As the UAE updates and changes business laws to better cater to the global market, more and more people are taking the plunge and setting up a business in the country. One of the decisions they have to make during that process is choosing a business location that matches their needs. The choice between mainland vs freezone can be a tough one, as both locations offer different benefits. This makes understanding their differences an essential part of becoming a successful business owner.
Mainland and Free Zones: How are They Different?
Mainland companies in the UAE operate under different rules to companies located in a free zone. The Department of Economic Development (DED) regulates mainland companies across every Emirate, while each free zone is regulated by free zone authority that handles business licensing and regulation.
The first step of any business setup in Dubai process is selecting a company structure. Mainland and free zone jurisdictions have different business structure options:
- Mainland: Sole proprietorship, LLC, Partnership, PJSC, Civil company, Existing company branch
- Free zones: FZE, FZCO, Existing company branch
If you’re debating setting up in a free zone vs mainland in Dubai, working with a business setup consultant can help you get valuable insight into the difference between the locations and the best choice for you.
Ask Yourself 4 Questions Before You Decide on Mainland vs Free Zone
Entrepreneurs and investors, especially those who are unaware of how business in the UAE works, need to set aside a considerable amount of time to research and explore the country’s economy, consumer market, and consider the difference between free zone and mainland.
Answering these four questions can help you get a better idea of what each business location can offer you.
1. Who’s Your Target Customer Base?
By law, free zone companies cannot conduct business operations with the mainland. They are restricted to their free zone and international markets. So if the UAE is your target market, setting up in a free zone is probably not the best choice.
However, Dubai recently introduced a law that allowed Dubai free zone businesses to trade with the Dubai mainland, as long as they have a license from the Department of Economy and Tourism (DET).
In contrast, mainland business setup in Dubai offers its owners barrier-free trading, with access to both international and local customers. Additionally, mainland companies are allowed to bid for and participate in government contracts, while free zone companies cannot.
2. What’s Your Main Business Activity?
Mainland and free zone companies do not have the same list of business activities to choose from. Free zones are limited to a certain number of business activities as compared to mainland businesses who have no such limitations.
Your business activity will affect the type of trade license, office space, and number of employees, so making the right choice is imperative.
3. What’s Your Budget?
Generally, free zone company formation is cheaper than setting up on the mainland. License costs start as low as AED 5,500 in certain free zones, while mainland licenses can cost between AED 15,000 to AED 30,000.
Apart from applying for a license, business setup costs can include:
- Leasing an office
- Minimum capital requirement
- Preparing and attesting documents
- Trade name registration
- Visa application fees
So if you’re on a smaller budget, free zones might be a better option.
4. How Many Visas Do You Need?
Businesses on the mainland have no quota on the number of visas they can apply for. This is a suitable option for companies that plan to hire multiple employees. Conversely, every free zone authority limits the number of visas a company can sponsor. The number is also influenced by the location, license, and size of the office space.
Difference Between Free Zone and Mainland: A Breakdown
As you’ve probably noticed, both types of locations have their benefits and drawbacks. There’s no real right choice as the decision depends on your business needs. Starting a business in Dubai can be stressful, but working with a business setup consultant might be a helpful solution. They can expertly guide you towards the right choice between free zone vs mainland in Dubai.
| Factor | Free Zone | Mainland |
| Company Structure | FZCO, FZE, Company branch | Sole proprietorship, LLC, Partnership, PJSC, Civil company, Company branch |
| Cost of Setup | Low Cost | Expensive |
| Company Address | Physical address required | Virtual address allowed |
| Trade Access | Restricted to free zone and international market | Unrestricted access |
| Ease of Expansion | Difficult to scale up | Easy to scale up |
| Profit Repatriation | 100% | 100% |
| Business Activity | Limited choices | Unlimited choices |
| Visa Quota | Limited | Unlimited |
| Ownership | 100% ownership | 100% ownership |
| Taxation | 0% tax | Subject to corporate tax and VAT |
| Audit Requirements | Mandatory annual audit (for most companies) | Based on income threshold |
| Opening a Bank Account | More challenging | Easier |
