Dubai is a dynamic business hub that offers entrepreneurs a gamut of exciting opportunities to grow. When it comes to establishing a business in Dubai, one of the first decisions you need to make is whether to establish your business in the Mainland or in one of the Free Zones. Each option has its own set of benefits and limitations, and the best choice depends on the nature of your business and your long-term goals. In this blog, we'll explore the key differences between UAE Mainland and Free Zone business setups to help you make an informed decision.
A business in the UAE Mainland refers to a company licensed by the Department of Economic Development (DED) in Dubai. This type of business can operate anywhere within the UAE and is not restricted to any specific location. A mainland business in Dubai has the freedom to operate both within and outside the UAE. Here, the shareholding structures differ between trade and service activities. In trade activities, the UAE national shareholder normally holds a 51% ownership, while the expat shareholder owns 49%. For service activities, foreign nationals can fully own the company, retaining 100% ownership.
Geographical Advantage: UAE mainland companies can conduct business in any part of Dubai and across the UAE, offering greater flexibility in terms of market reach and client base.
Indulge in Diverse Business Activities: Mainland companies can engage in a broad spectrum of business activities that include professional services, trading, and industrial ventures.
Government Contracts: Only Mainland companies can bid for government projects and contracts, which can be a major advantage for businesses targeting government clients.
No Restrictions on Currency: There are not restrictions on currency or capital repatriation as far a mainland business in Dubai is concerned. This makes financial transactions more straightforward.
Local Sponsorship: Mainland businesses often need a local sponsor or Emirati partner who holds a 51% share in the company. However, government has brought some changes in the system and has allowed 100% foreign ownership in certain sectors.
Office Space Requirement: Mainland companies must lease office space, which can be a major ongoing expense.
Higher Cost: Building a business in the UAE Mainland can be more expensive compared to Free Zones, due to additional regulatory requirements and operational costs.
Free Zones are certain areas in Dubai where businesses enjoy special benefits and regulations. Each Free Zone is governed by its own regulatory authority, providing a business-friendly environment with different incentives. There are more than 40 Free Zones in the UAE like International Free Zone Authority (shams), Jebel Ali Free Zone (JAFZA), Dubai World Trade Centre Freezone (DWTC), Sharjah Media City (SHAMS) and Meydan Free Zone. The freezone companies are exclusively permitted to trade within the Free Zone and internationally, and cannot engage in business on the UAE mainland. Within a Free Zone, an entrepreneur can build three types of business entities: Free Zone Company (FZC), Free Zone Establishment (FZE), or a Branch of an existing business.
100% Foreign Ownership: Free Zone allow for 100% foreign ownership without the need for a local sponsor or partner.
Tax Exemptions: Businesses in Free Zones has corporate tax exemptions for a certain period (usually 15-50 years) and no personal income taxes
Complete Profit Repatriation: Free Zone companies can repatriate 100% of their profits and capital.
Easy Setup Process: The setup process in Free Zones is often faster and hassle-free with streamlined procedures and less paperwork.
Custom Duty Benefits: Free Zone companies are exempt from import and export duties, which is useful for businesses in the trading and logistics sector.
Restricted Market Access: Companies are restricted from conducting business activities directly in the UAE Mainland without a local distributor.
Location-Based: Free Zone businesses are limited to operating within their specific Free Zone.
Limitation in Business Activity: Each Free Zone has its own set of permitted business activities. So it must make sure that the intended business activities align with the Free Zone's rules and regulations.
If your business involves trading within the UAE or you aim to secure government contracts, a mainland company setup might be the best choice. On the other hand, if your business is more focused on international trade or you prefer the advantages of full foreign ownership and tax exemptions, a Free Zone setup could be a better choice. Depending on the business activities, the licenses and the approvals are issued by the government entities like Dubai Department of Economy and Tourism (DET) and the Department of Economic Development (DED).
Mainland setups can be more costly due to various factors such as local sponsorship fees, office space needs, and other regulatory costs. Free Zones, with their easy business setup procedures and reduced fees, can be less costly for startups and small businesses.
