The process of a Dubai mainland company conversion to a free zone is a formal business restructuring governed by specific legal frameworks. It involves the termination of a legal entity registered with the Department of Economy and Tourism (DED) and the establishment of a new legal entity within a Dubai free zone authority. This procedure is not a direct license transfer but a sequence of two distinct legal actions: liquidation and formation. The entire process is dictated by Federal Decree-Law No. 2 of 2015 concerning Commercial Companies and the individual regulations of the destination free zone. This guide outlines the factual, procedural, and legal aspects required to execute this transfer in compliance with UAE law.
The Legal Framework Governing the Transfer
The legal basis for a business transfer from mainland to free zone is not contained within a single statute. It is a composite procedure governed by two separate legal systems. The liquidation of the mainland company is conducted under Federal Decree-Law No. 2 of 2015 concerning Commercial Companies, specifically Articles 66 to 115, which detail the winding-up process. The Dubai DED is the governing body for this phase. Subsequently, the formation of the new free zone entity is regulated exclusively by the specific laws, regulations, and rules of the chosen free zone authority (e.g., DMCC Regulations, JAFZA Law No. 1 of 1996). There is no legal provision for the direct migration of a mainland legal entity to a free zone jurisdiction.
Common Business Rationales for Transfer
Businesses undertake the procedure of a Dubai mainland company conversion to a free zone for several operational and regulatory reasons. A primary rationale is to operate under a free zone framework that permits 100% foreign ownership without the requirement for a local service agent. Other common reasons include accessing specific tax exemptions granted to free zone businesses, facilitating full repatriation of profits and capital, and benefiting from streamlined customs and import-export procedures. Additionally, businesses may relocate to a free zone to integrate into a specialized industry cluster that offers a dedicated ecosystem of infrastructure, suppliers, and partners relevant to their sector.
Procedural Steps for Mainland to Free Zone Transfer
The transfer from a mainland to a free zone jurisdiction follows a defined, multi-stage procedure. Each stage is a legal prerequisite for the next and involves formal submissions to distinct government authorities. The process requires the sequential completion of the mainland company’s liquidation and the new free zone company’s incorporation. Adherence to the prescribed order is mandatory for legal compliance.
Step 1: Free Zone Selection and Application
The procedure begins with the selection of a destination free zone and the submission of an initial application. The business submits a formal request to the chosen free zone authority, including the proposed trade name, details of shareholders and managers, and a list of intended business activities. The authority reviews this submission to ensure the business activity is permitted within its scope. Upon successful review, the authority issues an initial approval, which formally reserves the trade name and allows the applicant to proceed with the subsequent incorporation steps.
Step 2: Mainland Company Liquidation Procedure
The liquidation of the mainland company is a mandatory legal procedure. The shareholders must pass a board resolution to dissolve the company and appoint a licensed liquidator. As per the Commercial Companies Law, the liquidator publishes a notice of liquidation in at least one Arabic and one English newspaper. Following a 30-day creditor notification period, the liquidator settles all outstanding company liabilities, including employee end-of-service benefits, supplier payments, and government dues. A final liquidation report is then submitted to the DED to obtain a final liquidation certificate.
Step 3: Obtaining Free Zone Initial Approval
Concurrent with or following the initiation of the liquidation process, the business proceeds with the free zone setup. The initial application submitted in Step 1 is processed by the free zone authority. This step involves the formal review of the proposed company structure and business activities. The authority issues an “Initial Approval” document, which serves as a temporary green light to proceed with the full incorporation. This approval is a prerequisite for signing legal documents like a lease agreement and opening a corporate bank account for the new entity.
Step 4: Free Zone Company Incorporation
After securing initial approval, the final incorporation of the free zone company takes place. This step requires the submission of a complete set of documents to the free zone authority. These documents typically include the signed Memorandum of Association (MOA) or local service agent agreement, a copy of the tenancy contract for the registered office, and passport copies of all shareholders and managers. The authority conducts a final review of the submission. Upon successful verification, it issues the final trade license and the company’s establishment certificate, formally creating the new legal entity.
