How to Transfer a Free Zone Company to a Mainland Business in Dubai

Dubai has emerged as one of the most business-friendly places in the world, and entrepreneurs and multinational companies from every sector have flocked to the emirate. One of the main reasons for doing business in Dubai is the availability of different types of jurisdictions, including free zones and the mainland. 

Though free zones offer benefits like full foreign ownership in all industries, tax benefits, and easy procedures, most companies eventually want to move to the mainland. The reason for transitioning from a free zone to a mainland business varies in each instance. 

Some companies need access to the UAE local market, others want government contracts, the potential to overcome free zone limitations, or to have a higher profile in the growing UAE economy. Whatever the reason, the relocation from a free zone to the mainland requires careful planning, adherence to legal formalities, and abiding by UAE business laws.

This article provides a step-by-step procedure for transferring from a free zone company to a mainland business in Dubai. It explains the main differences between the two business entities, legal aspects, the step-by-step transfer process, the costs, challenges, and solutions.

Key Differences Between Free Zone and Mainland Businesses

It is essential to know the differences between mainland and free zone businesses before the transition.

Ownership and Control

One of the distinguishing features of free zones and mainland companies is ownership. Free zone companies support 100% foreign ownership, and an investor is able to do business without a local partner. 

However, certain mainland companies require a local sponsor, who must own at least 51% of the company. However, due to recent regulatory reforms, full foreign ownership without a local partner for certain mainland business activities is allowed.

Market Reach

Free zone businesses cannot conduct business directly in the UAE mainland. A free zone business, if it wants to trade within the UAE, must appoint a local distributor or open a mainland branch 

Mainland businesses, however, can carry out business anywhere in Dubai and in the UAE as a whole without any such restriction.

Office Requirements

Free zones usually offer flexible office arrangements, such as shared office space and virtual offices. Businesses on the mainland, however, are required to rent physical office space that is Ejari-compliant. 

This can contribute to operational expenses but offers more credibility and growth opportunities.

Regulatory Differences

Different authorities regulate free zones and mainland businesses. Free zone companies are regulated by their own free zone authorities, while mainland companies are licensed by the Department of Economic Development (DED). 

The DED also applies additional compliance rules, including VAT filing, corporate tax obligations, and labor legislation.

Legal Requirements and Transfer Considerations

Before starting the transfer process, the companies must complete some legal requirements.

Business Structure and License Amendment

Since free zones fall within the jurisdiction of independent regulatory frameworks, switching from a free zone license to a mainland license or vice versa cannot occur directly. 

This means that businesses have to close their free zone license and make a new mainland license application via the DED.

Local Sponsorship or Service Agent

Based on the nature of business activity, certain businesses in transition to the mainland may need a local Emirati sponsor or a local service agent. The terms of such arrangements need to be thoroughly reviewed to enable a smooth transition.

Regulatory Approvals

There are a couple of approvals that need to be secured for the transition:

• NOC from the free zone authority to allow cancellation
• DED approval of a new mainland business license
• Special permits or industry-specific approvals for businesses in regulated sectors (healthcare, finance, etc.).
• Visa and Employee Transfers

Existing employee visas under the free zone company must be canceled and reissued under the new mainland business entity. This requires coordination with Dubai’s General Directorate of Residency and Foreigners Affairs (GDRFA) and the Ministry of Human Resources and Emiratisation (MOHRE).

Step-by-Step Process of Transferring a Free Zone Company to a Mainland Business

Step 1: Verify Free Zone Exit Conditions

Firms need to confirm exit conditions with their free zone authority before initiating the transfer. 

This requires clearing outstanding liabilities, fulfilling contractual obligations, and meeting lease conditions. Failure to clear these can lead to delays or fines.

Step 2: Disable the Free Zone License

To cancel a free zone company formally, business owners must:

• File an application for license cancellation with the free zone authority.
• Obtain a No Objection Certificate (NOC) from the free zone.
• Submit necessary documents, e.g., board resolutions and clearance certificates.
• Close down the company corporate bank account if required.

Step 3: Register the Business with the Department of Economic Development (DED)

Following the cancellation of the free zone company, a new company licensing process has to be initiated with the DED:

• Select an appropriate legal form (LLC, sole proprietorship, etc.).
• Make the right business activity under mainland regulations.
• Provide the required documents, including passport copies, tenancy contracts, and NOCs.

Step 4: Mainland Office and Tenancy Agreement

The UAE mainland requires companies to have an office space, with an Ejari. This step is significant to obtain final DED approval.

Step 5: Final Approvals and VAT Filing

The DED will issue the mainland trade license upon receiving all approvals. Businesses over the VAT threshold must file with the Federal Tax Authority (FTA).

Step 6: Transfer Visas and Bank Accounts

Free zone visas must be canceled and reissued for mainland business. A new corporate bank account must be opened in accordance with the UAE banking regulations.

Transfer Fees

The transfer from a free zone to a mainland business has some associated charges, which are:

• License cancellation fees are in the free zone.
• DED licensing charges.
• Office rental and Ejari issuance.
• Visa issuance and cancellation fees.
• Possible penalties or outstanding free zone fees.

Challenges and How to Overcome Them

Regulatory Delays

Government documentation and approvals may take time. Hiring a business setup consultant can facilitate the process.

Cost Implications

Since mainland businesses involve higher operational expenses, budgeting accordingly is essential in order to accommodate transition expenses.

Employee Management

Employees must be properly informed and transferred to avoid inconvenience. Firms must facilitate visa transfers to avoid legal issues.

Relocating a firm from a free zone to the mainland in Dubai requires an organized plan to adhere to UAE laws. While free zone firms benefit from tax exemptions and easy procedures, mainland companies offer greater market access and autonomy.

By carefully following the step-by-step process, securing the necessary approvals, and addressing potential challenges, businesses can ensure a smooth transition. Seeking professional assistance from business setup experts can further simplify the process and help companies establish a strong presence in Dubai’s thriving mainland economy.

Seek our professional on-the-ground guidance, contact us via mail at info@radiantbiz.com or WhatsApp & call us at  +971 55 234 7124!

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