Choosing Between Mainland and Freezone: What You Need to Know
The UAE offers a vibrant and dynamic business environment, attracting investors from around the globe. Two primary options for business setup include mainland vs free zone companies. Each has its own set of regulations, benefits, and limitations. By understanding these differences, you can make an informed decision that aligns with your business goals.
This blog will delve into the key distinctions and benefits of mainland vs. free zone setups in the UAE.
What is a Mainland Company?
A mainland company in the UAE is an onshore entity registered with the government authority of the respective Emirate. The Department of Economic Development of that Emirate issues its trade license. One of the main features of a UAE mainland company is its unrestricted trading capabilities. This allows the company to operate both within the UAE local market and internationally.
Investing in a mainland company provides several advantages, such as the ability to conduct business with UAE government entities, which is not permissible for free zone companies. Mainland companies also have the flexibility to open multiple branches, and there are no restrictions on the number of visas that can be obtained, provided the company meets the necessary office space requirements.
Characteristics of Mainland Companies:
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Office Requirement: A physical office space must be provided within the UAE.
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Regulatory Compliance: Must adhere to UAE government regulations and commercial laws.
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Operational Scope: Can trade and offer services both within the UAE and internationally.
What is a Free Zone Company?
A free zone company in the UAE is established within a specialized jurisdiction governed by a specific Emirate. Currently, there are over 40 free zones operating across the UAE. Each free zone jurisdiction operates under its own set of regulations and is managed by a governing body known as the Free Zone Authority.
The Free Zone Authority is responsible for issuing trade licenses. One of the key advantages of a UAE free zone is the 100% allowance for foreign ownership and tax concessions. However, a free zone company is permitted to conduct business only within its designated free zone and outside the UAE.
Characteristics of Free Zone Companies:
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Ownership: 100% foreign ownership is allowed.
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Office Requirement: Office requirements vary; some free zones offer flexi-desk options.
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Customs Duty Exemptions: Goods imported and exported from the free zones are exempt from customs duties.
Difference Between Mainland and Free Zone Companies in the UAE
Understanding the differences between mainland and free zone setups is crucial for making the right choice for your business.
| Basis | Mainland | Free Zone |
|---|---|---|
| Taxation | A standard application of 5% VAT applies to taxable supplies. For taxable income, a 9% corporate tax rate will be applied, calculated after making specific adjustments to the net profit as per the books of accounts. | Free Zone owners can benefit from a 0% corporate tax rate if they meet the criteria to qualify as a Qualifying Free Zone Person. This involves deriving income solely from Qualifying Activities as outlined by the Ministry and fulfilling other specified conditions. |
| Type of Legal Entity | Limited Liability Company; Private/public joint stock company, branch of a foreign company. | FZE (single shareholder); FZCO (multiple shareholders); branch of a foreign company. |
| Audit Requirement | Accounts must undergo an audit. | Audit requirements depend on the specific Free Zone. If a Qualifying Free Zone Person wishes to avail benefits under Corporate Tax, audit becomes mandatory. |
| Timeline for Setup | It typically takes around one month to set up, and physical presence of shareholders is mandatory. | The process typically takes 1-3 weeks, varying by Free Zone, and generally does not require physical presence. |
| Registration Authority and Approvals | Approvals from other authorities may be necessary in addition to Dubai Economy and Tourism (DET), formerly known as Dubai Economic Department (DED). | Approval from other authorities may be necessary in addition to the relevant Free Zone authority (note that there are more than 40 Free Zones in the UAE). |
| Foreign Ownership Restrictions | 100% ownership is allowed. | 100% foreign ownership is permitted. |
| Physical Office (Virtual Office/Flexi Desk) | A minimum office space of 200 square feet is required, and a personal office address (Virtual Office) is necessary for opening a bank account. | There is no minimum square footage requirement, but a personal office address (Flexi Desk/Private Office) is necessary for opening a bank account. Specific details vary depending on the Free Zone. |
| Conduct of Business | Mainland companies can operate freely across the UAE without any geographical restrictions. | Free Zone companies are restricted to operating within the Free Zone or outside the UAE unless they have a local distributor. Conducting business operations in the mainland UAE requires a No Objection Certificate (NOC) from Dubai Economy and Tourism (DET). |
Advantages of Mainland Company
Here are some of the key benefits of setting up a mainland company in the UAE:
100% Ownership for Foreign Investors
As of recent regulatory changes, foreign investors can now own 100% of their business in most sectors without the need for a local UAE sponsor.
