Are you thinking of starting your own business in Dubai, UAE? You need to understand that choosing the right business entity or jurisdiction is vital to achieving success in the UAE market.
In Dubai, you have three major choices where you can launch your company or business such as the Mainland, free zones, and Offshore business entities. Each has its benefits and disadvantages; however, choosing the right jurisdiction can change the entire scenario.
This article will help you to better understand the Mainland and Freezone regions of Dubai. Moreover, you will also get a detailed insight into the major differences between both business entities. After reading this, you will be able to make a strong decision on which option will be best for your company setup in Dubai, UAE.
So, continue reading to explore detailed insights.
Mainland Vs Free Zone Companies: Which Option Is Best For Business Setup in the UAE?
In the UAE, entrepreneurs or investors have the choice between Mainland and Freezone business setups. Businesses in the Mainland can operate across the UAE. They have greater access to the market and require local ownership. Freezone businesses offer tax exemptions, 100% foreign ownership, and a robust company formation process.
Dubai is a recognized and dynamic hub for setting up businesses and investments. Therefore, thousands of entrepreneurs and business owners are attracted to this dream city from all around the globe. However, most of the entrepreneurs or business owners jump into the process without understanding which jurisdiction will suit their company formation in the UAE. But the final decision should be made beyond location. Other major factors that need to be considered include regulatory bodies, cost, visa processing, licensing, bank account process, market access, ownership as well as the expansion plans etc.
What is a Mainland Company?
A mainland company is a business entity that is licensed by the UAE government and operates within the general UAE jurisdiction. In addition, they are allowed to trade directly with the UAE market and internationally. They can also make contracts or conduct business with the government entities.
What is a Freezone company?
Freezone companies are those business entities which are controlled by their own zone specific regulatory authorities.
Corporate taxation and tax benefits
In the Mainland, businesses are subject to 0% up to AED 375,000 for most sectors. Likewise, for import and export, they are also linked to custom duties.
In free zone regions, there is a benefit of 0% corporate tax for qualifying Free Zone income (subject to UAE Corporate Tax law). Other main benefits are related to duty free import/export. This is why trade and international businesses prefer the free zone regions of Dubai.
Scope of business
Both mainland and free zone companies are distinct in terms of authority in performing their operations.
Mainland companies have the complete right to perform the trade or any other operations anywhere across the UAE and internationally.
However, companies operating in free zones are restricted to carry out their operations within the specific free zone and outside the country. But in some cases, freezone companies can also access the Mainland market under specific regulatory frameworks.
Capital Prerequisite
The capital requirement of a Mainland company depends on its legal structure.
But for freezone companies, their capital requirements are based on the specific authority of that zone. Moreover, the typical capital requirements usually range from AED 50,000 to AED 1,000,000 which also depends on the business activity.
Types of legal entities
In the Mainland, main types of legal entities are as follows:
- LLC
- Sole Proprietorship
- Private/Public Joint Stock Company
- Branch of a Foreign Company
In contrast, free zone legal entities are the following:
- Free Zone Company (FZCO – multiple shareholders)
- Free Zone Establishment (FZE – single shareholder
- Branch of an existing business
Office requirements
There is a minimum office space requirement of around 200 square feet in Mainland. However, you can not open any virtual offices for your mainland companies.
But if you open your company in freezones, then you can find multiple options for office spaces that range from virtual desks to flexi-desks and complete physical space.
Cost of business setup
The average cost to start a company or business in Mainland varies and depends on the following:
Licence fee: There are multiple license options that DED offers, but the standard license fee is approximately 5% of the rent.
- Approval of trade name
- Initial approval from DED
- Trade license fee
- Office rent
- Dubai chamber of commerce
- Registration with the Ministry of Economy
- Attestation of Memorandum of Association (MoA)
- Fee of the UAE local Sponsorship
Likewise, the cost of starting or running a business in freezone regions also vary depending on the following main operations:
- License
- Company registration fee
- Office fee
- Share capital
Authority and regulatory bodies
All the companies operating in Mainland are regulated by the Department Of Economic Development (DED).
For the mainland businesses, the registration and licensing process is controlled by the DED. They do not just manage the process of licensing, they also renew the licenses and make necessary amendments in business structure or activities.
But free zone companies or businesses are regulated by the respective free zone authorities such as Free Zones Authority (FZA) and Dubai Development Authority (DDA). There is not just the involvement of a single overarching body.
In free zone regions, FZA is involved in managing the registration and licensing. Moreover, they do not just maintain compliance but also ensure comprehensive support to all businesses operating in freezones.
Opening a bank account
If you are going to open a corporate bank account in the Mainland region then there is a possibility that you will have to face some major challenges.
However, in freezone, bank account setup is comparatively straightforward and easier. In addition, freezone companies have also pre-established relationships with banks and clear regulatory frameworks.
Employment
In Mainland, companies have the flexibility for hiring employees from both local and international markets. Moreover, they can also sponsor employees for UAE employment visas. However, the total number of granted visas primarily depends on the business activity as well as office size.
Free Zone companies can hire internationally but visas are issued under Free Zone authority. Although they also sponsor visas, the employees get bound to just work in freezone regions.
Visa requirements
If you are going to establish a company in Mainland, then you will not have to face any visa limitations. If you want the total number of residency visas then your business facility and leased office space will be evaluated.
