The concept of dual licensing in the UAE has emerged as a significant development in the United Arab Emirates business landscape, offering companies unprecedented flexibility and market access. This legal framework allows businesses to operate simultaneously in the mainland and free zones, bridging the gap between these distinct jurisdictions.
Understanding Dual Licensing in the UAE
Dual licensing refers to the ability of a company to obtain two separate licenses—one for operating on the mainland and another to operate in the free zone. This innovative approach enables businesses to leverage the advantages of both environments, significantly expanding their operational scope and market reach.
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Legal Framework and Eligibility
The legal framework for dual licensing varies across different emirates and free zones. In Abu Dhabi, for instance, the Department of Economic Development (ADDED) launched the Dual License initiative in 2018. Similarly, Dubai has seen several free zones, including Dubai Design District (D3), Dubai Airport Free Zone (DAFZA), and Dubai International Financial Centre (DIFC), entering into strategic agreements with the Department of Economic Development (DED) to facilitate dual licensing.
Eligibility for dual licensing typically requires a company to be established in a participating free zone. It’s important to note that branches of foreign companies in free zones may be subject to different regulations.
Key Legal Considerations
Corporate Structure
Under the dual licensing regime, the free zone entity remains the primary legal entity. The mainland license appears as a ‘branch’ of the free zone entity on the DED Trade License, although it is not a true UAE Foreign Branch and does not require Ministry of Economy Registration.
Regulatory Compliance
Companies must comply with regulations in both jurisdictions. This dual compliance can be complex but is essential for maintaining the dual license status.
Employment and Visa Regulations
A significant legal consideration is that the dual license cannot register with the Ministry of Labor. Consequently, all staff must be employed within the free zone company and hold free zone resident visas.
Local Sponsorship
The dual licensing concept has eliminated the need for local agents for mainland operations, allowing parent companies to sponsor enterprises that apply for dual licenses.
Legal Implications and Benefits of Dual License
Market Access: Legally, dual-licensed companies can engage with both the local UAE market and international markets, significantly expanding their business scope.
Operational Flexibility: From a legal standpoint, companies can set up different branches or divisions in each jurisdiction, tailoring their operations to specific market needs.
Government Contracts: Mainland companies in the UAE are legally eligible for government contracts, providing a significant advantage.
Cost Efficiency: Legally, dual-licensed companies can operate on the mainland without additional office premises, resulting in significant cost savings.
Streamlined Setup: Establishing an onshore branch of a free zone company is typically quicker from a legal perspective than setting up a new entity.
Legal Challenges and Limitations
While dual licensing offers numerous advantages, legal practitioners must be aware of certain limitations:
Labor Restrictions: The inability to register with the Ministry of Labor for mainland operations can limit staffing flexibility, this is due to the entity being registered with the freezone authority.
Activity Restrictions: Certain business activities may still be restricted under the dual licensing framework.
Compliance Complexity: Managing compliance across two jurisdictions can be legally challenging and requires careful navigation.
Dual licensing represents a significant legal innovation in the UAE’s business ecosystem. It offers companies unprecedented flexibility and market access but requires careful legal consideration and expert guidance to navigate effectively. As this framework evolves, legal professionals must stay abreast of changes to provide optimal advice to businesses seeking to leverage this unique opportunity in the UAE market.
