Differences between Mainland and Free Zone Company in UAE
An entrepreneur who is considering starting a business in the United Arab Emirateshas the option of doing so either on the mainland or in a free zone. Finding the best site to establish a business can be difficult because both the mainland and the free zone area have their own benefits and drawbacks. As a result, in order to decide whether a free zone area or the mainland is the ideal option for you, you must first comprehend the differences between Mainland and Free Zone Company in UAE.
This article will clearly explain the differences between mainland and free zone company in UAE, providing you with the knowledge and details required to choose the ideal place for the growth of your business.
Free Zone Company in the UAE
The term “Free” in the Zone in UAE is a distinct geographical region within UAE which is administered by a separate area with its own regulations regarding imports, taxation, and customs that are distinct from those companies that are based on differences between mainland and free zone company in UAE.
They are managed by their own Free Zone Authorities, which are given the authority to issue trade permits. There are about 45 Free Zones within the UAE.
Businesses located in a free zone are only permitted to conduct business there, as opposed to mainland corporations, which are established in mainland nations. A free zone corporation is permitted to conduct business only inside the zone.
Mainland Company in the UAE
A firm in the UAE that operates in a free zone as opposed to the mainland is frequently referred to as an offshore company.
The Department of Economic Development of the particular Emirate issues the license required to establish and operate an offshore company/Mainland Company.
A company on the mainland is permitted to conduct business within the local market as well as beyond the local market in the UAE. Geographical limitations don’t bind them for trade-related purposes.
Main distinctions between Mainland and Free Zone Companies in the UAE
The following sections provide descriptions of the key differences between Mainland Companies and Free Zones in the UAE:
1. Ownership Structure
- Mainland Company: Traditionally, Mainland firms in the UAE needed a local Emirati sponsor who would hold 51% of the company. However, recent reforms permit for 100% foreign ownership in many sectors, reducing the need for local sponsors. This change significantly empowers foreign investors, giving them more control over their businesses.
- Free Zone Company: Free zones offer 100% foreign ownership without restrictions, making them appealing to global businesspeople. Each free zone operates independently, with its own regulatory framework, which facilitates straightforward and expedited company formation processes.
2. Operational Scope
- Mainland Company: One of the key advantages of a Mainland company is its capacity to carry out business anyplace in the United Arab Emirates.. This flexibility allows companies to operate within free zones and non-free zone areas, giving them access to a broad domestic market.
- Free Zone Company: Free Zone companies are generally limited to operating within their designated areas or conducting international business. To operate outside their free zone, companies often need to work with a local distributor or agent, which may add costs and reduce control over local market operations.
3. Office Requirements
- Mainland Company: To establish a Mainland company, the company needs to have a physical office space within the UAE. By guaranteeing a steady presence, this criterion helps the business gain the trust of local partners and customers.
- Free Zone Company: Free zones offer flexible office solutions ranging from virtual offices to full-scale office spaces. Many free zones allow entrepreneurs to start with cost-effective desk spaces or co-working setups, ideal for startups and SMEs looking to minimize overheads.
4. Tax and Customs Advantages
- Mainland Company: Mainland companies are subject to corporate tax, though the UAE has one of the lowest tax rates globally. Mainland companies also have the advantage of no customs duties on goods traded within the UAE.
- Free Zone Company: Free zones offer attractive tax benefits, such as 100% exemption on import and export taxes and no corporate or personal income taxes for a set number of years, depending on the free zone. For businesses focused on international trade, this tax relief can lead to significant savings and a competitive edge.
Read More: Benefits of company setup in Dubai free zone.
5. Business Flexibility and Licensing
- Mainland Company: Mainland companies offer a broad range of business activities without restrictions, making them suitable for companies with diversified service or product portfolios. They have access to more flexible licensing options, enabling businesses to expand and diversify over time.
- Free Zone Company: Each free zone has specific regulations and licenses catering to particular industries, such as technology, healthcare, media, and finance. While this specialization provides tailored support, it can restrict companies looking to operate across different sectors.
6. Cost Considerations
- Mainland Company: Setting up a Mainland company often entails larger upfront due to the necessity of an office space and potentially higher visa fees. Despite this, the broader market reach may justify the additional expenses for companies aiming to scale in the UAE.
- Free Zone Company: Free zone setups are generally more cost-effective due to flexible office space requirements and tax exemptions. This makes them ideal for startups or businesses focused on international operations rather than local markets.
Which Option is Right for You?
Choosing between a Mainland vs Free Zone company in the UAE depends on your business model, target market, and growth plans.
Here’s a quick summary:
Factor | Mainland Company | Free Zone Company |
Ownership | 100% foreign ownership in many sectors | 100% foreign ownership |
Operational Reach | Across UAE | Limited to free zone or international |
Office Requirement | Physical office mandatory | Flexible office solutions |
Visa Flexibility | Unlimited (based on office size) | Limited to zone regulations |
Tax Benefits | Low corporate tax, no customs duty | Full tax exemptions |
Licensing | Diverse activity options | Restricted to zone-specific industries |
Cost | Higher due to office and licensing | Cost-effective and flexible |
Conclusion
Many differences were discussed in the past between the Free Zone and Mainland businesses, and Free Zones have been proven to be more flexible when it comes to conducting business. To promote progress on the Mainland and to encourage development on the Mainland, government officials from the UAE government has made changes to the foreign investment laws as well as it has also introduced the Dual License scheme, allowing companies from free zones to conduct business in the Mainland.
If you have any queries about the differences between mainland and free zone company in UAE. Consult OnDemand International experts.
FAQ’s
Dubai the validity of the visa runs for two years, whereas an unrestricted zone permit is good for 3 years. Additionally, the application for a mainland visa is generally governed by UAE Labor Law. Free zone visas depend on the particular law of your free zone district.
The company registration on the mainland or the visa signifies that you’ll be granted an official visa for the company which is not owned solely by you, but also a UAE National. The company you represent as your UAE National partner owns 51 percent of the company.
A Free Zone Company can undertake local business only through the locally appointed distributors.
The mainland is essentially an area that is not a free zone. Businesses in the mainland are offshore companies that have licenses granted by the Department of Economic Development (DED) or any other related department within other Emirates
