What are the differences between free zone and mainland companies in the UAE?

Foreign investors are enjoying great success when they establish new companies in the United Arab Emirates (UAE). So that you get all of the benefits that are available, it is essential to understand the fundamental differences between the types of corporations that are allowed for non-resident investors in the UAE.

 

The first choice you need to make is whether you are going to conduct business, trade or services inside the United Arab Emirates, or internationally, or in a combination of both local and international business. The terminology that you must become familiar with when deciding on this essential fact is whether you are establishing a mainland business, or a free zone business.

 

Rely on the advice of our expert consultants at GBO to help you decide on the right path, and to take you step-by-step through the process of setting up your new venture.

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    Summary of the difference between mainland and free zone companies in the UAE

    Subject Free zone Mainland
    Ownership Some free zones allow  100% business ownership. There may be limits on how many shareholders/UBOs are allowed. All mainland companies can be 100%owned by foreigners. Up to 49 shareholders/UBOs
    Business scope Many free zones cater to specific industries so once registered, you have limited scope for diversification (unless you have opted for a mixed zone like IFZA) There are no restrictions on what type of activity you perform.  
    Visa requirements In most free zones, up to six visas are granted automatically, but most must be applied for and may be subject to certain restrictions. There are no restrictions with regards to visa procurement.  
    Taxation & duties Free zones offer complete exemption from taxes, duties and VAT Companies are liable for VAT (5%). No personal income taxes.  
    Banking Opening a bank account in a free zone can be complex. Professional help from GBO will smooth your path. Opening a corporate bank account for a mainland company is relatively free of hassles.

    Mainland companies in the United Arab Emirates

    Any corporation registered as a mainland company in the UAE is not restricted in how it trades, being permitted to conduct business both internationally and locally. The Department of Economic Development of the UAE (DED) is the national authority that issues licences and regulates business.

     

    What makes the mainland the right model for you?

    The primary feature for foreign investors who are deciding on which type of company they need are:

    • Ability to bid on UAE government contracts. The UAE has committed to a vast spending program to invest its enormous revenue from oil and gas while it lasts and build a thriving modern economy. This means that great opportunities are created for foreign investors to bring skills and talent into the country and participate in the spending boom.
    • Ability to share in the local market. Mainland companies can set up local operations in retail, consulting, services and any other sector of the thriving economy, regardless of which Emirate your company is registered in.
    • Freedom of trade. Any mainland company can compete in the free market, regardless of whether it is owned by foreign residents or UAE citizens.

     

    What are the pros of setting up a mainland company in Dubai?

    With a Dubai-registered mainland company you can trade internationally across more than 160 countries throughout the world. Dubai is a world hub of logistics and transport, with the third-busiest port in the world outside of the USA and Europe, coming just behind Hong Kong and Singapore. A mainland company in Dubai lets you engage in any form of international trade and form world-wide connections. Being based in Dubai means you will see changes in demand and trends in the international markets and are able to respond quickly without interference.

    Dubai has the least restrictive and most responsive administrative process in the UAE, giving you increased scope for diversification and expansion. The mainland licence has very few stipulations or restrictions on the nature or type of business you can conduct, so it is easy to adjust to changes in the market and to exploit new opportunities all over the world.

     

    Being based in Dubai also gives your company the chance to bid on other contracts in the thriving MENA (Middle East and North Africa) zone, which has some of the fastest-growing economies that are also looking to invest their oil-based wealth in infrastructure and broader economies. Your reputation as a United Arab Emirates-registered country will help you to gain a step-up in these competitive markets.

     

    How to set up a mainland company

    We regard Dubai as the preferred choice when you are setting up a new venture in the UAE. Dubai is the largest economy in the UAE, with more than 35% of the total revenue and population. Ease of company formation in Dubai is rated very high on the World Bank list, coming in at #16, ahead of major destinations like Canada, Germany, Latvia and Estonia.

    To form your mainland company in Dubai, you must appoint a local service agent (LSA) who will lodge your application for the business licence. Mainland companies must be incorporated as a Limited Liability company (LLC), which allows for 100% foreign ownership.

     

    Process for mainland company registration in Dubai

    Company names are flexible, whereas trade names must reflect your sphere of business, must comply with government rules, and also not infringe international trademarks or registered names. You should make use of our experts at GBO to help you find the right company names and trade names.

    Choose the legal structure. Finally, after the two above steps, you can prepare and submit all of the required documents to the Department of Economic Development (DED) in Dubai.

     

    Setting up your mainland business in Dubai

    Depending on the type of business you are conducting, you may need to to rent or buy office, warehousing or storage space, but this is not a legal requirement. For example, if you are conducting a consulting service for social media and digital marketing, you can operate from remote locations and do not have to be physically based inside the country. If you do need physical space, this can be done through a contract with a landlord and registering it with the mandatory Ejari system that regulates and assists the local rental market to protect landlords and tenants.

     

    Visas are required for all foreigh residents who will enter the UAE either as visitors or to work. The visa process in the United Arab Emirates can be tricky – you should let out trained consultants here at GBO manage your visa needs.

     

    What documentation is required to set up a Dubai mainland corporation?

    You will have to submit a notarised copy of the passports of all company executives, shareholders, ultimate beneficial owners and employees, together with photocopies of their entry-stamped visas and a passport-size photograph. The company licence and DED documentation must accompany the application. GBO’s company formation consultants in Dubai have experience in mainland company formation and will help you complete the required documentation.

     

    2. United Arab Emirates free zone companies

    A wholly-owned UAE limited liability company (LLC) is allowed under Dubai’s free zone regulations to provide goods and services to customers all around the world, except directly to residents of any UAE emirate. Only international trade is permitted.

    Each zone is allowed to conduct business in a different way. The International Free Zone Authority (IFZA) allows companies to operate in any sector of the economy. Zones like the Dubai International Academic City, focused on Education have been set up to cater for specialised forms of business, for example.

    Companies can be set up by foreign investors in a free zone tax haven in any one of the more than 40 free zones. For such companies, there is no customs or sales levy, zero tax on profit and dividends paid to shareholders. Dubai is the most highly sought-after location for new enterprises which can earn better returns on their investment.

     

    What makes a free zone the right choice for you?

    Your main decision to make when choosing which free zone you will incorporate in is what type of business you will be conducting. If you are going to operate in a small sector of the market, and there is a free zone that specialises in that sector, then it may be the best choice, but in the long run, unless you are never going to look for change, we recommend incorporating in a mixed-use free zone such as International Free Zone Authority (IFZA). There are no down-side negatives from being incorporated there, and you will be free to adapt and change your business as the market dictates.

     

    How to set up a free zone company in Dubai

    The processes are very similar to how you would set up a mainland company. The main difference is that some free zones permit the choice between sole operator, partnership and LLC. To register any free zone business in Dubai, you must appoint a local service agent (LSA) who will lodge your application for the business licence.

     

    GBO supplies all services needed for setting up a new free zone company in Dubai. We can assist with the visa application processes, provide introductions to banks for company account opening, and prepare all the necessary legal documents all at the most competitive and reasonable cost.

     

    You can rely on GBO for the best guidance and support in company formation in the Dubai free zone of your choice.

     

    Setting up a free zone operation in Dubai

    Each free trading zone has its own set of rules and regulations which vary between different Emirates. There are many specialised free zones, such as the Dubai International Financial Center for financial operations as well as Dubai Media City for media and communications.

    By choosing which free zone you are applying to operate in, you will be required to follow the laws for setting up the company. You should let our experts here at GBO negotiate all the steps so that you are getting a cost-effective and healthy enterprise.

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