Differences between Mainland and Free Zone Company in UAE
Before launching an enterprise operating in the United Arab Emirates, it is essential to become familiar with the concept that comprises differences between mainland and free zone company in UAE. Each jurisdiction has its particular pros and cons and entrepreneurs must have the necessary knowledge and details before registering their companies.
Foreign investors have to be aware of the differences between these two entities and take unison business decisions.
This article examines the idea and the differences between mainland and Free Zone company in UAE.
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:
Before 2021, mainland firms were not the top choice for international investors due to the government’s constraints on their ability to manage the Mainland enterprise. With the latest amendment to the company law of the country that allows foreigners to own 100% of the company.
The partial ownership option is restricted to certain types of companies as defined by the government. more than 51% share of the business is controlled by the UAE Local/Local Sponsor, and foreigners may have 49% part of the business.
Differences between mainland and free zone company in UAE is not subject to any ownership restrictions and foreigners can be 100% owner of any company. This is due to the fact that the Free Zone company does not oblige its customers to have a local sponsor.
2. Specifications for office space
Differences between mainland and free zone company in UAE should be able to provide at least 200 square. Ft. to serve official requirements.
There isn’t a rigid and unchanging requirement for Free Zone businesses. They can have real offices. A Free Zone business can operate without an office, or use virtual offices.
3. The limitations to conducting business
The differences between mainland and free zone company in UAE has no geographical restrictions in conducting business. A company from the mainland is allowed to trade in any part of the UAE including those free zones that are located in the UAE.
However, the free zone business is not allowed to carry out any trade activities outside its free zone. They can only conduct their business within the boundaries within their zone of free access.
4. Auditing requirements
Each mainland Company is obliged to perform an audit that is mandatory at the close of each financial year. An independent auditor shall compile the financial statements in accordance with International Financial Reporting Standards (IFRS) and deliver them to the relevant authorities in line with the Code of Conduct.
Contrarily the mandatory audit is not mandatory in all Free Zone businesses. Certain types of organizations must conduct an audit that is mandatory for their accounts.
5. Minimum capital requirements
The minimum capital requirements of an established company in the mainland UAE depend on the type of business the business is engaged in.
Businesses operating in free zones must have a minimum amount of capital is based on the emirate in which Free Zone is situated.
6. Authorities are suing the setting up of a business
In order to establish a business within the differences between mainland and free zone company in UAE promoters will need to obtain approval of the Department of Economic Development (DED) of the emirate they are in. The DED issues the trade permit for a business that has been that is based in the Mainland. There are various other authorities from which promoters must seek approval to establish their company.
As was already noted, each Free Zone is controlled by its own Free Zone Authority in accordance with the manner prescribed by the authority’s own regulations. They are not required to get permission from any institution outside of their own Free Zone.
7. Cost of establishing the company
If a business on the mainland must have an office space that meets the minimum of 200 square. feet. It can be quite expensive as well as the ancillary costs.
The lack of definitive rules for the need for physical offices to establish a business along with the differences between mainland and free zone company in UAE means it is more economical and financially viable to start businesses in Free Zones.
Read More: Cost of Business Setup in the UAE
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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 Odint Consultancy.
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
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Azhar Ansari is a company formation specialist with 8+ years of expertise in international business. Financial planning, risk management, and other related areas.