In brief:

  • The Jebel Ali Free Zone Authority (“JAFZA”) has recently issued the Offshore Companies Regulations 2018 (“New Regulations”).
  • The New Regulations mark a significant step forward for the JAFZA and provide new tools for protecting the interests of foreign investors.
  • In this article we breakdown the main provisions of the New Regulations and look at the ways in which they protect the interests of foreign investors.

Introduction

The JAFZA has recently issued the New Regulations. Whilst the New Regulations do not set out the precise enforcement date, the JAFZA has verbally confirmed that a specific date will be included within an updated version of the New Regulations. The New Regulations introduce some progressive new legislative provisions and repeal the JAFZA Offshore Companies Regulations 2003 (“Old Regulations”).

The New Regulations provide foreign investors with attractive new ways of structuring their investments in the UAE and assist in mitigating against some potential risks associated with carrying out business in Dubai.

Share Classes

A development likely to be of particular interest to foreign investors is that a limited liability company incorporated under the New Regulations (“Offshore Company”) is afforded the ability to create different classes of shares with the approval of the JAFZA registrar of companies (“Registrar”). The JAFZA has verbally confirmed that provisions in the New Regulations relating to classes of shares will be applied in practice, which is not always the case in other free zones in Dubai.

This increased flexibility should enable shareholders to apportion economic and voting rights across varying share classes in whatever manner they consider appropriate. By way of example, company founders have the option of using different share classes enabling them to maintain management control of the Offshore Company (i.e. by issuing shares to silent investors with no or minimal voting rights attaching to them). This provides an additional tool to protect the interests of a foreign investor and places the Offshore Company in an optimal position in terms of onshore corporate structuring solutions which are more robust and cost effective.

Shareholder Visas

A new provision under the New Regulations which will be of particular practical relevance to foreign investors is the ability for an Offshore Company, which owns a property in a designated freehold area in the UAE, to apply to the JAFZA for a residency visa for its members (e.g. shareholders and directors).

Corporate Directors

Unlike the Old Regulations, only one director is required to be appointed under the New Regulations. That director is no longer required to be a natural person and this role can be performed by a corporate entity, subject to the approval of the JAFZA. Therefore, an Offshore Company could use a corporate service provider or other professional body duly registered within the JAFZA to act as a director.

Activities

A matter which was ambiguous under the Old Regulations was whether an Offshore Company was deemed to be carrying out business onshore in the UAE if it held real estate and/or shares. The New Regulations now clearly provide that an Offshore Company is permitted, amongst other things, to hold a lease of a property for use as its registered office in any designated freehold area in the UAE approved by the JAFZA; own property in one of the designated freehold areas in the UAE; and own a stake in another operating company onshore in the UAE.

Resolutions

Although in practice the approval of all shareholders was required for the majority of corporate actions regarding Offshore Companies, a further change of note under the New Regulations is the amendment of the definition of “Resolution” so that the approval of a minimum of 75% of the shareholders is now required, whereas under the Old Regulations, a resolution required only a simple majority.

Share Transfers

A subtle amendment has been made under the New Regulation to the procedure for transferring shares, namely that a transfer is now subject to the approval of the Registrar and such transfer will not be complete until payment of the applicable fee to the JAFZA.

Registered Agent

Under the New Regulations, the registered agent will have duties and obligations, including a requirement to maintain records, in relation to the Offshore Company and will be accountable to the JAFZA. We understand that such duties and obligations will be set out in guidelines to be issued by the JAFZA in the near future.

Record Keeping

Under the New Regulations, an Offshore Company will be required to maintain records with its registered agent. The definition of “Records” in the Regulations is very broad but it is expected that a more prescriptive definition will be provided in the guidelines referred to above.

Transfer of Incorporation

A new concept introduced by the New Regulations is the possibility, subject to certain conditions, for a foreign company to redomicile as an Offshore Company, or for an Offshore Company to transfer its incorporation to a foreign jurisdiction. This ability to redomicile simplifies the transition for foreign companies to the Jebel Ali Free Zone (“JAFZ”) as it does not require the establishment of a branch or a new company, thus making the Jebel Ali Free Zone (“JAFZ”) additionally attractive to investors.

Conversion

Another new concept under the New Regulations, offering similar advantages to the ability to transfer incorporation, is the ability for an Offshore Company to apply to the JAFZA to convert to and continue operations as a free zone company within the JAFZ. For example, an Offshore Company is entitled to convert into a JAFZ free zone company holding an operational licence to conduct business in the UAE.

Model Articles

Under the New Regulations, the Registrar may prescribe a set of model articles of association which the Offshore Company may adopt. These model articles have not yet been issued and the extent to which the JAFZA will accept amendments to them is not yet clear.

Conclusion

The modernisation of the rules governing an Offshore Company introduced to the JAFZA by the Regulations marks a significant step forward and provides new tools for protecting the interests of foreign investors.