Key provisions

The Resolution provides that all free zone entities must obtain a license or permit from the Department of Economy and Tourism (DET) if they wish to carry out activities outside the free zone they are incorporated in. This marks a significant change in the 'doing business' rules in Dubai which, subject to a few exceptions where memorandums of understanding were in place between certain free zones and the DET, restricted companies from carrying out their activities within the free zone where they are registered. The Resolution provides three types of licenses:

1. Establishment of a branch of a free zone company with a physical location onshore Dubai. Under this option, free zone companies are permitted to establish onshore branches for carrying out their activities. This is not new and was previously permitted in practice as free zone companies established onshore branches for carrying out activities in onshore Dubai. This was likely added to this new legislation for completion.
2. License to establish a branch onshore Dubai with its headquarters in a free zone. Free zone companies can now apply to the DET for a permit to establish a branch onshore Dubai without needing a premise onshore. This license allows companies to be licensed by the DET, provided they meet certain conditions set by the DET and relevant external regulators, if applicable. This option is similar to the 'dual licensing' regime previously adopted by certain free zones, such as the Dubai International Financial Centre. The advantage here is that there are no office requirements for the branch and no onshore dedicated staff, which reduces operational costs significantly.
3. Temporary license to carry out certain activities in onshore Dubai. Free zone companies now have the option to apply to the DET for a temporary permit, allowing them to carry out certain activities outside the free zone for up to six months. This temporary license enables companies to operate in onshore Dubai without the need to establish a new branch or obtain a permanent license. This is particularly beneficial for short-term projects and events.

Looking ahead

While the Resolution has introduced various long awaited changes, there are still various matters which we will be monitoring to understand how the Resolution will practically be implemented:

1. List of activities: The Resolution provides that the DET, in coordination with the relevant regulatory authorities, will determine the list of economic activities that a free zone entity may practice outside the free zone. The list is critical to understand the application of this Resolution and whether there are any restrictions on the type of activities that can be licensed outside the free zone.
2. Guidance from external regulators: Given the novelty of the Resolution, we anticipate that certain regulators will be issuing guidance on the application of the Resolution to regulated activities. For example, the Ministry of Health and Prevention may be issuing guidance on the implications of the Resolution on pharmaceutical and medical device companies. Such guidance will be critical to understand how the Resolution will apply to regulated activities.
3. Practicality: We have been inquiring with the DET and free zone authorities on the practical application of the Resolution and (as of the date of this alert) we have been informed that the DET (and the free zones that we have consulted) have not yet been issued with any guidance on how to benefit from the Resolution. While the Resolution came into force on 3 March 2025, we anticipate that such guidance should come in the next few weeks.
4. Employment considerations: The Resolution also provides that the workforce of the free zone entity may carry out its activities in onshore Dubai and still benefit from the free zone's employment advantages.
5. Reorganisation of businesses: The Resolution will no doubt impact the structure of businesses in the UAE given that: (i) free zone companies can optimize and utilize the company's registered address for their onshore branch therefore reducing leasing costs; (ii) the temporoary permit regime will allow free zone companies to apply for temporary permits for short term activities, events and projects; and (iii) companies may decide to eliminate / de-register certain entities which may be redundant.

To speak to us in relation to the Resolution and how this may be impacted by the Resolution, please reach out to a member of the Baker McKenzie Corporate team.