Free Zones Article – Part 3: Corporate Structuring using Free Zone entities

July 05, 2020

By: Paula Villegas and Rachel Dixon

This article on Free Zones constitutes the last in a three-part series that deal with various worked examples of corporate structuring using Free Zone entities, commonly used by foreign investors, as they provide attractive benefits. The following examples envisage operations on the mainland, as explained in the scenarios, and are intended to demonstrate the integration between the best practices of Free Zones and the mainland as well as how these practices integrate and can be mutually beneficial.

Structuring examples


The use of Free Zone entities provides foreign investors with benefits both at local and regional levels:

  1. locally, for the purpose of marketing the activities of the parent company which can be beneficial as a “foothold” and presence in the local market, certainly as an initial step; and
  2. regionally, a Free Zone entity may also (subject to the requirements of the relevant jurisdiction) be a regional base company for use in other GCC countries or further afield and can be staffed accordingly.

The following two sections set out benefits, which are not mutually exclusive of using Free Zone entities.

Mainland options

To develop the concept of Free Zone entities in structuring in the United Arab Emirates (“UAE”), this next section demonstrates the use of a Free Zone entity in mainland UAE (please see the previous articles on mainland UAE restrictions).

The diagram above shows how a foreign investor, be it an individual or a corporate entity, holds 100% of the shares in a Free Zone company and benefits from the unrestricted foreign ownership attributed to these type of entities (i.e. 100% foreign ownership).

The Free Zone entity then becomes the 49% owner of an entity set up in mainland Dubai, where there is a foreign ownership limitation and therefore, the remaining 51% is legally owned by a UAE national or a company fully owned by UAE nationals.

Whilst this structure protects the foreign investor’s assets that are held by the Free Zone company, which is solely owned by said investor, it also permits the business to carry out activities both within the Free Zone and in mainland Dubai.

Moreover, there are additional benefits in the flexibility as to the percentage of shares that can be sold in the Free Zone company, the non-requirement of the consent of the 51% shareholder for the transfer of shares in the Free Zone entity (as opposed to transfer of shares in the mainland entity where the statutory right of first refusal applies), and the risk mitigation on the operational side where any changes to the shareholding of the Free Zone entity does not affect the operational aspects of the mainland entity.

In addition, the foreign investor is further ringfencing its liability by using the Free Zone entity.

Strategic vehicles for cooperation between businesses

The UAE attracts significant foreign investment so partnering up with foreign or UAE investors and creating a joint venture is a reasonably common market entry mechanism. This section demonstrates how the creation of a joint venture typically involves the incorporation of a company to act as the joint venture vehicle, and the benefits of incorporating the same in a Free Zone.

There are many different reasons why a foreign company may wish to enter into a joint venture with another party. For example, a foreign company may wish to benefit from the particular local expertise of the other party, share the risks, resources and capital investment, and share the profits accordingly.

In this structure, two foreign companies decide to set up a joint venture company in a Free Zone which will then hold the 49% shares in a company set up in mainland Dubai. This structure provides additional flexibility to the foreign investors, for example, considering that corporate governance may be more flexible in a Free Zone entity, or even benefiting from the use of different classes of shares permitted in certain Free Zones.

These are only a couple of examples to demonstrate the flexibility of such structures, but these highlight the key role of Free Zone entities.

The information provided on this article does not, and is not intended to, constitute legal advice; instead, all the information contained herein is for general informational purposes only and qualified expert advice and opinion should be sought before establishing any company or undertaking any business activity accordingly.