Free zone Vs Mainland: Which one is right for you?

Expats who want to establish a new company in the UAE are eligible for a variety of benefits, including tax exemptions. In addition to the many benefits of setting up a company, the UAE offers a vast selection of company types and organizational structures for businesses to choose from depending on the firm’s circumstances and objectives. 

While there is no doubt that setting up a business in the UAE is profitable, the majority of uncertainty arises when selecting the appropriate jurisdiction.

One of the most important steps in launching a new company is to choose a location that offers favorable conditions for investors. The United Arab Emirates is considered a commercial hub in part due to the variety of business options accessible to individuals with diverse interests and hobbies. Foreign investors in the UAE have the opportunity to do business both on the mainland and in Free zones, among other options.

If an investor lacks a strong grasp of the multiple business jurisdictions in the UAE, it is akin to boarding a vehicle without knowing where it is headed or where it will stop. If you want an investor visa in the United Arab Emirates (UAE), you must first familiarize yourself with the relevant facts, fundamental concepts, visa costs, and legislation, as well as the distinctions between each of the different jurisdictions.

If you are planning to start a business in the UAE, it’s important to understand the difference between Free Zone vs Mainland companies. In this guide, we’ll discuss just that. 

What is a Mainland Company?

A mainland corporation is just an onshore business that has been registered with the relevant Emirate’s government. The Department of Economic Development of the specific Emirate is responsible for issuing the trade license. A mainland UAE corporation is primarily distinguished by the availability of unrestricted trade. When a foreign investor invests in a mainland UAE company, the company is permitted to conduct business both domestically and internationally. A local sponsor or an Emirati national is necessary to establish a business in Dubai.

The United Arab Emirates citizen owns 51% of the company’s shares, while the foreign shareholder controls 49%. In this circumstance, the foreign investor has complete and total authority over the firm, and the local sponsor has no involvement whatsoever in the daily operations of the organization.

Mainland vs Free Zone: Difference

Mainland companies in the UAE don’t have to pay corporate tax, and they don’t need any minimum amount of capital to start up. Mainland corporations can do business with other mainland corporations in Dubai or the United Arab Emirates, and they can do business in any part of the UAE or even outside of it. The United Arab Emirates does not have a restriction on businesses from the mainland being able to set up shop anywhere in the country. 

A Free zone corporation is a firm that is founded inside a certain territory governed by a particular Emirate. There are around forty active Free zones in the UAE at present. The Free zone Authority is the government agency responsible for enforcing Free zone zones, which have their own rules.

One of the distinguishing characteristics of a UAE Free zone is the opportunity to have 100 percent foreign ownership and get tax savings. A Free zone corporation is restricted from doing business in the United Arab Emirates.

Why you should start your business in Free Zone?

When building a business in a Free zone in Dubai, new businesses and smaller businesses don’t have to worry about having to pay large fees upfront. The free trade zones have offices, warehouses, and other facilities that are already built and ready to use. 

These facilities are made to fit the needs of your organization. This package comes with data centers with multiple levels, a great IT infrastructure, and easy access to all types of public transportation.

Mainland Business Setup

Although it is not a corporate structure in and of itself, a branch may engage in this kind of economic activity. A Local Service Agent (LSA) is required, who must either be a citizen of the UAE or a firm managed by at least one UAE citizen. You should have a thorough grasp of the optimal business location for your company, taking into account its activities and other requirements.

Free Zone Business Setup

A free trade zone is run by a separate body, which means it has its own set of rules and regulations. Furthermore, it varies from one Free zone to the next, and you have the option of picking any of the UAE’s more than 40 Free zones.

A Free zone business structure is not only advantageous financially, but it also provides a healthy and productive working atmosphere in which several firms may grow simultaneously.

