Many firms are misusing the business centre facility granted by free zones by operating in other emirates out of their homes and unlicensed premises.
Institutions such as RAK Free Trade Zone have set up business centres in places such as Dubai, whose facilities licensed companies can use.
Companies with RAK free trade zone licenses are not allowed to operate in other emirates, except in business centres authorised by the free zone authority, a senior official said. Failure to abide by this regulation carries fines and could also mean revocation of the trade licence.
"If you have a RAK FTZ licence you are only allowed to work in RAK Free Trade Zone.
But if you are using business service facilities, we have nothing against that," said Sheikh Faisal bin Saqr Al Qasimi, RAK FTZ Chairman.
"If you want to have physical presence in Dubai, for example, you would need a partner. What we will do is we will facilitate for you a licence from Dubai," he said.
Oussama El Omari, CEO of RAK Free Trade Zone, said the only companies that don't need physical presence are offshore companies.
"But those with RAK FTZ licences, physical presence is a must," he said.
"You may not need big infrastructure for small service companies. For professional licences, people may just want to have flexi-desk and operate from an office/business centre authorised by RAK FTZ."
Omari stressed that businesses cannot operate anywhere else, especially in residential areas.
Sources however said a number of companies are using their licences to operate in Dubai and Abu Dhabi.
"I don't think securing an office space - whether inside or outside the zone - is a pre-requisite in obtaining a licence there," A RAK FTZ licence holder, speaking in a condition of anonymity said.
"Unlike in Dubai where you have to show a proof that you are leasing an office space, licence applicants in RAK FTZ are not asked to do so."
Some freelance service providers, he added, use the licence to close a one-time off project.
Joseph George, RAK FTZ legal adviser said clients are briefed at the very onset of the application. He said some who have tried to violate this rule had their licence revoked.
"If you have a RAK FTZ license you can operate from the free zone or outside the UAE," he said.
"But to do business in the local market you should have an agent or have a parent company, which is in the UAE market. You cannot use RAK FTZ licence and operate in other emirates. That is illegal."
"If they go outside and go by their own and they are penalised by other emirates, we are not responsible. And if we learn that a company is operating, say in Dubai, we cancel the company's licence," George added.