Keep in mind your long-term business objectives and expansion plans while choosing a jurisdiction. If you want to operate across the UAE and access the local market, the mainland option provides much more opportunities. If the main focus of your company is on export-oriented activities that are benefiting from tax incentives, a Free Zone may be the perfect choice.
| Free Zone | Mainland | |
|---|---|---|
| Ownership | 100% ownership | 100% ownership for most business activities |
| Local Sponsor / Local Service Agent (LSA) | Not required | Option Available |
| Business scope | Within free zones, Designated free zone & Outside UAE | Mainland (Onshore), Free Zone, Outside UAE |
| Shareholders | 5 | Seek Consultation with Bizvise Expert |
| Corporate Shareholding | Can be done | Can be done |
| Setup time | 5 - 7 Working days | 5 - 7 Working days |
| Setup procedure | 100% remote | Requires physical presence or Power Of Attorney of UAE resident |
| Registered Office Address | Flexi-desk / Physical Space | Virtual Office / Physical Space |
| Government approvals | Free zone authority and additional approvals as required by the activity | Dubai Economy and Tourism (DET) and other additional approvals as required by the activity. |
| Licensing Authority | Respective Free Zone Authority | Dubai Economy and Tourism (DET) previously known as Dubai Department of Economic Development (DED) |
| Residence eligibility | Depend of Visa Allocation as per License Package opted | Unlimited |
| Residence Process completion | 10 – 15 Working days | 10 – 15 Working days |
| Residence Visa for Main Applicant | Digital eResidence Visa | Digital eResidence Visa |
| Residence Visa for Family | Yes | Yes |
| Residence Card (Emirates ID) | Digital and Physical Card | Digital and Physical Card |
| Employment Laws | Free Zone Laws | Regulated by UAE labour law (MoHRE) |
| Wage Protection System (WPS) | Free Zone Laws | WPS UAE labour System - MoHRE |
| Involuntary Loss of Employment (ILOE) Applicability | Yes | Yes |
| Employee Health Insurance | Yes | Yes |
| End-of-service benefits | Yes | Yes |
| License Renewal | One Month Prior Expiry | One Month Prior Expiry |
| Amendments Requests | Yes | Yes |
| Liquidation or Business Strike off | Two Month Prior | Two Month Prior |
| Ease of Business bank account opening | Less flexibility compared to mainland. Some free zones are deemed more high risk by UAE banks | More flexibility for mainland businesses if Economic Substance and Office space can be shown |
| UAE Corporate Tax (CT) Mandatory Registration Requirement | YES | YES |
| UAE Corporate Tax on Net Profits | 0% | 9% |
| UAE Value Added Tax (VAT) Mandatory Registration Requirement above AED 375,000 | NO | YES |
| VAT on Transactions | 0% or 5% depending on scope of Transaction | 5% |
| UAE Personal / Wealth Tax / Estate Tax / Net worth Tax / Gift Tax / Inheritance Tax | 0% | 0% |
| IMPORT Tax on CIF | 0% Free Zone to Free Zone, 5% Free Zone to Mainland | 5% |
| UAE Tax Residency Certificate After One 1 Year of Incorporation in Dubai or UAE to avoid double taxation | YES | YES |
| Ultimate Beneficial Ownership / Owners (UBO) Declaration | Yes | Yes |
| Financial Audit Requirement | Yes | Yes |
| Re-domiciliation into the UAE / Migration | Seek Consultation with Bizvise Expert | Seek Consultation with Bizvise Expert |
| Regulatory & Compliance | Yes | Yes |
Both Mainland and Free Zone company offers unique benefits that can cater to different business needs. By understanding the key differences and evaluating your specific business needs, you can make a well informed decision that aligns with your strategic goals. Dubai's business-friendly environment, combined with the appropriate setup, can provide a solid foundation for your business success.
When it comes to setting up a new company in UAE, there are a whole lot of factors that need to consider. It is extremely difficult for an entrepreneur to keep track of on all of them on their own. Choosing a jurisdiction is an important decision that will impact the progress and success of a business. So it would be wise to partner with experts in the field like Bizvise who can help you build a successful company from scratch.