UAE offers various advantages (such as tax exemptions) to expatriates looking to set up a new business there. In addition to the advantages, there’s a range of company types and structures to choose from based on the business’s conditions and goals.
This is where a lot of confusion forms before setting up a business in UAE, especially when it comes to deciding on jurisdiction. You may read different posts or online guides on UAE mainland vs free zones or might hear different stories from friends and acquaintances who have set up business in UAE which might further confuse you or even lead you down the wrong road.
Since setting up a new company is a major investment, it’s best to get professional advice on all your options.
Here’s everything you need to know about the difference between UAE mainland and free zone business setup.
A brief intro to mainland company setup in UAE
Mainland companies (also known as onshore companies) are registered with the DED or Department of Economic Development in each UAE emirate (Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Quwain, Fujairah, and Ras Al Khaimah).
Here are some important notes to have in mind about mainland company types:
- Sole establishment company in UAE mainland– A business owned by an individual, not a company, providing 100% ownership for a single investor
- Limited Liability Company in UAE mainland– An adaptable type of enterprise that mixes elements of partnership and corporate structures
- Branch of foreign company in UAE mainland– Can carry out professional activities additional to some commercial and industrial activities.
- Representative Office in UAE mainland– It isn’t a business structure in its own right but it’s a business activity that a branch can conduct. It requires a Local Service Agent (LSA), who can be a UAE national or a company owned by at least one UAE national.
- Civil Company in UAE mainland– It is typically a business partnership for professionals such as doctors, lawyers, engineers, and accountants.
To read more about UAE mainland business setup, click here.
A brief intro to free zone company setup in UAE
Investors looking to set up a new business in UAE, can register their company in one of over 40 free zones and enjoy advantages such as tax exemption, remote registration processes and 100% ownership.
UAE major free zones
Dubai Multi Commodities Centre (DMCC) – Commodities Trade and Exchanges
Jebel Ali Free Zone (JAFZA) – Trading, General Trading, Service, Logistics, and Industrial
Dubai International Financial Centre (DIFC) – Banking, Financial Services, and Legal
Dubai World Central (DWC) – Aviation, Logistics, Light industry, and Ancillary Services
Dubai Knowledge Park (DKP) – Human Resources Management, Training, and Personal Development
Dubai Internet City (DIC) – Internet, and Communications Technology
Dubai Media City (DMC) – Media related activities
Dubai Silicon Oasis (DSO) – Information Technology, Telecom, Electronic, and Engineering
Dubai Healthcare City (DHCC) – Healthcare, Medical Education, and Research, Pharmaceuticals, and Medical Equipment
Ras Al-Khaimah (RAK) – Trading, General Trading, Service, Industrial, and Educational
Fujairah Creative City (FCC) – Media, Consulting, Communications, Design, and Technology
To read more about UAE free zone business setup, click here.
How are UAE mainland companies different than free zones?
While there are similarities between the companies registered in the 2 jurisdictions, there are also key differences that can hugely impact investors’ decisions on choosing a jurisdiction.
Company ownership
All companies set up in UAE free zones can have 100% foreign ownership.
All companies set up in the mainland were previously mandated to have a local Emirati sponsor who owned 51% of the share, however, this is not the case anymore.
Since November 2020, many activities are allowed to have 100% ownership in the mainland. You can check the list of these activities for Dubai and Abu Dhabi here.
Business scope
UAE mainland businesses are allowed to trade with other mainland businesses, free zones, and also businesses outside UAE.
UAE free zone businesses engaging in trading physical goods can only trade with other free zone businesses as well as internationally or they can work with a third-party distributor to work with the mainland.
Tax exemptions
All free zone businesses are fully exempt from paying any kind of tax. (VATs are still mandatory for certain thresholds on taxable supplies and imports.)
Mainland businesses currently have 0 corporate tax. However, according to the recent changes in UAE laws, mainland businesses will have to pay 9% tax from the year 2023 for most activities.
Company setup cost
Given the recent changes in the local sponsorship regulations in UAE, the costs of setting up a company in the UAE mainland vs free zones are more comparable than ever. Therefore the real question is where the right place for setting up your business would be.
You would need to consider factors such as business activities flexibility, regulatory frameworks, or tax exemptions rather than solely relying on the license setup costs to decide between free zones or mainland.
Company setup procedure
You will have to be present in the country while setting up a mainland company. Or can be done via a Power of Attorney that must be notarized and attested in your home country at the UAE embassy and then again in UAE at the Ministry of Foreign Affairs.
