Free Zone vs Mainland – Key Differences to Know About UAE Business Setup
The United Arab Emirates (UAE) stands as a beacon of opportunity for entrepreneurs worldwide. Nestled between the East and West, its strategic positioning offers unparalleled access to global markets. Over the years, the UAE has meticulously cultivated a reputation as a prime investment destination, characterised by its innovation-driven ecosystem, sophisticated infrastructure, and investor-friendly policies.
Why Does the UAE Stand Out?
- Ease of Doing Business: The UAE government’s pro-business policies have significantly simplified the business establishment process, ensuring that companies operate efficiently in a supportive environment.
- No Personal Income Taxes: One of the major attractions for international businesses and professionals is the absence of personal income tax, maximising the profitability of ventures in the region.
- World-Class Infrastructure & Facilities: From ultramodern business parks to state-of-the-art logistic hubs, the UAE provides businesses with the infrastructure they need to thrive.
- High Standard of Living: A blend of cosmopolitan lifestyle with rich cultural traditions offers an enviable quality of life, further attracting global talent and investors.
The UAE isn’t just a commercial hub; it’s a tapestry of diverse business landscapes. While Dubai frequently captures global attention, each Emirate, from the vibrant core of Abu Dhabi to Sharjah’s industrial heartbeat, narrates its unique commercial tale.
Yet, a pivotal decision that entrepreneurs often grapple with is the choice between establishing in the Mainland or a Freezone. The contrast often perplexes new entrepreneurs and founders in the UAE, as they find themselves at a crossroad, weighing the merits of freezones against those of mainland setup. This choice is intertwined with various considerations, including the nature of the enterprise, its target clientele (local vs. international), and the geographical scope of its operations. Each offers a unique set of advantages tailored to the scale, location, and essence of your venture.
Differences Between Mainland & Freezone
|Registration Authority and Approvals
|Dubai Economy and Tourism (DET), previously known as Dubai Economic Department (DED); additional approvals from other authorities may be required.
|The relevant Free Zone authority (note that there are more than 40 Free Zones in the UAE); additional approvals from other authorities may be required.
|Type of Legal Entity
|Limited Partnership Company; Private/public joint stock company; LLC; LLC-SO, branch of a foreign company.
|FZE (single shareholder); FZCO (multiple shareholders); branch of a foreign company.
|A mainland company does not have any restrictions on the number of visas allowed but it is mandatory to expand office space if the company needs additional visas.
|Free Zone companies cannot apply for numerous visas and have restrictions with only 6 as an upper limit.
|Accounts need to be audited.
|Depends on the Free Zone. If benefit under Corporate Tax is to be taken by virtue of being a Qualifying Free Zone Person, then audit is mandatory.
|Timeline for Setup
|Around 1 month to set-up and physical presence of shareholders is a must.
|Around 1-3 weeks depending on the Free Zone and physical presence is not generally required.
|Foreign Ownership Restrictions
|100% ownership permitted in some activities with the introduction of UAE Federal Law No. 19 of 2018 on Foreign Direct Investment.
|100% foreign ownership possible.
|At least 2 shareholders for LLC.
|1 shareholder possible.
|Minimum Share Capital
|In practice, generally around AED 150,000 to AED 300,000 (depending on the Emirate and activity).
|Share capital requirements typically vary from AED 50,000 to AED 1,000,000 (depending on the Free Zone, activity, etc.).
|Physical Office (Virtual Office/Flexi Desk)
|The required minimum office space is 200 square feet, personal office address (Virtual Office) is required for bank account opening.
|No minimum square feet requirement, but personal office address (Flexi Desk/Private Office) is required for bank account opening; details depend on Free Zone.
|Conduct of Business
|Mainland companies can operate freely across the UAE without any restrictions.
|Free Zone companies can only operate within the Free Zone or outside the UAE, unless they get a local distributor. Carrying out business operations in mainland UAE is only permitted through NOC from DET.
|Standard Application of 5% VAT on Taxable Supplies. 9% Corporate Tax on Taxable Income from FY24 (Calculated after making certain adjustments to the net profit as per Books of Accounts).
|Free Zone owners can enjoy 0% corporate tax rate only if they satisfy the conditions for a Qualifying Free Zone Person i.e., derive income only from Qualifying Activities as specified in the Ministry’s decision and satisfy other conditions as prescribed. In case they fail to be a Qualifying Free Zone Person, corporate tax at 9% will apply. Further, there will be no customs taxes, excluding import products sold to the mainland.
Frequently Asked Questions
- What is a mainland company?
A mainland company operates under the jurisdiction of the UAE Commercial Law. In the UAE context, this allows the company to do business across the entire country, including local markets and outside designated free zones.
- What is a free zone company?
A free zone company in Dubai is established within designated areas where businesses can enjoy tax exemptions, 100% foreign ownership, and other exclusive benefits.
- What is the cost of starting a mainland company in Dubai?
The cost of starting a mainland company in Dubai varies based on the business activity and setup requirements, but it typically ranges from AED 20,000 to AED 40,000.
- What is the cost of starting a free zone company in UAE?
The cost for starting a free zone company in the UAE can differ based on the specific free zone and business type, with fees ranging from AED 10,000 to AED 50,000 or even higher.
- How do I set up my company in Dubai?
To establish a company in the UAE, decide between mainland and free zone options, determine your business activity, secure the required licenses, select a business location, and fulfil the documentation process with the respective UAE authorities.
The UAE, with its forward-thinking vision, offers a world of opportunities for ambitious businesses. The decision to establish in a Freezone or Mainland rests on multiple factors, each echoing the aspirations of the venture. But one thing remains certain: with the right guidance, the UAE promises a prosperous business journey with
Considering a leap into the UAE’s dynamic business landscape? Let AKW Consultants be your trusted partner in this venture. Explore our Business Setup Services and embark on a journey filled with promise and potential.