What is Differences between Freezone, Mainland & Offshore?
Confused about the Differences between Freezone, Mainland & Offshore? Read this and get Your Answers!
You must be familiar with the terms "mainland," "freezone," and "offshore" before beginning a business in the United Arab Emirates (UAE). All three jurisdictions have advantages and disadvantages, as well as commercial prospects for entrepreneurs with varying priorities. The type of corporate entity, business activity conducted by the organization, and your anticipated trading partners can all influence your priorities. To conduct business in the UAE, you must have a thorough understanding of these jurisdictions in order to make informed judgments.
Thus in today’s blog, Dhanguard will extensively discuss the differences between the three jurisdictions so that you can have a better understanding of them. So without any further ado, let’s learn!
The 3 Jurisdictions of the UAE
Below mentioned are the 3 types of Jurisdictions in the UAE, in which you can start your Business-
In the United Arab Emirates, there are more than 40 free zones. It is incorporated in an emirate's specified jurisdiction where the company is permitted to conduct business inside the same free zone. Most entrepreneurs who want to save money on taxes choose to form a free zone since the government provides numerous perks and incentives to enterprises that set up shop in the zone.
An onshore company in the UAE is also known as a mainland company. It has been granted a license by the Department of Economic Development (DED) of the relevant emirate, allowing it to operate freely in the local market as well as outside the UAE.
An offshore company is one that is incorporated in one jurisdiction but has its parent firm in another. There is no need for a physical office, hence this is not a branch firm. They have no physical presence in the nation in which they have chosen to incorporate as an offshore corporation.
Before you go in, keep in mind that converting a free zone offshore corporation to an onshore company is impossible. Offshore Free Zone Company has a completely new legal position, legal paperwork, and laws to follow. Let's have a look at the differences between the three jurisdictions now.
Free Zone vs Mainland vs Offshore Company in the UAE: Differentiation
Below mentioned are the different facets of the differentiation upon which you can ascertain every jurisdiction-
Setup Cost of the Company
Freezone Company: Medium
Mainland Company: High
Offshore Company: Low
Freezone Company: There are no such limitations for a corporation operating in a free zone. An expat can own 100 percent of the company's shares. To start a business, you don't require a local partner or a service agent.
Mainland Company: If an expat starts a business in the mainland of the UAE, they can only own 49 percent of the company. The remaining 51% must be purchased by a local sponsor.
Offshore Company: Until and unless the company is based outside the UAE, an expat can have full ownership. An offshore business is not permitted to have a physical presence in the United Arab Emirates.
Responsible Government Authorities
Freezone Company: Free zones have their own approval standards for every corporation operating within their jurisdiction, and they do not require clearance from authorities outside the free zone.
Mainland Company: They must obtain approval from authorities such as the Department of Economic Development (DED), the Ministry of Labor (MIL), the Dubai Municipality, and the Ministry of the Interior (MOI), among others.
Freezone Company: On request, the details of a free zone corporation are made available to the general public.
Mainland Company: Upon request, the details of a Mainland corporation are made available to the general public.
Offshore Company: Owners, directors, and shareholders of offshore firms do not have their names and identities made public.
Freezone Company: A free zone corporation is not required to have a workspace. These businesses have the option of operating virtually or without an office.
Mainland Company: Every mainland firm in the UAE must have a work space with at least 200 square feet of space.
Offshore Company: In the UAE, they are not permitted to have any physical workspaces. They can obtain it outside of the nation.
Scope of Business
Freezone Company: A corporation established in a free zone is typically not permitted to conduct business (manufacture and sell) outside of the free zone, unlike on the mainland.
Mainland Company: Anywhere in the UAE, a corporation operating on the mainland is free to conduct business. They are permitted to conduct business in any free zone in the emirates.
Offshore Company: They are permitted to conduct business outside of the emirates. Their ability to conduct business within the UAE is constrained.
Requirement of Capital
Freezone Company: The minimum capital needed for forming a free zone firm varies based on the emirate.
Mainland Company: The required minimum capital for forming a mainland company varies depending on the legal structure of the organization.
Offshore Company: There is no minimum capital requirement for an offshore business in the United Arab Emirates.
Freezone Company: The size of the office/ work premises determines whether or not a resident visa is granted.
Mainland Company: The size of the office/work premises determines whether or not a resident visa is granted.
Offshore Company: A residence visa is not provided to an offshore firm establishment because there is no need for office space.
Freezone Company: Auditing isn't required for every Freezone company. However, some types of businesses are required to conduct an annual audit of their financial statements. Free zone corporations (FZCO) and free zone establishments are included in this category (FZE).
Mainland Company: At the end of every financial year, mainland enterprises must conduct an audit.
Offshore Company: The audit is not prepared by an offshore business because it does not have the authority to do so. They can do one if they wish to stay on top of their finances.
There are a few places where all three jurisdictions or any two jurisdictions share similarities, but their roles and goals in doing business are very distinct. A free zone's taxation and those of an offshore business are identical. In contrast to a free zone, both the mainland and offshore can have bank accounts in the UAE and overseas. But, at the end of the day, there is no one-size-fits-all solution for deciding whether or not to open a firm in any of these jurisdictions. There is no such thing as a "better" free zone, offshore, or mainland configuration; it all comes down to what works best for your company.
We at Dhanguard can assist you if you need more information about these jurisdictions or are ready to start a business in the UAE. Our consultants can help you with all aspects of company formation in any of the Emirates. Please get in touch with us right away, even if you just want some friendly advice. Thus, we hope this blog provided you with insightful information. For more information on other related aspects, feel free to check out our website as well or get in touch with our Experts by visiting our Branch Office.