Free zones welcome government plans to relax foreign ownership restrictions
Dubai free zones unite to boost foreign investment flows
Some free zones in Dubai are taking new measures to attract foreign direct investment as the emirate undertakes new policies aimed at further diversifying the economy and boosting growth, officials and analysts said.
Dubai Airport Free Zone (Dafza), which is home to companies including plane manufacturers Boeing and Airbus, GE Aviation, Rolls-Royce and Panasonic, is working to boost FDI flows by developing fast-growing sectors such as the Islamic and Halal economies, according to director general Mohammed Al Zarooni.
“We have created specific initiatives focusing on technology and innovation, with an emphasis on blockchain and artificial intelligence solutions in industries such as e-commerce,” he said. Dafza represented 18 per cent of total free zones trade in Dubai in 2016.
Efforts to increase FDI are part of broader measures to boost the contribution of the non-oil sector to the UAE economy to 80 per cent by 2021, from the current 70 per cent, following sluggish economic growth on the back of low oil prices. The UAE recorded $10.3 billion of inward FDI in 2017, up 6.7 per cent from $9.6bn in 2016, according to the Federal Competitiveness and Statistics Authority.
Dubai Free Zones Council, the body representing the emirate’s 30-plus economic free zones which include Dubai International Financial Centre, Dubai Internet City and others, is ramping up efforts to boost foreign direct investment by easing business registration fees and introducing new regulations to support e-commerce.
Following a meeting on Monday, the council said it is creating a centralised electronic system to streamline licensing procedures across all Dubai free zones, and store records in a data centre. Several free zones have lowered registration fees in recent months, it added, and a mechanism has been proposed for helping free zone companies more quickly secure ‘no objection’ certificates from government.
“Over the past decades, free zones have been instrumental in increasing Dubai’s GDP and FDI inflows, which are experiencing high annual growth despite the prevailing global economic climate,” said Sheikh Ahmed bin Saeed Al Maktoum, chairman of the council.
Today, free zones are “more than just economic facilitators,” he added in a statement. “Due to their legislative and investment incentives, and through adopting strategic initiatives that shape the future of trade and economy and consolidate Dubai’s status as an ideal business destination, they have evolved into globally competitive models.”
The council also reviewed progress on a framework to regulate e-commerce in free zones. Details have yet to be published, but the council said in April it would aim to improve conditions for free zone companies engaged in e-commerce activity, and help them link with global trade and bump up FDI inflows.
Free zones, which permit 100 per cent foreign ownership of businesses located within their boundaries, and other incentives such as clustering of same-sector companies, have played a key role in driving FDI flows into Dubai, as ‘onshore’ businesses require 51 per cent ownership by an Emirati partner.
That is set to change by the end of this year, under plans unveiled by the government last week. According to the proposals, foreign investors will be able to own 100 per cent of a company in the UAE, although the government has yet to reveal details such as the sectors in which full ownership will be permitted.
Many free zones are taking steps to diversify their company base and encourage growth, in support of the planned changes to foreign ownership.
“We welcome the recent cabinet resolution pertaining to the new UAE investment law,” said Malek Al Malek, chief executive of Tecom Group, which owns the Dubai Media City, Dubai Internet City and Dubai Design District free zones. “Once it comes into effect, the regulation will further support the UAE’s vision and positioning as a key global destination for doing business.”
Tecom follows a “clear growth strategy that focuses on creating job opportunities and furthering local innovation to attract multinationals, investors and high-quality professionals to our specialised economic districts,” Mr Al Malek said. The law would improve the UAE’s business and regulatory environment and help the free zone attract “many more talented minds”, he added.
Companies located in DIC enjoy a wide range of benefits, from 100 per cent ownership and tax incentives to full currency convertibility, no customs duties and no restrictions on profit or capital repatriations, added DIC executive director Ammar Al Malik. The zone houses 1,600 technology companies and several start-up incubators.
Companies most likely to benefit from the changes include those in the retail, education and healthcare sectors, which often require multiple branches or locations to grow and prosper and therefore cannot operate fully from a single free zone, according to Samer Qudah, corporate partner at Al Tamimi & Company.
“Free zones are key contributors to the UAE economy and we expect many of the well-developed free zones will continue to attract foreign investors, professionals and entrepreneurs, who choose them because of their various other offerings in terms of infrastructure and legal environment,” said Abeer Jarrar, corporate managing associate at international law firm Linklaters.
Jigar Sagar, group general manager of Creative Zone, a consultancy that helps businesses set up in free zones, said free zones would continue being a convenient “one-stop shop” for companies establishing operations in the UAE, with or without the new foreign ownership laws. “You don’t need to go to the Ministry of Labour, immigration. You don’t have to hunt around for different documents,” he said.
“A lot of free zones will re-focus their efforts on attracting companies from the [specific sectors they were set up for], and I think the demand is only going to get better.”
Freezones will remain an important sector for the economy, even with plans to allow 100 per cent foreign ownership, said Omar Momany, partner and head of corporate and commercial practice at UAE law firm Baker & McKenzie Habib Al Mulla.
“While information is scarce, the sectors and companies to benefit from such relaxation is expected to be limited, which would mean a lot of the sectors that existing free zones cater for will remain beyond the relaxation remit,” he added.