The United Arab Emirates (UAE) offers three main jurisdictions for entrepreneurs: mainland, free zone, and offshore. The choice between these jurisdictions depends on the type of business and the entrepreneur’s goals. Free zone companies offer some benefits, while mainland companies may be more suitable in others. Understanding these distinctions is crucial for making an informed decision when setting up a business in the UAE.
What is a Mainland Company in UAE?
A Mainland Company in the UAE is a legal entity registered with the Emirate authority, allowing them to issue visas, conduct business with other companies, and bid on government contracts. New regulations allow foreigners to have 100% ownership of their company.
What is a Free Zone Company?
A Free Zone Company is an enterprise registered in one of the 45 free economic zones, offering zero tax policies but not directly operating on the mainland. Certain Designated Zones are considered outside the UAE for tax purposes.
Mainland vs. Freezone: Business Ownership and Operations
Aspect | Mainland | Freezone |
|---|---|---|
Ownership |
Foreign ownership is allowed up to 100% (in certain activities and areas). Most businesses require a local sponsor (51% local ownership). |
100% foreign ownership is permitted across all business activities. |
Business Scope |
Can conduct business across the UAE, including the mainland, and internationally. |
Limited to business activities within the free zone or internationally. Requires a local distributor to operate in the mainland. |
Office Space Requirements |
Physical office space is mandatory. The size of the office must align with the business activity. |
Office space is available but not mandatory for certain types of licenses. |
Business Activities |
Wide range of business activities allowed, including commercial, industrial, and professional services. |
Specific activities are allowed depending on the free zone’s focus, such as trade, services, or industry. |
Mainland vs. Freezone: Regulations, Taxes, and Credibility
Aspect | Mainland | Freezone |
|---|---|---|
Regulatory Authority |
Governed by the Department of Economic Development (DED) of the respective emirate. |
Governed by the respective free zone authority. Each free zone has its own regulations. |
Corporate Tax |
Subject to UAE's corporate tax regulations. As of 2023, certain businesses are subject to 9% corporate tax if their profits exceed AED 375,000. |
Corporate tax regulations are applicable, but businesses in free zones may benefit from tax exemptions, provided they do not conduct business in the mainland. |
Import and Export Duties |
Subject to UAE Customs duties on imports and exports. |
Exempt from customs duties within the free zone. Duties apply when goods are moved from the free zone to the mainland. |
Visa Sponsorship |
Can sponsor a higher number of visas depending on office space. |
Visa quotas depend on the free zone regulations and the office space acquired. |
Audit Requirements |
Annual financial audits are required, especially for companies engaged in regulated activities. |
Not all free zones require annual audits; it varies by free zone and type of business activity. |
Reputation and Credibility |
Mainland companies often have higher credibility due to strict regulations and broader operational scope. |
Free zone companies are respected within their specific niches but may have limitations in building credibility outside the free zone. |
Ease of Setup |
Setting up a business may involve more procedures, including securing a local sponsor or partner. |
Generally quicker and simpler to set up with streamlined procedures and less paperwork. |
Capital Repatriation |
No restrictions on capital and profit repatriation. |
Full repatriation of profits and capital is allowed. |
Additional Crucial Information for Mainland and Freezone Businesses
It is strictly forbidden to move a business from the Mainland to a Freezone. In these situations, the only viable course of action is to close the Mainland business and establish a freezone company independently. Some business owners establish their businesses in both free zones and the mainland in order to benefit from both.
When businesses based in free zones import goods, there is no customs duty assessed. However, when items are imported by mainland businesses, customs duties become payable.
When selecting a freezone from the more than 40 available in the United Arab Emirates, caution should be used. Certain free zones, like Dubai Internet City, are dedicated to a particular industry, whereas other free zones serve all industries, including
