Dubai Mainland vs Free Zone Company Formation: Which is Right for You?

Dubai is one of the most popular destinations for business owners looking to expand into the Middle East. The emirate offers several advantages, including a strong economy, a strategic location, and a business-friendly environment. When setting up a business in Dubai, there are two main options: Mainland and free zone companies. Each type of company has its advantages and disadvantages, so it’s important to choose the right one for your business.

What is a Mainland Company? 

A Mainland company in Dubai is a type of business entity that is licensed to operate within the territory of the Emirate of Dubai. This type of company is also known as an onshore company registered with the Dubai Department of Economic Development (DED).

Dubai Mainland company formation is a popular choice for entrepreneurs and business owners who want to take advantage of the UAE’s strategic location, strong economy, and investor-friendly policies. A Mainland company in Dubai is also an excellent choice for businesses that want to tap into the local market and operate within the UAE without restrictions.

Dubai Mainland company setup has certain requirements that must be met to ensure compliance with local regulations. For example, businesses must have physical office space within the Mainland of Dubai and comply with labor laws, immigration rules, and other legal requirements.

One significant advantage of Dubai Mainland company formation is that businesses can operate without restrictions and have access to a wide range of business opportunities. Mainland companies can also bid for government contracts, which can be a significant source of revenue for many businesses.

Regarding requirements, Dubai Mainland company formation has several prerequisites to be met before the company can be registered. These include obtaining the necessary licenses and permits, registering for VAT, and complying with accounting and auditing regulations.

What is a Free Zone Company? 

A free zone company is a company that is registered in a free zone in Dubai. Free zones are special economic zones that offer many benefits to businesses, such as:

  • 100% foreign ownership
  • No corporate tax
  • Fewer regulations
  • Easier to set up and maintain

Free Zone company setup in Dubai is relatively straightforward compared to other company formations. Companies can be registered in as little as one day, and the process involves minimal paperwork and bureaucracy.

To set up a Free Zone company in Dubai, entrepreneurs must select a Free Zone area suitable for their business needs. There are several Free Zone areas in Dubai, each with unique features and advantages. Once the location is chosen, entrepreneurs must submit the necessary documents for registration and obtain the necessary licenses and permits.

Setting up a Free Zone company in Dubai can be an excellent option for entrepreneurs looking to take advantage of the unique benefits of Free Zone areas. With simplified procedures for registration and licensing, 100% foreign ownership, and tax exemptions, Dubai Free Zone company formation is an attractive option for businesses looking to expand their operations in the UAE.

Differences between Mainland and Free Zone Companies

The distinction between Mainland and Free Zone jurisdictions in Dubai is significant, as each serves a unique corporate structure. It is imperative to understand the key differences to determine which one aligns with your business needs.

The following are significant distinctions that can aid in determining which option best suits your business requirements.

1. Ownership

In the past, foreign investors in mainland UAE were only permitted to own up to 49% of a company, with the remaining 51% going to an Emirati sponsor. However, the UAE government has recently amended the law to allow 100% foreign ownership in certain business activities registered on the Mainland. On the other hand, free zones do not restrict foreign ownership, and investors can enjoy complete ownership from day one.

2. Business Scope

The primary distinction between Mainland and Free Zone companies in Dubai is that Free Zone companies cannot conduct business outside of the designated Free Zone area without the assistance of a local agent. Conversely, Mainland companies can operate anywhere within the UAE without such restrictions.

3. Workspace

In accordance with regulations in Dubai, a Mainland company is obligated to secure a physical office space of no less than 200 square feet before being granted a license by the Department of Economic Development (DED). Conversely, Free Zone companies are not bound by such a requirement, as certain Free Zones permit virtual workplaces instead of physical locations.

4. Visas

Mainland companies are not subject to any visa restrictions, but the number of visas issued depends on the workspace size. If your company requires additional visas, it must first acquire or rent a larger workspace. On the other hand, free zone companies have restrictions on the number of visas they can apply for. The number of visas available typically ranges from 1 to 6 and depends on the free zone regulations.

5. Taxes

Free Zones in Dubai provide full exemption from taxes to enterprises that conform to the applicable regulatory obligations and do not engage in business activities with the mainland UAE. No personal or professional taxes are imposed in the Mainland, and only a 5% Value Added Tax (VAT) is applicable. It is noteworthy, however, that a mandatory 9% corporate tax will be imposed beginning in June 2023.

6. Costs

The costs of setting up a company in a free zone are generally lower than the costs of setting up on the Mainland. This is because free zones offer businesses several tax exemptions and other benefits.

