Conversion of JAFZ offshore company to operating entity

The latest JAFZA Offshore Company Regulations of 2018 (‘Regulations’) introduced new provisions in Part 17 that enable existing offshore companies in the Jebel Ali Free Zone (‘JAFZ’) to convert their legal status from ‘offshore companies’ to an operating ‘free zone company’ (’Conversion’).

Although, introduced in 2018, in practice, JAFZA only recently began accepting applications for this process of Conversion. No such Conversion was permitted prior to these newest Regulations.

The purpose of permitting Conversion is to allow offshore companies the option to operate as any other free zone company in JAFZ, which includes the following changes from offshore:

1)       Legal status will be changed to either FZE (Free Zone Establishment with one shareholder) or FZC (Free Zone Company with two or more shareholders), hence the end of company’s name will be changed from “Limited” to “FZE” or “FZC”;

2)       New Memorandum and Articles must be signed in compliance with the JAFZA Companies implementing Regulations 2016;

3)       The company will obtain JAFZ license to practice licensed activities (chosen from the list of permitted activities in JAFZ);

4)       The company must rent premises in JAFZ (office, warehouse, land, etc);

5)       The company must appoint manager (instead of Director/s in offshore company) for the day-to-day operations of the company and the manager’s residency should be sponsored by the converted entity and salary be paid through the WPS system ;

6)       The company will have an immigration file and shall be permitted to obtain expatriate visas;

7)       The company will be able to get tax residency certificate which is not possible through an offshore company structure.

The process of Conversion is similar to that of incorporating a new operating company in JAFZ with the added requirement of returning the original offshore company documents to JAFZA and a 14 day publication period to all interested parties in the local newspaper notifying the change in legal form of the offshore company. In practice it can take up to eight weeks for the Conversion to be completed.

On Conversion the offshore company continues its commercial legacy in a different corporate form without having to wind up and set up a new free zone company. All rights and obligations of the offshore company, arising prior to the Conversion, will continue ‘as is’ thus enabling it to continue with its existing commercial relationships with third parties.

This option of Conversion might interest offshore companies in JAFZ that:

·       wish to switch to operating entities, hire employees, rent physical office space in JAFZ without losing their commercial legacy; and

·       wish to obtain a tax resident certificate from the UAE Ministry of Finance which currently cannot be obtained by offshore companies.

The process of Conversion is certainly an interesting step by JAFZA. As the offshore companies’ agent in JAFZ we inform our clients of such option. Should you be interested or have some questions regarding Conversion or JAFZ offshore, please let us know.