Closing a Free Zone company in Dubai may seem like a straightforward process, but many business owners unknowingly make costly mistakes that lead to delays, fines, and long term complications. Each Free Zone whether DMCC, DAFZA, JAFZA, or any other has specific procedures and requirements for business closure. Failing to comply with these steps can leave your company in legal and financial limbo.
In this article, we’ll uncover the top 5 common mistakes business owners make when closing a Free Zone business and how you can avoid them for a smooth and penalty-free exit.
Not Cancelling Visas Before Initiating Closure
Mistake:
Many business owners begin the liquidation process without first cancelling all active employee and investor visas linked to the Free Zone license.
Why It’s a Problem:
- The Free Zone authority won’t proceed with license cancellation until all visas are cleared.
- Outstanding visas may accumulate immigration fines.
- Employees may file labor complaints if not properly offboarded.
How to Avoid:
- Cancel all residence visas through the Free Zone’s immigration department.
Obtain clearance from MOHRE if the zone is under federal labor jurisdiction. - Ensure end-of-service benefits are paid and labor cards are deactivated.
Overlooking Lease and Facility Terminatio
Mistake:
Business owners forget to formally terminate office leases or warehouse contracts, assuming the license cancellation will automatically cover it.
Why It’s a Problem:
- Uncancelled leases may continue to accrue rental fees.
- You may be denied final clearance by the Free Zone’s facility or property department.
- Security deposits may be with held.
How to Avoid:
- Serve the required notice period as per your lease agreement.
- Obtain a No Objection Certificate (NOC) from the landlord or facility management.
- Request utility disconnection and clearance from providers like DEWA (if applicable)
Failing to Deregister VAT and Settle Tax Liabilities
Mistake:
Assuming that VAT deregistration will happen automatically when the license is cancelled.
Why It’s a Problem:
- FTA requires a separate deregistration application.
- Not applying within 20 business days of ceasing taxable activities can lead to AED 10,000 penalty.
- Outstanding tax filings or dues can stall license cancellation.
How to Avoid:
- Apply for VAT deregistration with the Federal Tax Authority before or alongside the liquidation process.
- File your final VAT return and settle any pending dues.
Obtain a VAT Deregistration Certificate as part of your documentation.
Ignoring the Requirement for a Liquidator (in Certain Free Zones)
Mistake:
Assuming that a formal liquidator is not required for closing a Free Zone company.
Why It’s a Problem:
- Several Free Zones (e.g., DMCC, JAFZA) mandate the appointment of a licensed liquidator to prepare a liquidation report.
Proceeding without this step can result in application rejection or significant delays.
How to Avoid:
- Check with your Free Zone authority to confirm if a liquidator is mandatory.
- Appoint a registered liquidator and have them prepare an official liquidation report.
- Submit this report with your license cancellation documents.
Not Publishing Public Notice (When Required)
Mistake:
Skipping the publication of a public notice in local newspapers, especially when closing a company with external liabilities.
Why It’s a Problem:
- Some Free Zones and mainland authorities require a 45 day advertisement period to allow creditors to raise claims.
- Omitting this step can nullify your liquidation attempt and result in rejection.
How to Avoid:
- Confirm whether your Free Zone requires a public notice for company liquidation.
- Publish the notice in two local newspapers, at least one in Arabic.
- Wait the full duration (usually 45 days) before finalizing closure.
Bonus Tip: Keep Copies of All Clearance Certificates
Even after your business is closed, government authorities may request proof of license cancellation, VAT deregistration, and immigration clearance.
Always keep a copy of:
- License cancellation certificate
- VAT deregistration certificate
- MOHRE and GDRFA clearances
- Lease termination and utility clearance
- Final audit or liquidator’s report
Frequently Asked Questions (FAQs)
Yes. All residence visas, labor cards, and work permits must be canceled before the Free Zone authority processes the company closure. Outstanding visas may result in immigration fines and delay the liquidation.
No. Lease termination is a separate step. You must formally terminate your lease, settle dues, disconnect utilities, and obtain a No Objection Certificate (NOC) from your landlord or property management.
No. VAT deregistration is a separate legal process with the Federal Tax Authority (FTA). You must apply for VAT deregistration, file your final VAT return, and settle any outstanding VAT liabilities.
It depends on the Free Zone. Some Free Zones like DMCC and JAFZA require you to appoint a licensed liquidator to prepare a liquidation report. Always verify requirements with your specific Free Zone authority.
Certain Free Zones require a public notice period (usually 45 days) to allow creditors to raise any claims before final clearance is granted. Skipping this step can delay or nullify the liquidation process.
Conclusion
Closing a Free Zone business in Dubai is a legally binding process that requires careful planning and compliance. By avoiding the top 5 common mistakes, you can ensure a smooth and penalty-free exit. At Capital Closure, a division of CPA, we specialize in helping businesses wind down operations efficiently and in full legal compliance. Trust the experts at Capital Closure to guide your exit with precision and peace of mind.
