The UAE offers flexible business set up opportunities and has become a haven for entrepreneurs and businesses. One of the most significant decisions for investors to make is to select between a mainland company or a free zone company. Knowing the contrast of mainland and free zone companies can assist you to target your business strategy on the appropriate setup. In this blog, we detail these contrasts and more, from mainland vs freezone business activities to licensing requirements, etc., in order for you to make an informed decision.
Overview of Mainland and Free Zone Companies
Before we talk about the differences, I would like to briefly introduce what these two structure means:
- A Mainland company is based in Dubai, whose license is issued by the Department of Economy and Tourism (DET), covers services across UAE as well as globally.
- A Free Zone company is suitable for foreign investors and is licensed by the Free Zone Authority, where this entity has a special set of controls and benefits.
Ownership Structures
Most of those activities now also permit 100% foreign ownership, even for mainland and free zone companies in the U.A.E., following changes in recent years. But with in-country arrangements in some mainland settings, a local service agent (LSA) may still be needed, and would not have to own equity. Free zones, however, provide a simple way for 100% ownership without local sponsor requirements and are recommended for lonely rangers or international investors.
In Dubai, for example, a business in mainland area of Dubai can take the form of an LLC (Limited Liability Company) with many shareholders but free zones offer choices such as FZE (Free Zone Establishment), which is for one owner businesses and FZCO (Free Zone Company) for several shareholders.
Market Access and Operational Scope
At the heart of mainland vs freezone business is where and how you can do business. On the mainland, companies can access the entire UAE market with no restriction for direct sales, retail activity or participation in government tenders launched by any of the emirates. This is ideal for businesses that cater to local customers or offer B2B services in the UAE.
Out of zone activities of free zone firms, on the other hand, are mainly restricted within their zone or abroad. To get into the mainland market, they usually have to find a local distributor or set up a branch, adding layers of complication. For example, a free zone company cannot directly open retail outlets in Dubai’s mainland without extra approval.
Licensing and Setup Process
For obtaining mainland license in Dubai, you need to register with the Department of Economic Development (DED) in case of Dubai or an equivalent department in other emirates for getting a mainland license. The procedure involves the approval of activities, leasing office space, and perhaps additional paperwork, which may take more time but provides flexibility to operate.
Free zones facilitate such setups through their own authorities (for example, the Dubai Multi Commodities Centre or Jebel Ali Free Zone), providing quicker onboarding, often within days, with preapproved activities aligned to the focus of that zone, such as tech or logistics. But you sacrifice limitations to an area.
Costs and Taxation
Freezone Setup costs are normally less, starting from 10,000-20,000 AED, including virtual offices in some cases. Mainland facilities can be higher as physical office is required and potentially LSA fees.
On taxation, both are subject to a 9% corporate tax on profits more than AED 375,000, but eligible free zone entities can benefit from a 0% (zero) rate on certain income as a huge asset for export-focused companies.
Visas and Employment
Their mainland companies can sponsor an unlimited number of visas based on office size and labor quotas, making it easier to bring over larger teams. Free zones register visas based on office space but make it easier to hire expats.
Expansion and Growth Opportunities
Companies that choose to base themselves in the mainland plan on seeing better scaling, simpler opening of branches and ability to participate in government tender.
Free Zone companies can be good for niche services, trading in and out or anywhere outside of the UAE, but they may face limitation scaling locally within the UAE market.
Which One Should You Choose?
Whether to have a Mainland vs Freezone depends on your future plan. Opt for a Dubai Mainland company if:
- You want to directly serve local UAE customers
- You are hoping to be employed at government or semi-government corporations
- You are seeking long-term growth in the UAE.
Opt for a Free Zone company if:
- This is your company, you deal with international trade or services.
- You want to reduce startup costs and make it easier to comply with.
- You don’t have to be physically present in the UAE market main land.
Conclusion
Knowing the difference between Mainland and Free Zone Companies can make or break your business in the UAE. Yes, Free Zones are more cost-effective and less-morning main Dubai Mainland license, but none of them give you the same flexibility, market access and scalability as a Mainland license.
It would be a good idea to evaluate your business model, target customer, and regulatory requirements for long-term success in the UAE before you plan your setup.
