Welcome back to Lawgical, where we untangle the legal knots so that you do not have to. I am Ludmila Yamalova, a U.S.-qualified lawyer based in Dubai. In each episode, we break down complex law into clear, practical insights that you can actually understand and use.
In this episode, we are diving into the 2023 changes to the JAFZA offshore company regulations, and more specifically, the overhaul of Article 14, which governs what offshore companies can and cannot do in the UAE.
Let us break it down. The Jebel Ali Free Zone Authority, or JAFZA, is one of the UAE’s most prominent free zones, known for hosting major international companies. It is also one of the oldest and most developed economic zones, and by some accounts, the most sophisticated, due to its longevity.
JAFZA is located adjacent to the Jebel Ali port, which provides a significant competitive advantage. For example, if you are in shipping or trading involving imports or exports, proximity to the port is essential. The zone also includes warehousing services since goods that come in or go out by ship need to be stored. Visually, imagine an economic zone located by the water, next to one of the world’s largest and most sophisticated ports, filled with warehouses and corporate offices. JAFZA is a vital business hub for Dubai and the UAE.
Unlike other UAE economic zones, JAFZA offers both onshore and offshore business activities. Onshore refers to businesses licensed to operate within the UAE, involved in trade, warehousing, logistics, and shipping. These businesses can hire employees, sign contracts, and operate fully within the UAE.
In contrast, JAFZA’s offshore arm is lesser-known but valuable. It is similar to offshore regimes in places like the British Virgin Islands (BVI) or the Cayman Islands. Offshore companies are formed through registered agents and have no direct presence in the UAE, except through their agents.
These offshore entities cannot operate onshore or conduct direct business in the UAE. Historically, their functions were limited to holding structures or owning foreign businesses. For example, a JAFZA offshore company could own a business in Saudi Arabia or India. They could also own property in specific areas in Dubai and act as shareholders in UAE companies without engaging in direct trade.
The 2018 JAFZA offshore regulations, particularly Article 14, were very restrictive. Offshore companies were generally prohibited from conducting business inside the UAE, leasing property, or engaging in regulated sectors like banking or insurance. A few exceptions existed, such as holding property in designated areas and hiring legal or accounting services, but even then, the rules were rigid.
From 2009 onward, our firm has served as a registered JAFZA offshore agent, managing many such companies. Based on our experience, they were popular yet restrictive structures. Clients frequently asked about engaging in activities like renting office space or hiring employees, but the answer was often no due to regulatory limitations.
However, this changed in 2023. Quietly, the JAFZA offshore regulations were amended, and Article 14 was overhauled. The new Article 14.1 states: “An offshore company shall be permitted to conduct lawful business activities as permitted by the registrar from time to time.”
This is a major shift. Instead of a list of prohibitions, the language now allows any lawful activity approved by the registrar. Offshore companies can now contract directly within the UAE, supply or purchase goods and services, and engage in broader business operations, provided they have the proper approvals from JAFZA.
For example:
- Business activity in the UAE was previously prohibited; now it is permitted.
- Leasing property was not allowed; now it is, in certain areas.
- Owning property was limited; now it is broadly permitted.
- Financial services were restricted; now they are allowed with proper licensing.
- Professional services and bank accounts, once difficult to access, are now more feasible due to the shift toward allowing business presence and substance in the UAE.
Previously, the lack of a physical presence prevented banks from opening accounts for offshore entities. Now, with office leases and contractual relationships allowed, banks have more justification to support these entities.
JAFZA offshore companies can now rent office space, which enhances their legal presence and allows them to show substance in the UAE. While they still cannot sponsor employees directly, visa options such as golden visas or family sponsorships make hiring more feasible.
These changes open the door to flexible business models. Offshore companies can now invest locally and regionally, own property in freehold areas, and participate more actively in UAE commerce.
That said, compliance remains essential. The UAE is increasing its enforcement and regulatory scrutiny. Activities like finance, education, and media still require approvals from relevant authorities beyond JAFZA.
Also, while the regulations have changed, the requirement to work through a registered offshore agent remains in place. Legal presence is still tied to that agent.
A final note: JAFZA offshore entities have also been increasingly used for holding intellectual property (IP). Isolating IP within an offshore structure helps protect it from liabilities faced by active business entities.
In conclusion, the 2023 amendments to JAFZA offshore regulations, particularly Article 14, mark a significant and practical shift in the UAE’s corporate framework. They offer more opportunity and flexibility but also come with increased responsibility to ensure proper licensing and compliance.
That is it for today’s episode of Lawgical. If you found this useful and like what we do, you can find more on our website at lylawyers.com. We are also on Apple Podcasts and Spotify. For the full experience, watch our video podcast on YouTube.
Until next time, stay informed, stay safe, and keep things Lawgical.