Step 5: Asset and Employee Visa Status Transfer
Following the issuance of the new free zone license, the legal status of company assets and employees must be transferred. Tangible company assets are physically moved to the new free zone premises. For employees, the process involves the mandatory cancellation of their residence visas, which were sponsored by the mainland company. The new free zone entity then immediately applies for new work permits and residence visas for these employees. This transfer of immigration sponsorship is a legal requirement to ensure the employees’ status remains compliant with UAE immigration laws.
Mandatory Documentation for the Transfer
The transfer process necessitates a specific set of legal and administrative documents for both the liquidation and incorporation phases. The documentation must be accurate and complete to be accepted by the respective authorities. The requirements are standardized but may have minor variations depending on the specific free zone.
- Original Dubai mainland trade license and establishment card.
- Board resolution for liquidation and liquidator’s appointment.
- A copy of the company’s Memorandum of Association (MOA).
- Passport and Emirates ID copies of all mainland shareholders.
- Final liquidation certificate issued by the Dubai DED.
- Newspaper clippings confirming the publication of the liquidation notice.
- Bank account closure letter from the mainland corporate bank.
- Completed free zone company application forms.
- Passport and Emirates ID copies for the new free zone company’s shareholders.
- A tenancy contract (Ejari) for an office within the selected free zone.
- Signed Memorandum of Association (MOA) for the new free zone company.
Cost Components and Standard Timelines
The financial outlay for a Dubai mainland company conversion to a free zone is comprised of distinct cost components. The liquidation phase incurs DED fees, the liquidator’s professional fees, and newspaper publication charges. The free zone incorporation phase includes the free zone’s registration fees, license fees, visa allocation fees, and office lease costs. The standard timeline for the entire procedure is typically two to four months. This duration is dictated by the 30-day creditor notification period during liquidation and the processing times of both the DED and the free zone authority.
Legal and Contractual Obligations
A business undertaking this transfer must address several existing legal and contractual obligations. Existing contracts with mainland clients or suppliers cannot be automatically transferred; they require a formal legal assignment or novation to the new free zone entity, which is contingent on the consent of all contracting parties. A fixed-term office lease on the mainland represents a binding contract that must be settled or terminated according to its terms. Furthermore, any financial facilities or loans held by the mainland company are tied to its legal entity and cannot be directly transferred, requiring settlement or refinancing under the new entity’s name.
Engaging a Registered Agent for the Procedure
The UAE legal framework permits businesses to engage registered agents or professional service providers to represent them in government transactions. A registered agent, such as a Public Relations Officer (PRO) or a business setup firm, is authorized to submit applications, follow up on cases, and collect documents on behalf of a client from the DED and free zone authorities. In the context of a transfer, a registered liquidator is a legal requirement for the mainland liquidation phase. These professionals act as official representatives, facilitating the procedural interactions with the governing bodies as per the powers of attorney granted to them by the company’s shareholders.
Frequently Asked Questions (FAQs)
Is a direct license conversion from mainland to free zone legally possible?
No, UAE law does not permit a direct conversion. The procedure requires the formal liquidation of the mainland legal entity with the DED, followed by the separate incorporation of a new legal entity within the free zone.
What is the legally mandated timeline for the mainland liquidation phase?
The liquidation phase has a mandatory 30-day creditor notification period after the publication of the liquidation notice in newspapers. The total time to complete liquidation and receive the DED certificate is typically one to two months.
What is the legal status of the mainland company during the transfer?
Once the board resolution for liquidation is passed and the process begins, the company enters a “winding-up” phase. It ceases to conduct normal business operations and its sole purpose is to settle its affairs under the liquidator’s supervision.
Are employee visas automatically transferred to the new free zone company?
No, an automatic transfer is not legally permitted. All visas sponsored by the mainland company must be officially cancelled. The new free zone company must then apply for and issue new employment visas and residence permits to the employees.
Who is legally authorized to act as a liquidator for a mainland company?
A liquidator must be a qualified and licensed individual or firm approved by the Dubai DED. The appointment of a liquidator is a legal requirement of the commercial liquidation process as stipulated by the Commercial Companies Law.