Launching a business in Dubai
When launching a business in Dubai, your initial key choice is selecting its location: either in one of Dubai’s numerous free zones or in the “mainland” area. Making a well-informed decision about the company’s jurisdiction is crucial, along with grasping the meanings of “mainland” and “free zone.”
Freezone are generally designed for particular fields or activities, and most firms located there operate beyond the UAE’s borders. Businesses in the mainland have the flexibility to engage in commerce both locally and internationally, adhering to Dubai’s established legal framework and rules.
To assist you in choosing wisely, we’ve evaluated both business establishment methods below, pointing out factors that could influence your final choice.
Mainland Dubai
Regions beyond the free zones: the Dubai Department of Economy & Tourism (DET) oversees the setup and authorization of mainland businesses.
Free zones
Specific zones inside Dubai, offering advantages like relief from customs fees and taxes. Each area operates under its own guidelines, policies, and governing bodies.
First comparisons – Mainland or Free zone
What are the differences between mainland and free zones in Dubai?
What do Mainland and Free zone mean in Dubai’s business environment?
Mainland: Refers to businesses licensed by the Department of Economy and Tourism (DET) in Dubai. These companies can operate anywhere within the UAE and internationally without restrictions.
Free Zone: A designated area with its own regulatory authority, offering tax benefits and simplified regulations. Businesses in free zones typically operate within the free zone or conduct international trade but have restrictions on direct business with the UAE mainland unless a distributor or local agent is appointed.
What are the key jurisdictions governing business operations in Dubai’s mainland and free zones?
Mainland: Governed by UAE Federal Law, primarily under the Commercial Companies Law (CCL) and regulated by DET.
Free Zone: Each free zone has its own regulatory authority and rules but must comply with federal laws for activities outside the free zone.
How do ownership structures differ between mainland and free zone companies in Dubai?
Mainland: Since 2021, 100% foreign ownership is allowed for most business activities. However, some strategic sectors (e.g., oil, telecom, banking) may still require a UAE national partner.
Free Zone: Allows 100% foreign ownership without restrictions, but business activities are mainly limited to the free zone or international markets unless using a local distributor.
What are the tax implications for businesses operating in Dubai’s mainland versus free zones?
Corporate Tax: Mainland and free zone companies are subject to 9% corporate tax on profits exceeding AED 375,000. However, free zones may benefit from exemptions under the Qualifying Free Zone Person (QFZP) status if they meet specific criteria.
VAT (Value Added Tax): Applies to both mainland and free zone businesses at 5%. However, some free zones (designated free zones) offer VAT exemptions on specific transactions.
Customs Duty: Free zones provide exemptions on imports and exports within the zone or outside the UAE, but mainland businesses must pay a 5% customs duty on imported goods.
How do audit requirements vary between mainland and free zone companies in Dubai?
Mainland: Most companies must submit audited financial statements annually to comply with regulatory requirements, especially LLCs and large corporations.
Free Zone: Many free zones require annual audits, but some (like Dubai Multi Commodities Centre – DMCC) only require audits for certain business types. Regulations vary by free zone authority.
Are there differences in Emiratisation requirements for mainland and free zone businesses?
Mainland: Companies with 50+ employees in certain sectors must meet Emiratisation quotas (currently 2% per year for skilled jobs).
Free Zone: Generally exempt from Emiratisation requirements, but some zones (e.g., DIFC, ADGM) may have their own policies.
What types of legal entities are available for businesses in Dubai?
Mainland:
- Limited Liability Company (LLC)
- Sole Establishment
- Civil Company
- Private/Public Joint Stock Company
- Branch of a Foreign Company
Free Zone:
- Free Zone Establishment (FZE) – single shareholder
- Free Zone Company (FZC/FZCO) – multiple shareholders
- Branch of a Foreign Company
What are the physical office or presence requirements for businesses based on their setup location?
Mainland: A physical office lease is mandatory (Ejari registration required).
Free Zone: Many free zones offer flexible office options (e.g., virtual offices, flexi-desks), but some businesses may need a physical office depending on activity type.
Are there minimum share capital requirements for businesses in Dubai’s mainland and free zones?
Mainland: No official minimum capital requirement for most business types, but AED 300,000 – AED 1,000,000+ may be required for certain activities.
Free Zone: Varies by authority; some zones require as little as AED 1,000, while others may need AED 50,000 – AED 1,000,000+ based on business type.
How do visa regulations for employees differ between mainland and free zone companies in Dubai?
Mainland: No restriction on the number of visas, but dependent on office size (typically one visa per 9 sqm of office space).
Free Zone: Visa quotas vary; flexi-desk packages may allow 1-3 visas, while larger offices can sponsor more employees.
