If you want to open up a company in the UAE, you get the opportunity to work in one of the world’s great business hubs. Before you get started, there are several things that you should consider about how and where you conduct your business.
In particular, you will have the option of operating either on the mainland, or in a free zone, so you should familiarize yourself with the difference between mainland and freezone requirements. In the following sections, we will describe what the differences are and what the requirements are for each of them.
Understanding the UAE Business Landscape
The UAE is one of the greatest places in the world to do business. For one thing, it is in a strategic location at the crossroads of many different regions. Europe, Asia, Africa, and the Middle East all converge in the region.
The UAE government has created policies that provide many benefits to people doing business in the region. This includes tax benefits, and other policies that make business easier for foreign investors working in the UAE. Both company types are well suited to foreign investment, offer straightforward business setups, and help facilitate international trade.
What is a Mainland Company?
We will now take a look at the two major categories of companies that businesses can register in in the country: the mainland company and the free zone company. What are the differences between mainland vs free zone? A mainland company is one that operates on the mainland of the country, outside the range of free zones. They enjoy local market access on the UAE mainland, and have direct access to other mainland companies and business entities.
The mainland company’s business activities are governed by the Department of Economic Development, and they must register under the specific emirate in which they choose to operate. They are subject to the standard corporate tax regime that other UAE mainland companies and foreign investors outside the many free zones must abide by. A mainland company has other benefits, including the fact that they can bid for government contracts, must undergo annual audits, and may be subject to visa restrictions depending on the number of people in a given company. A mainland company have full access to regional and global markets.
In general, larger companies with a greater number of employees who hope to conduct full-time business activities with other local businesses are better suited to mainland company registration.
What is a Free Zone Company?
Unlike the mainland company, Free zone companies are ones that can only conduct business activities in one of the designated free zones outside the mainland of the country. They are governed by the free zone authority.
Free zone companies are not subject to many of the same rules that the mainland company is because they technically do not fall under the same jurisdiction as mainland companies. Free zone companies do not require local sponsorship, and many of them offer freedom from personal income taxes and taxes on corporate income. There are, of course, free zone regulations that they must abide by, including import and export duties if this is part of their operation.
They also have the advantage of allowing for 100% foreign ownership. Only certain types of companies can operate within free zones, though, including technology, media, healthcare, finance, and logistics.
Key Differences Between Mainland and Free Zone Companies
We will now take a look at the primary differences between the mainland and free zone companies. While both contribute to the economic development of the region, the mainland company has a specific structure and rules for business operations, as well as access to the local UAE market that free zone companies do not have. Both entities have access to global markets and can work with international investors.
Ownership Structure
One of the main differences between mainland and free zone companies is the ownership structure. While some mainland companies require a local sponsor, free zone companies allow for 100% foreign ownership.
This gives free zone companies much greater freedom over how they want to run their operations.
Business Scope
Another difference between mainland and free zone is in the physical business scope with which companies are allowed to operate. While both mainland and freezone companies deal with UAE nationals, there are some differences in their broader market access.
Companies on the mainland can conduct business activities both locally and internationally, while free zone companies are limited to either doing business within the area of the free zone itself, or doing business for export.
Office Space Requirements
Both mainland and freezone companies have office spaces. But mainland versus free zone companies have very different requirements with regard to office space. For mainland companies, they must have a physical office space that is specifically designated for their own employees.
Free zone companies, on the other hand, have much greater flexibility in their physical operations. They can have only a certain number of flexi-desks, for example, and have staff members rotate between them. Free zones offer the space to have a business friendly environment but not be tied to physical spaces as much as on the Dubai mainland. Their primary responsibility is to the free zone authority.
Visa Eligibility
Because mainland companies generally have a greater number of employees on-site than free zone companies do, they might not have restrictions with regard to the number of visas that employees can receive.
Free zone companies, on the other hand, are eligible for between one and six visas per entity, depending on the size of their operations.
Cost of Setup and Renewal
Businesses should take into consideration the respective costs of setup and renewal for free zone and mainland businesses. Free zones tend to have lower setup costs because of the lower number of requirements and likely smaller operations. This makes the free zone option more appealing for startups. For mainland businesses, the setup costs are generally lower, but they have greater flexibility with renewals.
Regulatory Authorities
There are differences between the two entity types with regard to the relevant authority that each must answer to. Mainland companies are governed by the DED, while free zone companies must answer to their respective free zone authority.
Audit and Reporting Requirements
Free zone companies have fewer reporting requirements than mainland companies do. They are generally not required to undergo audits (although some might be), whereas requirements are stricter for mainland companies, and they generally are required to undergo audits.
Pros and Cons of Each Option
|
Mainland company pros |
Mainland company cons |
Free zone pros |
Free zone cons |
| Access to the UAE market as a whole and mainland activity | must undergo audits | flexibility in physical office space | inability to access the whole UAE market |
| Larger number of visas for the entire business | strict office requirements | tax exemptions and other tax benefits | limited visas |
| Greater scope for growth | greater regulation requirements | ability to operate with UAE’s free zones, including the Dubai free zone |
How to Decide: Which is Right for You?
Deciding what type of entity to open may be a difficult question. There are several major factors that you should take into consideration when making this decision. This includes:
- Your business goals, whether they will primarily be based around local markets or global ones. You might want to work either with local distributors, in a specific free zone, with a local partner, or with international companies on the mainland. You need to figure out all these things first.
- What your budget is. Mainland companies generally need to pay more to operate, and fall under a different legal structure than businesses operating in free zones.
- What type of industry you work in. As mentioned above, free zones exist for certain types of industries whose activities more easily lend themselves to free zone commerce. So working in free zones depends partially on your industry. Free zones offer a good atmosphere to companies in particular spheres.
- How many employees your company has, and how many visas you will need
Common Myths and Misconceptions
You will probably hear a lot of UAE company setup myths . There are quite a few things that people are led to believe that are Dubai business misconceptions and misconceptions about other emirates. The following ideas are commonly held but not correct:
- Starting a business is extremely expensive. Generally setup costs are not above AED 14,000. It is perfectly manageable for most businesses.
- You always need a local sponsor. If you open a free zone business, you do not need a local sponsor.
- The process is drawn-out and complex. While you do need to follow the rules, the setup process does not need to be that complicated. An advisor can help guide you through it easily.
- You cannot do business outside a free zone. The scope of your business activities depends on where you register. Consider where you want to conduct activities before you get started.
- You need a large amount of paid-up capital to get started. The amount of capital you need depends on your business type, location, and size. In some cases, it might not be large at all.
Always double-check anything you hear that gives you pause with regard to starting the process. It may simply be a misconception that has been taken as true because it has been spread around widely.
Final Thoughts: Launching Your Business in the UAE
Registering a business in the UAE isn’t difficult. If you follow the rules and are prepared to abide by the rules, you should be in good shape to continue operating in the country. You should do your research how you want to register, though, as there are important differences between mainland vs free zone requirements.
Think carefully about your scope of activity, where and with whom you plan to do business, the number of staff that you want to have and whether you need a full-size office space or not, and the amount of reporting that you are prepared to provide. If you take all these things into careful consideration, you should be in a good position to make the right decision. Employing a professional to help guide you through the process will also be to your advantage.