Free Zone vs Mainland

Mainland CompaniesFreezone Companies
OwnershipThe government of the United Arab Emirates (UAE) has made it feasible for a foreign investor to own 100% of a firm that is set up on the UAE mainland. In the past, expat business owners could only hold a maximum of 49 percent of their company, while the Emirati sponsor controlled the remaining 50 percent of the firm.
The overseas investor is solely responsible for the company’s success. In the United Arab Emirates, it is not necessary to allocate the shares to a local sponsor. This means that the involvement of a regional sponsor is of little significance.
Tax ExemptionYou are exempt from paying any taxes, whether they be personal or professional. Only the value-added tax (VAT) is due from you (5 percent ).Free zones provide their inhabitants with a total exemption from all taxes.
ScopeA commercial enterprise established in the UAE mainland is entitled to do business in all UAE markets. This implies that the company is authorized to do business both within and outside the UAE.A company formed in any of the UAE’s Free zones is subject to a variety of restrictions. Depending on the Free zone in issue, companies established in Free zones are able to do business both inside and outside the United Arab Emirates (UAE).
Company Setup Cost As a general rule of thumb, the cost of obtaining a complete licensing package for a mainland Dubai firm is around 25,000 AED. This price includes the allotment of visas, the address of the office, and any needed medical examinations and testing.You may get a license to operate a Free zone for as little as 5,750 AED.
Company Setup procedureYou must be physically present in the country in order to start a business on the mainland. Alternatively, a Power of Attorney, which must first be approved and validated in your home country by the UAE embassy, and then authenticated in the UAE by the Ministry of Foreign Affairs, may be used to transfer funds.The procedure of creating a corporation in a Free zone may be completed entirely online, removing the need for the proprietor to be physically present in the United Arab Emirates.
Business Setup Time5-10 days3-5 Days
Work PremisesPhysical office space for a mainland corporation has to be at least 200 square feet in size. The Department of Economic Development will issue a license for your firm if you have successfully located the necessary location.It isn’t required for firms operating in Free zones to get a physical location since many of these zones allow virtual offices.
Minimum Share CapitalsThere is no minimum share capital requirement that is standard. It is determined by the structure of its legal system.Proof of share capital deposit and the amount required to make it might vary from free zone to free zone.
Government ApprovalsOn the mainland, you’ll need clearance from a number of government agencies in order to run a business. Government entities such as Dubai Municipality, Dubai’s Ministry of Labor, and the Department of Economic Development are mentioned in this list.New businesses operating inside Free zones, on the other hand, must abide by the laws and regulations specific to that zone. As a result, if you wish to open a company in a Free zone, you won’t have to get permission from any non-Free zone government authorities or organizations.
Visa EligibilityThere are no qualifications or restrictions to satisfy in order to qualify for a visa when employed by a UAE mainland firm. The processing capacity for visas is related to the size of the workspace. This suggests that the business owner must have more office space if he or she wants a higher number of visas for workers.Free zone firms are subject to certain visa eligibility rules and restrictions. In the majority of cases, somewhere between one and six visas are issued. Visa packages for the United Arab Emirates vary per Free zone jurisdiction.

Mainland vs Free Zone: Advantages of Starting a Business in Mainland

Following are the advantages of setting up a business in Mainland UAE

  • Exemption from Corporate TAX
  • 0% minimum capital requirement
  • A diverse business scope offering various business opportunities
  • The mainland firms may do business with mainland companies in Dubai or UAE.
  • Options to establish a business at any location, allowing businesses to compete among local and global markets
  • Opportunities to establish multiple branches of business
  • No restriction on the usage of currency
  • There is no limit on the number of visas

Free Zone vs Mainland: Advantages of Starting a Business in a Free zone

Following are the advantages of setting up a business in Freezone UAE:

  • Complete ownership of the business
  • Easy transfer of funds
  • Extremely low cost of setting up your business
  • Exemption from import and tax duties
  • Straightforward recruitment policy
  • 100% repatriation of profits

Registration of Mainland Company in Dubai

The steps to register your company in Mainland Dubai are as follows:

  • Select your business type or activity
  • Choose your location
  • Determine the legal structure of your business
  • Find a local sponsor or a local service agent (LSA) 
  • Choose a name for your company
  • Apply for a Dubai trade license for your business
  • Hitch your office space
  • Apply for your respective visas

Free Zone Company Registration in Dubai

The steps to register your company in Free zone UAE are as follows:

Top Free zones in UAE

Following is a list of the most preferred and conventional Free zones in the UAE:

Conclusion

We hope this clarifies the major differences between Free Zone vs Mainland companies in the UAE. Location is one of the most influential variables that will decide your company’s success in the UAE. Each jurisdiction has its own set of benefits and drawbacks. It is just a matter of understanding their capabilities and limits and picking the one that is optimum for your business.

So, if you’re looking to invest and set up a company in the Mainland or the Free zone, you have our seal of approval. If you want to know about different Free zones, check out our article on Best Free Zones for Business Setup in Dubai