7. Approvals Related to Business Setup

Obtaining clearance from several governmental agencies, including the Department of Economic Development, the Municipality of Dubai, and the Ministry of Labor, is a prerequisite for setting up a Mainland company in Dubai. Conversely, each Free Zone operates under its laws and regulations for all new businesses established within its jurisdiction. Moreover, setting up a company in a Free Zone does not require obtaining permission from non-Free Zone governmental authorities or agencies.

Benefits of Mainland Company Formation

The registration of a company on the Mainland offers several advantages. Establishing a Mainland company guarantees your business and professional endeavors a prosperous future. These are some reasons entrepreneurs seek to establish a Mainland company in the UAE.

  • Greater access to the UAE market
  • No restrictions on business activities
  • 100% ownership control of mainland business entities
  • Location flexibility
  • Access to lucrative government contracts
  • 100% exemption from corporate and personal taxes
  • No constraints on the number of visas

Benefits of Free Zone Company Formation

Establishing a free zone business in Dubai provides a highly conducive environment for establishing industries equipped with state-of-the-art infrastructure, tax and duty exemptions, favorable business opportunities, flexible government policies, and facilities that facilitate the seamless operation of businesses. The following are the benefits business investors can enjoy when setting up their enterprise in a free zone in Dubai, UAE.

  • Complete Foreign ownership
  • Quick and simple company formation process
  • Investors can repatriate 100% of their capital and profits
  • Import and export duties are 100% exempted in free zones
  • Companies in free zones can operate with fewer regulations and at lower costs
  • Easier to set up and maintain
  • Shareholders’ information is kept private in a free zone
  • Free zones provide business advice and networking support to their investors

Which Type of Company is Right for You?

Dubai has become a hotbed for business activity, attracting entrepreneurs and investors worldwide. One of the first things that anyone who wants to start a business in Dubai needs to decide is which type of company formation is right for them – a mainland or a free zone company.

Each type of company has its advantages and disadvantages, so choosing the right option for your business is important.

Mainland companies are registered with the Department of Economic Development and must follow Dubai’s laws and regulations. This means they must pay corporate taxes, comply with labor laws, and obtain permits and licenses. However, they can operate anywhere in Dubai and partner with local businesses.

On the other hand, free zone companies are registered with specific free zone authorities and have different rules. They don’t have to pay corporate taxes, comply with labor laws, or obtain the same permits and licenses as mainland companies. But they can only operate within their designated free zone and can’t partner with local businesses.

Choosing the right type of company depends on your business needs. A mainland company is the best choice if you want to operate in the local market and partner with local businesses. But if you want to take advantage of free zones’ tax breaks and other benefits, then a free zone company is a good option.

Deciding Between Mainland and Free Zone: Factors to Keep in Mind

When starting a business in Dubai, choosing between a mainland and a free zone company can be challenging. To make the right choice, you need to consider various factors.

1. Your Business Goals

A mainland company is the right choice if you want to operate in the local market and partner with local businesses. However, if you want to take advantage of free zones’ tax breaks and other benefits, then a free zone company is more suitable.

2. Your Budget

Free zone companies may seem attractive as they offer lower costs and tax exemptions. However, remember that free zone companies are limited to operating within the free zone, and you may need to pay extra for additional services or permits.

3. Your Experience

A free zone company may be a better option if you are new to the business and require more guidance and support. Free zones provide business advice and networking support, which can benefit new entrepreneurs. On the other hand, if you have experience in the local market and want more flexibility in your business operations, then a mainland company is a better option.

4. Business Location

Choosing the right location for your business in Dubai is crucial for its success. A mainland company is the best option if you need to operate in the local market and require a physical presence. However, if you are happy to operate within a specific geographic area and enjoy the benefits of a free zone, then a free zone company could be a better fit.

Can I Change My Company from Dubai Mainland to Free Zone or Vice Versa?

Switching a company’s status from Dubai Mainland to a free zone is impossible, or vice versa. If you want to operate your business in a free zone, you must shut down your Mainland Company and start a new free zone company. However, some business owners opt to have both a Mainland and a free zone company to enjoy both benefits. It’s important to note that even if you want to move your business from one free zone to another, you will still need to cancel your current license and obtain a new one for the new free zone.

Final Recommendations for Choosing the Right Company Formation in Dubai

We hope this blog post has clarified the major differences between mainland and free zone companies in the UAE. If you are considering investing in the UAE, it is important to understand the main differences between these two jurisdictions.

The best option for you will depend on the type of business you are starting and the activities you intend to pursue. Ultimately, whether to start a mainland or free zone company comes down to your specific needs and goals.

Whether you start a business on the Mainland or in a free zone, ExpressPRO can help you set up your business. Our qualified and experienced professionals will handle all government-related work, ensuring a smooth setup.

If you would like to know more about mainland and free zone companies in the UAE and their detailed business setup costs, please get in touch with our business advisors and consultants. We are here to answer all of your queries.

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