of the entity , Other (e.g. litigation, tax matters)

The information listed below must be filed with the authorities and is not publicly available:

• Application form for reservation of the trade name of the company and the application form for initial license approval.
• Board resolution(s).
• Memorandum and Articles of Association.
• License.
• Books of Account or financial statements.
• Powers of Attorney.
• Certificate of Incorporation/registration (for some free zones)
• Specimen signature (for some free zones).
• Passport copy of manager/director.
• Share Certificates (for some free zones).
• UBO information of the shareholders.

Note: Despite the mandatory filing of the UBO information, such information remains confidential and not publicly available.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The Board of Directors or the managers represent the company and must carry out management duties in the interests of the company in accordance with its objects as provided in the Articles and/or Memorandum of Association of the company.

How are the members of the executive body appointed, dismissed and replaced?

The appointment, dismissal, and replacement of the members of the Executive Body is provided for in the Articles and/or Memorandum of Association of the company.

Details of such appointment, dismissal and/or replacement can be further agreed through a Shareholders Agreement.

Is it possible to appoint corporate directors or must all directors be natural persons?

Yes – some free zone authorities allow appointment of corporate directors with special approval from the Registrar of such free zone authority.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

It is possible to appoint a non-executive director, but this is not a mandatory requirement as per the rules and regulations of the free zone authorities.

The Free Zone Authority’s rules and regulations on the appointment, dismissal and replacement of a director are also applicable with respect to a non-executive director.

The incorporated entity has a one-tier board only.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The Company must have a General Assembly of all the shareholders for which all the rights and obligations are provided by the Free Zone Authority’s rules and regulations and the Articles and Memorandum of Association.

The main tasks of the General Assembly are as follows: Amendment of Articles and Memorandum of Association, appointment of directors and/or manager, share purchase and transfer, increase, and decrease of share capital, profit/loss distribution, liquidation, changing of legal form and changing company name and activity.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Depending on the rules and regulations of the free zone authority – ordinary resolutions will require the approval and consent of shareholders in accordance with a simple majority.

However, special resolutions that deal with the amendment of Articles and Memorandum of Association, increase, and decrease of share capital, change of company name, legal form, or activity, share purchase and transfer and liquidation/dissolution require approval and consent of shareholders representing at least 75% of the share capital.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

No.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

For most free zone authorities, the directors must prepare the financial statements within six (6) months after the end of the financial year and the financial statements must be submitted to the Annual General Meeting within 90 days of its financial year end.

For annual company compliance, yearly audited financial statements are required to be submitted to some free zone authorities.

Is the entity permitted to determine its own financial year?

Yes, a free zone entity may prescribe its own financial year subject to the approval of the free zone authority and provided that such financial year does not exceed 18-months or be shorter than six (6) months.

Is the entity subject to any statutory (external) auditor obligations?

Yes.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

All employees working with the free zone entities are required to have a UAE residency visa sponsored by said free zone entities (employment visa).

What is the title designated for ‘ownership interests' (e.g. shares, quota, interests, membership)?

Shares.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Some of the free zone jurisdictions allows classification of shares if more than one shareholder but subject to the free zone authority’s approval.

What documentation is required for the transfer of ownership interests?

For any transfer of shares, the following documents are required:

• Duly executed resolutions approving the sale and purchase of shares.
• Share Purchase and Transfer Agreement.
• Amendment to the Memorandum and Articles of Association.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

To be signed before the Free Zone Authority.

Are there any applicable stamp duties imposed when transferring ownership interests?

None.

How are shares issued? (including information on payment obligations, registration requirements)

As identified and provided in the Memorandum and Articles of Association of the entity.

Further information on equity contributions, e.g. , Non-cash payments on shares; (Share premium) contributions without issuance of shares , Can partially paid shares/ownership interests permitted and what are the restrictions on them?

The capital of the entity shall be composed of either a contribution in cash or an equivalent in the form of a contribution in kind.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

No share cancellation and share repurchase.

Any increase or decrease in the share capital needs to be approved by the shareholders representing at least 75% of the share capital.

Any requirements with respect to distributions to shareholders?

The entity may only declare or pay a dividend or make a distribution out of the profits available and if the said entity is able, or would after the payment be able, to pay its liabilities as they become due or if the realisable value of the company's assets would thereby exceed the aggregate of its liabilities and its share capital and share premium accounts.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

Annual License.

Annual Lease Agreement.

Annual immigration card (if with employees).

Annual audited financial statements (some free zones do not require submission of audited financials).

Economic Substance Regulation (ESR) notification filing and ESR report if required.

Costs:

• License: Approximately 15,000 AED.
• Lease: Depending on the office.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

Not applicable. Free zone entities with passive income such as dividend, royalty and interest from the mainland will attract a 0 per cent corporate tax rate. Similarly, such entities in designated zones for VAT purposes supplying goods to the mainland will also be eligible for the 0 per cent rate.

Summary of any specific matters, e.g. recent or prospective major legal developments

Key major amendments to the UAE laws were introduced. These are:

• Federal Decree-Law No. 50 of 2022 on the Promulgation of the Commercial Transactions Law
• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses
• Federal Decree-Law No. 41 of 2022 on the Civil Personal Status
• Federal Decree-Law No. 38 of 2022 on the issuance of the Criminal Procedure Law
• Federal Decree-Law No. 35 of 2022 Promulgating the Law of Evidence in Civil and Commercial Transactions
• Federal-Decree Law No. 3 of 2022 concerning the regulation of Commercial Agencies
• Dubai Law No. 4 of 2022 regulating Virtual Assets in the Emirate of Dubai
• Federal-Decree Law No. 46 of 2021 on Electronic Transactions and Trust Services
• Federal-Decree Law No. 45 of 2021 on the Protection of Personal Data
• Federal-Decree Law No. 34 of 2021 concerning the fight against rumors and cybercrime
• Federal-Decree Law No. 32 of 2021 on Commercial Companies
• Federal-Decree Law No. 33 of 2021 on Regulations of Labour Relations
• Cabinet Decision No. 57 of 2020 Determining the Economic Substance Requirements
• Cabinet Decision No. 58 of 2020 On the Regulation of Procedures Related to Real Beneficiaries.