UAE free zones could still attract smaller firms despite new law, says Moody’s

UAE free zones could still attract smaller firms despite new law, says Moody’s
The change has created uncertainty over the future role of such free zones as the country ramps up efforts to boost investment. (Shutterstock)
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Updated 24 May 2021

UAE free zones could still attract smaller firms despite new law, says Moody’s

UAE free zones could still attract smaller firms despite new law, says Moody’s
  • The law, which comes into effect from June 1, allows full ownership for foreign investors

DUBAI: UAE free zones may still attract smaller businesses despite new rules allowing foreigners to start a company without an Emirati shareholder, said a Moody’s analyst.
The law, which comes into effect from June 1, allows full ownership for foreign investors. Before this was only possible in dedicated business parks known as free zones.
The change has created uncertainty over the future role of such free zones as the country ramps up efforts to boost investment amid fierce regional competition to attract foreign companies.
“The removal of the foreign ownership limits for on-shore businesses reduces one of the major competitive advantages of free zones over on-shore investment,” Thaddeus Best, an analyst at Moody’s Sovereign Risk Group, told Arab News. ”However, the new FDI law still generally requires higher minimum capitalization levels for onshore businesses compared to the free zones. As such, free zones will still be more attractive for micro, small and medium enterprise (MSMEs), while the larger multinationals (that the new FDI law aims to attract) will now be able to invest onshore with no foreign ownership restrictions.”
Some UAE free zones are already shifting focus amid the latest regulatory upheaval in the sector.
Last week the Dubai Airport Free Zone Authority (DAFZA) said it was targeting the cryptocurrency sector with companies trading with crypto assets now allowed to obtain a business license at DAFZA.
Other free zones in the country, some of which are home to thousands of employees and major international occupiers, may now also need to target new sectors.
“Undoubtedly there will be more competition for the free zones as a result of the law but the lower capitalization requirements will keep their proposition attractive for many companies, particularly smaller ones,” added Best.
The World Free Zones Organization did not respond to requests for comment.