If the office space of your company is larger, you will obtain a greater number of residency visas.
Moreover, calculations are made based on this:
One visa per 80 square feet
However, the visa requirements in free zones are different from those in the Mainland. Even the variation is based on each free zone. Moreover, the number of visas granted also depends on the office space.
In Dubai, free zones will permit around 3 to 6 visas.
- For Serviced office: 4 to 5 visas
- Physical space: For every 9 square meters, 1 visa is granted.
- Flexi desk: up to 3 visas
Business activity
If you have a free zone company, then you can not run your business in the Mainland region of Dubai. However, if you want to specifically target the UAE market, then you will need the local sponsor to set up your company or business in Mainland.
Ownership structure
One of the major benefits of starting a company in Dubai’s free zone is that you can get 100% full ownership. There is no requirement of any service agent or local sponsor to start a business in this region.
Quick Overview Of The Differences Between Mainland and Freezone Company
Here are the key differences between a Mainland and a Freezone Company in Dubai, UAE
| Mainland | Freezone | |
| Business activity | Ability to trade anywhere in the UAE and the international market | Indirect access or through distributor/agent |
| Ownership structure | 100% foreign ownership | 100% foreign ownership |
| Visa requirements | Based on the size of the office space, the number of residency visas are granted | Visa eligibility after company setup |
| Office requirements | Minimum 200 sq ft office | It is not compulsory to have a physical office space Virtual and flexible desk solutions |
| Taxation | Subject to 9% UAE Corporate Tax (if applicable) | 0% corporate tax (subject to UAE CT law for qualifying entities) |
| Regulatory body | Companies in the Mainland are regulated by the Department of Economic Development (DET) of the respective emirate | Freezone companies are regulated by the Individual Free Zone Authority (e.g., DMCC) |
| Cost of company setup | The cost of company setup in the Mainland is higher. | The company setup cost is medium to high as compared to mainland setups. |
| Access to the local market | Full access to the UAE market | There is an indirect access via a local agent or distributor |
| Import-export/Customs | If you have a company in Mainland, then you can import and export freely within UAE and international market | Within free zone activities, there are customs duty exemptions. |
How To Choose The Right Jurisdiction For Your Business?
Before starting your company in Dubai, UAE, first you need to determine how you can select the right jurisdiction for your business.
The following are the main factors that need to be considered before jurisdiction selection:
Select your business activity
First, determine what will be your main business activity and whether you are going to operate them in the Mainland or free zone. This step is also very important to find out which type of license is also required.
Understand your client base
Another main factor that you should determine is your client base that you are going to target the local or international market. If your primary target market includes local clients or UAE, mainland company formation will give you direct access.
However, if the main focus of your company is on niche sectors or international markets then freezone will be ideal for you.
Evaluate the long-term business goals
You should decide earlier whether you are going to expand your business in the UAE or in the international market.
If the main goals of your business includes flexibility in business activities, deep penetration in the market and local growth then Mainland would be the best option for you. But always remember this will cost more for business setup and maintaining compliance.
However, if you are more concerned with international trade in a cost-effective manner and have specific operational requirements then freezones would be the best option for you. However, you will have to just face restrictions on some business activities and accessing the local market.
Determine employee quotas and visa requirements
In the Mainland, the visa and employee quota requirements are complex. Companies have to strictly follow the UAE labor laws to prevent any legal consequences.
On the other hand, in freezone regions, visa processing is straightforward and easier. In addition, there are often fixed quotas of visas.
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Frequently Asked Questions
What is the major difference between a Mainland and a Freezone companies in Dubai, UAE?
Mainland companies can operate their business activities with the local market and anywhere in the UAE without any restrictions. On the other hand, freezone companies can operate only in the free zones and on an international level. If you have a free zone company and you want to do trade with the Mainland then a local distributor will be required.
How long does it take to set up a company in Dubai, UAE?
The average time to start any company in the UAE varies:
For Mainland company: 1 to 4 weeks
For the free zone: 3 to 10 days
If some additional approvals are required, then the total time can range from 6 to 8 weeks.
What is the average cost to start a Mainland company in Dubai?
The average cost to start a Mainland company in Dubai, UAE typically ranges around AED 15,000 – 35,000+.
What are the main disadvantages of freezone companies in Dubai?
The main disadvantages of a freezone company include:
Business restrictions
Limited access to UAE market
Limited business expansion
High cost of visa renewal
Visa limitations
What is a free zone company in Dubai?
A free zone company is a business setup in free zones of Dubai where you can get several benefits such as tax benefits, 100% foreign ownership and ability to trade within the free zone and internationally.
What is the Mainland in the UAE?
Mainland is a specific jurisdiction in Dubai where you can set up your business licensed by the Department of Economic Development (DED). Moreover, they are allowed to trade anywhere in the UAE and globally.
What is the difference between a free zone and an offshore region in Dubai?
Free zones include limitation of business operations within the free zone, 100% foreign ownership. In addition, they can only trade with the UAE mainland unless there is a local distributor or service agent. However, in offshore zones, companies are legally registered but they can not operate their business activities within the UAE. They are used for holding companies, international trading, tax planning as well as asset protection.
Can a freezone license be converted into the Mainland?
Yes, but the first main step is to cancel your free zone license. Then submit your application to the Department of Economic Development (DET) to apply for a Mainland license.