Mainland vs. Free Zone: A Complete Guide to Business Setup in UAE

The UAE is one of the most attractive destinations for potential ventures, as its stable business-friendly environment makes it highly appealing to investors seeking to set up new businesses in UAE and the Middle East in general.

If you are planning to set up your own business in the UAE, the first step you need to do is to select the appropriate legal form for your business. Hence, it’s crucial to have a clear and precise understanding of the different types of companies in order to be able to choose what is the best fit for your aspirations.

Companies in UAE fall under three business classifications; mainland, free zone, and offshore. In this article, we will throw light on the mainland and free zone companies, then go through the main differences between them to help you make the right choice for your business.

What is a mainland company?

A mainland company is an onshore entity registered under the government authority of the concerned Emirate, and its trade license is issued by the Department of Economic Development (DED) of the particular Emirate. The fundamental feature of a mainland company is that there are no restrictions on its commercial activities, as it is authorized to trade in the UAE local market as well as outside UAE.

What is a free zone company?

A free zone company is a company formed within a special jurisdiction that comes under a particular Emirate. Free zone jurisdictions have their own regulations and have a government regulatory body called the Free Zone Authority which is the official body that issues the trade license for free zone companies. A UAE free zone company enjoys 100% foreign ownership and is authorized to trade only within the free zone and outside the UAE. Currently, there are over 45 free zones across the country, and each free zone is managed and administered by its own regulatory authority and functions under its own laws and regulations.

Mainland vs. Free Zone

After learning about each type of business, you may find yourself wondering which type of company is the best choice for your business. Before making such an important decision, we give you below a comprehensive comparison between mainland and free zone companies in terms of ownership, capital prerequisite, approvals needed and the like.

Ownership

Whereas complete ownership of companies registered in free zones is allowed, foreign investors in mainland companies require a local partner in the company and are allowed a maximum of 49% ownership of the company to 51% to the local partner. However, the UAE government now allows 100% ownership for specific business activities registered on the mainland.

Scope of business

A mainland company is free to do business anywhere in the UAE market, meaning that it is allowed to do business both inside and outside the UAE. On the other hand, there are certain restrictions on the company registered in one of the UAE free zones, and these companies are allowed to do business only within the jurisdiction of the particular free zone and outside UAE.

Office space

All businesses on the mainland must have a physical address to operate. The business premises and location must comply with the requirements defined by the respective emirate’s Department of Economic Development, as well as the land planning regulations of the local municipalities. But for a free zone company, office requirements depend on the number and type of business activity starting from a flexi desk of 20-30 sq.m. to offices running through multiple floors totaling up to 2,000 sq.m. each.

Visa eligibility

Mainland companies are not subject to any visa restrictions, although the number of visas issued is dependent on the workspace area. However, free zone companies have certain restrictions on visa eligibility, and the number of visas to be granted depends on the free zone regulations.

Business setup approvals

Mainland companies need approvals from various government bodies such as the Department of Economic Development, Dubai Municipality, Ministry of Labour, Ministry of Health, etc. On the contrary, each free zone has a set of rules and regulations applicable to the companies that are formed within the jurisdiction of the particular free zone.

Company audit

A financial audit at the end of each fiscal year is mandatory for all mainland companies. However, such financial audits are not required from all free zone companies, as some free zone jurisdictions are exempted from audit preparation while others are required to prepare a year-end audit.

Now that you have gained an understanding of each type of business and the differences and advantages and disadvantages of each type, it is time for you to make up your mind and take the first steps toward starting your own business.

However, if you still feel confused about which type of company to choose, do not hesitate to contact us. Our experienced team of attorneys will spare no effort to guide you through your journey of setting up your business in the UAE.

Questions ?

If you wish to discuss or have any questions, please contact Yasin Al Hamed Advocates and Legal Consultants:

info@yalhamed.com