Wider Market Access
Mainland companies can operate throughout the UAE without any restrictions, allowing for more extensive market reach compared to Free Zone companies, which have limitations on conducting business outside their designated zones.
No Restrictions on Office Location
Mainland companies have the flexibility to open offices anywhere in the UAE, providing strategic advantages in terms of location, accessibility, and client proximity.
Ability to Trade Directly with the Local Market
Mainland businesses can trade directly with the local market without the need for intermediaries, allowing for direct engagement with consumers and businesses across the UAE.
Eligibility to Bid on Government Projects
Mainland companies are eligible to bid for lucrative government contracts and projects, which are not accessible to Free Zone entities.
Wide Range of Business Activities
Mainland companies can engage in a broader spectrum of business activities compared to Free Zone companies, which are often restricted to specific types of businesses as per their licensing agreements.
Repatriation of Capital and Profits
Mainland companies in the UAE can repatriate their capital and profits without any restrictions, providing flexibility for international business operations.
Networking Opportunities
Being part of the mainland business environment allows companies to build strong networks with local and international businesses, fostering collaborations and partnerships.
Benefits of Free Zone Company Setup in the UAE
Setting up a business in one of the UAE's free zones can offer a range of advantages, making it an attractive option for entrepreneurs and investors. Here are the key benefits:
100% Foreign Ownership
One of the most significant advantages is that free zone companies can be wholly owned by foreign investors, without the need for a local sponsor or partner.
Tax Exemptions
Free zone companies enjoy various tax benefits, including:
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Corporate Tax Exemptions: Many free zones offer corporate tax exemptions for a specified period, often up to 50 years.
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Personal Income Tax Exemptions: There are no personal income taxes for individuals operating within the free zones.
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Custom Duty Exemptions: Import and export duties are often waived within the free zones.
Repatriation of Profits and Capital
Free zone businesses can repatriate 100% of their profits and capital without any restrictions, providing flexibility for investors to manage their funds globally.
Simplified Setup Process
The company formation process in free zones is typically streamlined and efficient, with many free zones offering one-stop-shop services that handle licensing, visa processing, and other administrative requirements.
Strategic Location
The UAE's free zones are strategically located, often near major seaports, airports, and logistics hubs, providing businesses with excellent connectivity and access to global markets.
Sector-Specific Benefits
Many free zones are designed to cater to specific industries, such as technology, media, healthcare, and logistics. These specialized zones offer tailored services and facilities that meet the unique needs of businesses in those sectors.
Ease of Visa Acquisition
Setting up a business in a free zone often comes with the added benefit of simplified visa procedures for employees and dependents, making it easier to attract and retain talent.
Start Your Business With Dhanguard
Deciding between a mainland vs. free zone setup for your business in the UAE depends on your specific business needs and goals. Mainland companies offer expansive market access and operational flexibility, while free zone companies provide significant ownership and tax advantages. By understanding these key differences, you can choose the setup that best aligns with your strategic objectives and ensures your business thrives in the UAE's competitive landscape.
At Dhanguard, we specialize in helping you set up your business in the UAE, whether you opt for a mainland or free zone company.
Our expert team will guide you through the entire process, managing all the details to ensure a seamless setup. Understanding the differences between mainland companies and free zone companies options is crucial, and we provide in-depth insights into mainland vs free zone benefits. With our comprehensive support, you can confidently choose between mainland companies and free zone companies, knowing we have your back every step of the way.
