If you are thinking about starting a business, the UAE is one of the top places in the Middle East to do business. It is a global hub that provides opportunities for businesses across various industries and for people from all over the world. The UAE’s liberal policies, stable economy, and business-friendly environment, along with its many initiatives to promote business, make it an attractive option for international investors.
You have two main choices when setting up your business: a free zone or the mainland. Like many others, you may wonder, “What is the difference between the free zone and the mainland?” or “Which option is right for my UAE business?”
Both free zones and the mainland come with their advantages, challenges, and opportunities, depending on the nature of your business. In this blog, we will break it down to help you decide.
What is a Free Zone Company?
Free Zones in the UAE are designated self-governing in each Emirate and are managed by a Free Zone Authority (FZA) with its own set of rules and regulations. These Free Zones offer attractive benefits for business investors, such as full foreign ownership and a tax-free environment, which makes them a popular choice for setting up businesses in UAE.
A Free Zone company refers to any business that is registered in one of the 40+ Free Zones in the UAE. These companies can only do business within the Free Zone or internationally, they are not permitted to operate directly on the UAE mainland. In a Free Zone, investors can normally establish three types of businesses: a Free Zone Company (FZC), a Free Zone Establishment (FZE), or a branch of an existing company.
What is a Mainland Company?
A mainland company in the UAE is a business that is officially registered with the Ministry of Economy and regulated by the Department of Economic Development (DED). To set up a mainland company, you need a local UAE resident sponsor. Mainland companies have the flexibility to conduct business both inside and outside the UAE without any restrictions on the type of business activities.
Ownership structures depend on the type of business. For trade activities, a UAE national typically owns 51% of the company, while a foreign partner holds 49%. However, for service-based businesses, foreign nationals can own the company fully, with 100% ownership.
Difference Between Freezone and Mainland Company
So, what’s the difference between a mainland and a free zone company? Each operates under different rules, and these key differences can help you choose the best option for your business.
- Ownership:
- Mainland: Previously, foreign investors could only own 49%, with a local sponsor holding 51%. However, the UAE now allows 100% foreign ownership for certain business activities on the mainland.
- Free Zone: You can enjoy 100% ownership from day one without the need for a local sponsor.
- Business Scope:
- Mainland: Mainland companies can operate anywhere in UAE and internationally.
- Free Zone: Free zone companies can only do business within their zone or internationally. To operate outside the free zone, they must hire a local agent.
- Office Space:
- Mainland: Requires a physical office with a minimum size of 200 sq. ft. to obtain a business license.
- Free Zone: Many free zones offer flexible options like virtual offices, meaning a physical workspace may not be necessary.
- Visa Eligibility:
- Mainland: No specific visa limits, but the number of visas is tied to the size of the office space. Larger spaces allow for more visas.
- Free Zone: Visa limits are set by the free zone, typically allowing 1 to 6 visas depending on the zone’s rules.
- Approvals:
- Mainland: Requires approval from various government agencies like the Department of Economic Development (DED) and the Municipality.
- Free Zone: Approvals are only needed from the specific free zone authority, without involving external government bodies.
- Audit Requirements:
- Mainland: Annual financial audits are mandatory.
- Free Zone: Not all free zones require audits. Some free zone companies, like FZE and FZCO, must conduct a yearly audit, while others do not.
Advantages of Setting up a Business in Freezone
Here are some advantages of setting up a company in a free zone:
- You get 100% ownership without needing a UAE sponsor.
- The free zone company formation process is quick & straightforward.
- 100% repatriation of all your capital and profits.
- You enjoy 100% exemption from import and export duties.
- Shareholder information remains private and is not shared with the public.
- There is a relatively simple recruitment process for hiring employees.
- Free zones offer business advice and networking support to help you grow your company.
Advantages of Setting up a Business in Mainland
Here are some advantages of setting up a mainland company:
- You can do business anywhere in the UAE without any restrictions.
- You get a 100% exemption from corporate and personal taxes.
- You can repatriate all your profits and capital without any limits.
- You can bid for and work on UAE government contracts.
- There are no limits on the number of visas you can apply for.
- You can choose any office location within the emirate and even open multiple branches, helping you establish a strong presence in the local market.
- You have unrestricted access to global markets for expanding your business.
Working with Intellect Chartered Accountants
Now that you have a better understanding of the differences and benefits between setting up a business in the mainland or the free zone, the next step is choosing what is best for your business. The right option depends on your business type, activities, and goals.
Whether you decide to establish your business on the mainland or in a free zone, Intellect Chartered Accountants is here to support you every step of the way. Our team of qualified professionals will take care of all the government-related processes, ensuring a smooth and hassle-free setup.
As a trusted business setup expert in the UAE, Intellect Chartered Accountants has years of experience helping entrepreneurs navigate the complexities of company formation. We offer tailored solutions that fit your specific needs, providing reliable and expert assistance to ensure a quick and efficient business setup.
But our support doesn’t stop at setting up your business. At Intellect Chartered Accountants, we offer a full range of services, including corporate tax, banking, VAT consultancy, Accounting, audit, and golden visa, to help your business succeed long after it is up and running.
Take advantage of our free consultations today, and let us guide you through the process of UAE business formation, giving you the best advice to fit your business needs.
