UAE guide part 2: How to pick a UAE free zone

This is the second part in our three parties series on the UAE and its freezones. Click here for part 1. Otherwise, read on!

How UAE licensing works

One of the main things international entrepreneurs need to remember is that the Emiratis are very fond of licenses. Companies must obtain licenses that match their proposed trading activities. Many different sorts of activities are licensable, and many different licenses exist. In fact, this provided much of the initial rationale for the free zone system - particular free zones will offer license types associated with whatever that freezone does. Hence why RAK Innovation City, also known as RAK DAO, has so many digital asset related licenses. 

When speaking to a consultant, make sure that the free zone they are selling you matches the license you need to get. Woe betide the person or entity who attempts to trade without having the right sort of licenses for their project

Entities & residency

Relatively unusual in international terms, Dubai pairs company ownership with residency rights. In the UAE, company formation, licensing, and residency rights are not separate processes. They are a deliberately interlocked system. 

Simply put:

• Company formation creates a legal person
• Licensing legitimises economic activity
• Residency attaches people to that activity

Company formation creates a legal anchor. The nature of the entity determines how many visas it can issue. Visa allocation is typically linked to the specific licence tier and the office allocation approved by the free zone. In many zones, flexi-desk or shared-office packages come with a limited visa quota (often one or two). Larger office space or upgraded licence packages increase eligibility.

This becomes strategically important very quickly. Founders often assume they can “add visas later,” only to discover that doing so requires upgrading premises, amending licence terms, or undergoing fresh approvals. That can mean additional cost, delays, and -  in regulated sectors -  further scrutiny.

Visa capacity is also tied to substance. If you are seeking banking relationships, regulatory approvals, or tax residency certification, authorities will look at whether your company has appropriately resident directors or staff.

The three biggest mistakes web3 founders make in the UAE

If you pick the wrong free zone for your needs you could end up wit:

1. Choosing the wrong legal system: if you do it in a zone that is not under the common law, does not have a company code, or does not have a comprehensive company code, your formation will be under UAE federal law. This is not optimized for company formation - you will need to have lots of filings and meetings to do standard operations like changing shareholders. This is time consuming. More broadly, gal rules and assumptions about key areas of company law , such as the role of directors, may vary. It also matters if anything goes wrong - you will find yourself in the UAE federal courts, which operate using civil law. This can be challenging for people from common law countries. 
2. Getting the wrong license: make sure that the zone specialises in what you want to do. If the needs of the company evolve, or if you if need to start doing regulated activities, be prepared to get another license
3. Forgetting the regulator: In the UAE, you cannot simply “pivot” into regulated activity. Virtual asset services may trigger VARA (Dubai), FSRA (ADGM), DFSA (DIFC), SCA, or even Central Bank oversight. Many founders incorporate under a generic consultancy license and only later realise their activity requires regulatory approval. That’s a compliance headache you don’t want.

Would you like to learn more about selecting a business setup zone in the UAE? Contact us on contact@daospv.com

What questions should I ask a Dubai zone salesman?

The profusion of free zones can be a little confusing. Bearing in mind our above points and those raised in our last post, it is very important that you work out what sort of zone you are dealing with, and what rules that will give you are your company. You should ask them the below questions

1. How many zones do you offer? If he is only promoting the one zone, his interest will be in driving you to that place. This may or may not suit your needs.
2. What law is this jurisdiction under? Make sure you understand what law will govern your entity and contracts
3. Do you have a company code? Again, make sure you understand what law will govern your entity and contracts
4. What licenses do you offer? You need to make sure that the zone you are looking at actually enables you to do the things you want to do
5. What are the incorporation requirements? This helps you understand how complex it is to get the things you need done, done
6. How do I alter the cap table? Because the UAE onshore jurisdictions use civil law, changing your cap table - doing stuff like adding and removing shareholders, or changing share percentages - can be a lot more onerous in these jurisdictions. So that you understand the local law, ask the sales agent to explain what this process looks like
7. What is the price? Make sure you are getting a good price!

FAQ

What UAE or Dubai zone should I use for my trading company?

Meydan and IFZA are both good options for standard operating businesses. Of course, it depends what you mean by ‘trading’ - if you want to do financial trading you should look at a finance-friendly zone

What UAE zone should I use for my token issuance business?

We will deal with this topic in more length in a separate post. The key thing to remember is that this is a licensed activity in the UAE. Your best bet is to use either the DIFC or the ADGM

Where should I set up a UAE holding company?

The top choice is DIFC or ADGM. Because these operate under common law, you can expect a holding company to have all the attributes of one in a standard common law jurisdiction. Within the hybrid zones, DMCC and Ras al Khamia allow holding companies.

Do holding companies issue visas?

Generally, no. To get a visa, you need a trading company

What is VARA?

This is Dubai’s digital asset regulator. It covers all digital assets regulated activities. However, it does not cover activities within the DIFC, or outside of Dubai.

What is DFSA?

DFSA is the DIFC’s financial regulator

Is Dubai the UAE?

No. Dubai is the most important commercial centre in the UAE. It has also fully embraced freeports, with 26 in Dubai alone. However, there are other emirates and cities in the UAE. Some of them, most particularly the ADGM, are very business friendly