Modernisation of Dubai free zone regulations

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The Dubai Creative Clusters Authority (DCCA), formerly known as the Dubai Technology & Media Free Zone Authority or TECOM, which is the free zone authority with jurisdiction over nine Dubai Creative Cluster (DCC) free zones, has recently adopted new companies regulations. Similarly, the Jebel Ali Free Zone Authority (JAFZA), which is the authority having jurisdiction over the Jebel Ali Free Zone (JAFZ), the UAE's flagship trade and logistics hub for the Middle East and Africa, also has recently adopted new regulations.

Companies and branches that are established, or seeking to establish, within the DCCA and JAFZA need to take appropriate steps to ensure compliance with the new regulations.

Dubai Creative Clusters Regulations

The new Private Companies Regulations 2016 of the DCCA (New DCCA Regulations), came into force on 1 February 2017.

The New DCCA Regulations apply to all companies registered within the DCC and replace the previous regulations of the Dubai Technology & Media Free Zone.

Key features of the New DCCA Regulations include:

  • There is a new register of security and provisions that set out a transparent and complete share pledge process, including regarding the registration, perfection and release of share pledges
  • There is a new standard form of articles of association, which combines the previously separate memorandum of association and articles into a single constitutional document
  • Parties, including the DCCA, may agree to refer any disputes to the Dubai Courts or any other competent arbitration forum, thereby allowing greater flexibility
  • Allowing for new forms of companies to be prescribed by the DCCA in addition to the FZ-LLC, according to the needs of the market
  • Clearer provisions in relation to company management and administration, including allowing for participation in both board and shareholding meetings by conference call
  • New provisions in respect of the role and responsibilities of the general manager. For instance, the manager is now liable for maintaining a register of shareholders and a register of officers and for the accuracy of their contents
  • Greater clarity in relation to the process and requirements for companies seeking to reduce share capital and issue different classes of shares. The latter will be of particular interest to parties wishing to establish joint venture companies or investment companies with multiple investors
  • Additional duties for directors and officers including the duty to act honestly, in good faith and with a view to the best interests of the company, and a requirement to declare conflicts of interest
  • A requirement that only those persons acting under an express authority (usually pursuant to a duly authorised power of attorney, resolution of the board of directors or shareholders or pursuant to powers granted under the articles of association) may contract on behalf of the FZ-LLC company

All companies and branches established within the DCC prior to the New DCCA Regulations will need to take steps to be in compliance with the New Regulations by no later than 1 February 2018. In order to ensure compliance, all businesses in the DCC should, amongst other things:

  • Replace their existing memorandum and articles of association with a consolidated articles of association, which will be prepared by the DCCA. For any variation to the standard wording of the articles of association, the DCCA will continue to require a legal opinion (from a law firm registered in the UAE) confirming that such changes are in compliance with the New DCCA Regulations
  • Brief management on the new corporate governance procedures and best practices to facilitate compliance. Consideration will need to be given as to whether any changes are required to a company's policies and procedures
  • Confirm that the company's registers are maintained and up-to-date

JAFZA Regulations

JAFZ has also issued a new set of regulations, the Jebel Ali Free Zone Companies Implementing Regulations 2016 (New JAFZA Regulations). Whilst the regulations came into force on 23 August 2016 (i.e. three months after their issuance on 23 May 2016), the official announcement by JAFZA only took place earlier this year.

Key features of the New JAFZA Regulations include:

  • Introduction of different share classes, which will provide flexibility for owners seeking to offer different voting rights
  • A new legal entity, the Public Listed Company (PLC), can be established within JAFZ and is required to list its shares on a stock exchange within 9 months from the date of its incorporation
  • Foreign companies are able to migrate and continue operations in JAFZ without being required to open a new entity, with a view to attracting new international businesses to JAFZ
  • In contrast to the previous regulations, different legal entities, including the free zone establishment (FZE), the free zone company (FZCO) and branches, are brought together and dealt with under the one set of common regulations
  • Companies can restructure and convert an FZE or FZCO into a PLC and vice versa, enabling continuity of business within JAFZ
  • There is no longer a requirement for a minimum amount of capital when setting up a company and owners are instead able to decide on the adequacy of capital for their business. Previously, the minimum required capital was AED 1 million for an FZE and AED 500,000 for an FZCO
  • The maximum number of shareholders that is permitted in an FZCO is increased from 5 to fifty

The new regulations of the DCCA and JAFZA seek to modernise and bring the regulations more in line with international market standards. Possibly this is in response to the recent trend we are seeing by GCC governments towards modernising their companies laws with key examples being the introduction of the new UAE companies law no 2 of 2015 which came into effect on 1 July 2015; the new Saudi companies law which came into effect on 2 May 2016; and the new Kuwaiti companies law no 1 of 2016 which came into effect on 24 January 2016 (with the exception to some of its provisions which apply retroactively by repealing and replacing some of the provisions in the old companies law of 2012).

It will be interesting to see whether other free zones in Dubai and in the UAE follow suit in updating and modernising their rules and regulations and whether these changes result in increased business for these free zones generally and more specifically from parties that might traditionally have established their holding company/investment vehicles in overseas offshore jurisdictions.