Free zone business setup procedure can be done entirely remotely without the need for the owner to be physically present in the UAE.
Business setup time
It usually takes about 3-5 days for a free zone trade license to be issued.
For the mainland, this time is usually about 5-10 days. Instant licenses are much quicker.
Work premises
All UAE businesses must be registered within a physical address. The physical address could be for an office, co-working space, or a Flexi desk. However, all free zone businesses must secure their physical offices within the free zone.
Professional activities (like consultants) usually do not require physical office space.
Financial audits
All UAE mainland businesses must present an annual financial audit.
Most free zone companies do not have to present a financial audit. Some free zones however require this, for instance, DMCC.
Trade license activities
Some UAE free zones have been established for promoting and facilitating specific activities. For instance, DHCC free zone for healthcare-related activities, DIC for IT-based activities, DMCC for trading in commodities, and JAFZA and DAFZA are more in support of import/export due to locale of port and airport.
This activity specialization can help businesses grow by easier access to specialized labor close by and getting the needed support from a common community at the early stages of formation.
Almost all free zones operate based on the standard ISIC list of activities from DED, some will add or exclude activities on their own volition or to support specific areas.
In the mainland, it is uncommon to obtain trade licenses for both commercial and professional activities unless there is a clear correlation. For example, trading in equipment that also requires servicing.
In many free zones, you can often combine professional and commercial activities.
Minimum share capital
Most free zones do not require paid-up share capital. Some, such as DMCC have a minimum requirement of 50,000 AED. Other than that, the minimum for most who do not require paid-up share capital is 10,000 AED.
Government approvals
The main approval for registering mainland businesses is from the DED of the respective emirate.
There might be other external approvals needed based on the business activity, for instance from Dubai Municipality, Dubai Health Authority (DHA)/ Health Authority Abu Dhabi (HAAD), Knowledge and Human Development Authority(KHDA), Food Control Department of Municipality, Real Estate Regulation Authority (RERA), Ministry of Labor (MIL), Ministry of Interior (MOI) & …
Free zone businesses get their approvals from the respective free zone authority. They may also be required to get additional approvals based on their activities.
Corporate bank account
When it comes to opening corporate bank accounts in UAE mainland vs free zones, there are a few considerations that must be taken into account:
- Opening bank accounts for mainland businesses is usually easier.
- Some free zones are preferred by the banks. Usually the northern emirates are deemed highest risk compared to Dubai based free zones.
- The process is more flexible for businesses set up with visa on license.
- Companies with physical offices get more flexibility than the ones with virtual offices.
Privacy
Details of the business and the owners are available to the public upon request in both setup options. There are however, options where ownership is not visible.
Free zone vs mainland business setup comparison table
| Free zone business | Mainland business | |
| Ownership | 100% ownership for all entities / No local sponsor or local service agent required | 100% ownership for business activities WITHOUT STRATEGIC IMPACTLocal sponsor or local service agents required for some activities |
| Business scope | Within free zones & outside UAE | Mainland and international |
| Tax exemption | All businesses | 9% for most businesses since 2023 |
| Price | Medium | High |
| Setup time | 3-5 days | 5 – 10 days |
| Setup procedure | 100% remote | Requires physical presence or POA |
| Work premise | Offices required for all businesses, except a few free zonesVirtual offices allowedWork premise only set up in free zones | Minimum of 140 square foot except for businesses without instant license |
| Visa eligibility | 1 to 6Some free zones offer up to 120 visas with office space | Unlimited requires sufficient office space |
| Financial audits | Not mandated for most free zones | Mandatory for all businesses |
| Trade license type | All types available in general free zonesLimitations for specific free zones | All types available |
| Minimum share capital | Proof and the amount varies between free zones | No standard requirement, determined by the legal structure |
| Government approvals | Free zone authority – and additional approvals as required by the activity | DED and other external bodies if necessary. additional approvals as required by the activity. |
| Corporate bank account | Less flexibility compared to mainlandSome free zones are deemed more high risk by banks | More flexibility for mainland businesses |
Final insights
As you have probably realized so far, there’s no right or wrong answer for choosing free zones or mainland in Dubai & UAE. Each jurisdiction has its own pros and cons. It’s just a matter of understanding their strengths and also limits and choosing what’s best for your business.
If you’re still not sure which jurisdiction to choose or have a more complicated business plan, you can have a free consultation with us at Nexus partners. Our business setup experts would provide you with solid practical advice based on your business’s unique conditions in order to set you off in the most efficient path possible.
Need help deciding between the free zone & mainland?
Click for scheduling a free consultation