Second Comparisons – Mainland or Free zone
Here’s a structured comparison between Mainland and Free Zone businesses in Dubai in table format:
| Criteria | Mainland | Free Zone |
|---|---|---|
| Definition | Businesses licensed by the Department of Economy and Tourism (DET), allowed to operate across the UAE and internationally. | Businesses operating within a designated free zone with independent regulations and tax benefits. |
| Regulatory Authority | Governed by DET and UAE Federal Law. | Each free zone has its own regulatory authority. |
| Ownership Structure | 100% foreign ownership is allowed for most activities. Some strategic sectors require a local partner. | 100% foreign ownership is allowed without restrictions. |
| Business Scope | Can conduct business anywhere in the UAE and internationally. | Mainly limited to free zone operations and international trade. Mainland trade requires a local distributor. |
| Corporate Tax | Subject to 9% corporate tax on profits above AED 375,000. | Can qualify for tax exemptions under the Qualifying Free Zone Person (QFZP) status. Otherwise, 9% tax applies. |
| VAT (Value Added Tax) | 5% VAT applies. | 5% VAT applies, but some free zones (designated free zones) may offer VAT exemptions. |
| Customs Duty | 5% customs duty on imports. | No customs duty for goods within the free zone or re-exported outside the UAE. |
| Audit Requirements | Annual audit is mandatory for most companies. | Varies by free zone; some require annual audits, while others do not. |
| Emiratisation Requirements | Mandatory for companies with 50+ employees in certain sectors (2% per year for skilled jobs). | Generally exempt from Emiratisation, except in specific zones like DIFC. |
| Legal Entities Available | LLC, Sole Establishment, Civil Company, Private/Public Joint Stock Company, Branch of a Foreign Company. | Free Zone Establishment (FZE), Free Zone Company (FZCO), Branch of a Foreign Company. |
| Office Space Requirements | Physical office lease is mandatory (Ejari registration required). | Flexible options available, such as virtual offices, flexi-desks, or dedicated offices. |
| Minimum Share Capital | No official requirement for most businesses; some sectors may need AED 300,000+. | Varies by free zone; some require AED 1,000, others AED 50,000+. |
| Visa Quotas | No restrictions, but dependent on office size (typically one visa per 9 sqm of office space). | Limited by free zone regulations; flexi-desk packages may allow 1-3 visas, larger offices can apply for more. |
Third Comparisons – Mainland or Free zone
Summarizing the key differences between Mainland and Free Zones in Dubai’s business landscape based on specific factors. This format provides a clear, side-by-side overview.
| Criteria | Mainland | Free Zones |
|---|---|---|
| Definition | Areas under Dubai government and DED jurisdiction, allowing business across UAE. | Designated zones with special incentives, managed by specific authorities (e.g., DMCC, JAFZA). |
| Jurisdiction | UAE federal laws and Dubai DED. | Free zone authority rules (varies by zone, e.g., DMCC, JAFZA). |
| Ownership Options | 100% foreign ownership allowed (since 2021, most sectors); local sponsor may be required for some activities. | 100% foreign ownership guaranteed, no local sponsor needed. |
| Tax Implications | 9% corporate tax on profits > AED 375,000 (since June 2023); 5% VAT if revenue > AED 375,000. | 0% corporate tax (15-50 years, varies by zone); VAT applies only if trading in mainland UAE. |
| Audit Requirements | Mandatory annual audits for most entities (e.g., LLCs), submitted to DED. | Varies by free zone; some require audits (e.g., DMCC), others don’t. |
| Emiratisation Requirements | Mandatory quotas (e.g., 2%–5% Emirati employees for firms with 50+ staff, per MOHRE). | Typically exempt, though subject to evolving UAE policies. |
| Legal Entity Types | Sole Proprietorship (locals only for some), LLC, Partnership, Branch, Joint Stock Companies. | LLC-Free Zone, Free Zone Establishment (FZE), Branch, Freelance Permits (some zones). |
| Physical Office/Presence | Requires a leased physical office/shop, size based on activity and visa needs. | Varies: flexi-desks/virtual offices or physical space (e.g., warehouse), per zone rules. |
| Minimum Share Capital | No fixed minimum for LLCs (set by DED per activity); some licenses AED 50,000–100,000. | Varies: e.g., AED 50,000 (DMCC LLC), AED 1,000 (JAFZA FZE), often fully paid-up. |
| Visa Restrictions for Employees | Quotas tied to office size (e.g., 1 visa per 80–100 sq. ft.), approved by MOHRE. | Quotas set by free zone, linked to license/office (e.g., 1–3 for flexi-desk, more with space). |
Notes:
Mainland businesses have broader market access but face stricter compliance with UAE laws.
Free Zones offer more flexibility and incentives but are limited in mainland trading unless partnered with a local distributor.
