Difference Between Free Zone and Mainland: Which one is right for you?
The United Arab Emirates (UAE) is a commercial hub offering diverse business options to investors with varying interests and hobbies.
Foreign investors can opt to set up a business on the mainland or in UAE free zones, among other options. However, having a solid understanding of the different business jurisdictions in the UAE is necessary to avoid uncertainties.
In this guide, we will explore the difference between free zone and mainland companies, two of the most popular options for investors in the UAE. Understanding the nuances of these two types of companies is crucial for investors who want to make informed decisions about establishing a new business in the UAE.
By clarifying the options available and understanding the relevant laws, visa costs, and critical concepts, investors can confidently set up a new company in the UAE.
What is a Mainland Company?
A mainland corporation in the UAE is an onshore business registered with the relevant Emirate government, with a trade license issued by the Department of Economic Development.
Mainland companies have unrestricted domestic and international trade but require a local sponsor or Emirati national to establish a business in Dubai. The local sponsor owns 51% of the shares, while the foreign investor controls 49%, with complete authority over daily operations.
What’s a Free Zone Company?
A Free Zone Company is a business entity in one of the many designated Free Zones in the United Arab Emirates (UAE). Free Zones are areas within the UAE where foreign investors can set up a business without needing a local sponsor or Emirati national.
Free Zone companies enjoy various benefits, including 100% foreign ownership, exemption from corporate and income taxes, and no restrictions on the repatriation of profits. Free Zones are designed to attract foreign investment and promote economic growth in the UAE.
Free Zone companies are subject to the regulations of the Free Zone Authority, which may differ from those of the mainland UAE.
Key Differences of Free Zone Vs. Mainland Companies
Here are the main differences between Free Zone and mainland business setups in the UAE:
| Aspect | Free Zone Companies | Mainland Companies |
| Ownership and control | 100% foreign ownership allowed; less government control | Local sponsorship and partnership required; more government control |
| Business activities | Limited to specific industries and activities | Can engage in any legal business activity |
| Taxation | Tax exemptions and incentives offered | Standard tax rates apply |
| Customs and trade laws | Import and export regulations relaxed | Standard customs and trade laws apply |
| Employment regulations | Special labor laws and relaxed restrictions on hiring | Standard labor laws and restrictions on hiring |
| Physical location | Geographically limited to designated free zones or areas | Can be located anywhere within the country |
| Repatriation of profits | Easier to repatriate profits and capital | More restrictions on repatriation of profits and capital |
| Government regulations | Less government regulation and bureaucracy | More government regulation and bureaucracy |
In summary, free zone companies offer more flexibility and fewer restrictions in terms of ownership, taxation, and business activities, but they are limited in terms of location and may face more restrictions on the repatriation of profits.
Mainland companies, on the other hand, may require local partnerships or sponsorship and face more government regulation, but they have more flexibility in terms of location and can engage in any legal business activity.
What is the Difference between the Mainland and Free Zone?
The main difference between Mainland and Free Zone companies in the UAE is that Mainland companies require a local sponsor and are subject to certain trade restrictions. In contrast, Free Zone companies allow 100% foreign ownership without such restrictions.
FAQs About Free Zone VS Mainland
What is the Free Zone and Mainland Dubai?
Dubai has several Free Zones, designated areas where foreign investors can set up businesses with 100% foreign ownership, and are subject to Free Zone regulations. At the same time, the mainland is the rest of Dubai, where local sponsorship is required, and companies are subject to UAE commercial laws.
What is a Mainland and Free Zone Visa?
A mainland visa is issued for company employees registered in the UAE mainland. In contrast, a Free Zone visa is issued for company employees registered in a Free Zone.
How are UAE mainland companies different from Free Zones?
UAE mainland companies require a local sponsor or Emirati national as a majority shareholder, while Free Zones allow 100% foreign ownership and offer various tax exemptions and other benefits.
Conclusion
The decision to establish a company in a Free Zone or Mainland jurisdiction in the UAE depends on the specific needs and objectives of the business.
Free Zones offer several advantages, such as 100% foreign ownership, tax exemptions, and no restrictions on the repatriation of profits, making them a popular choice for foreign investors. However, Mainland companies provide access to the local UAE market and have fewer restrictions on business activities.
It’s essential for businesses to understand the difference between Free Zone and mainland, consider their options, and seek professional guidance to ensure compliance with UAE regulations and laws. Ultimately, Free Zone and Mainland companies offer unique benefits and opportunities for businesses looking to expand or establish a presence in the UAE.