Which is best for Business? Mainland VS Freezone?

By Sakshi Srivastav - 06 Jul 2021 Last Updated: 18 Sep 2021
Which is best for Business? Mainland VS Freezone?

So, you want to start your own company in the UAE but aren't sure whether to go with the Mainland or the Free Zone. Setting up a business in either of the two offers numerous advantages, but you need consider several factors before concluding that one is better for your company than the other. Dhanguard's specialists propose making a list of your needs and preferences, such as business scope, ownership, visa eligibility, and office space, among other things. Let's look at how mainland and free zone differ in those areas to assist you decide what's best for you.

When it comes to starting a business in Dubai, investors from all over the world have varied goals and preferences. Finding the most ideal investor-friendly location to start a business is always vital. The abundance of many types of business opportunities for people with varying preferences is one of the reasons why the UAE is renowned as a commercial hub. The United Arab Emirates provides investors with a variety of business opportunities, including mainland and free zones. So, the dilemma is whether you should choose the free zone or the mainland.

Both have their own set of benefits and drawbacks, as well as investment potential, and both are meant to appeal to different sorts of investors. The choice between a mainland and a free zone setup is entirely dependent on the type of activities and business you wish to pursue. Simply put, if you wish to conduct business in the UAE, you must choose a mainland setup, however if you want complete ownership and control over your business' operations, a free zone setup should be your first choice.

Let's look at some of the key contrasts between the free zone and mainland setups in the UAE.

Mainland Company in UAE

Mainland Firm is an inland company that can operate in the local market in the United Arab Emirates as well as outside the UAE. In the case of commercial and professional licences, mainland enterprises have complete flexibility to conduct business. A local sponsor or a UAE national is required for the formation of a mainland business in Dubai, and the standard shareholding arrangement for a Dubai Mainland Firm is that the UAE national Sponsor holds 51 percent of the company and the Foreign Shareholder (s) holds 49 percent. The mainland corporation offers foreign investors and local sponsors a customised legal arrangement in which the local sponsor is paid an annual fee or a percentage of sales/profits.

The foreign investor has complete control of the company, while the local partner is uninvolved in the day-to-day operations. The Department of Economic Development (DED) is in charge of registration, licencing, commercial compliance, and consumer protection for mainland businesses in Dubai.

Benefits of Starting a Mainland Company in Dubai

Because of the numerous advantages, Dubai mainland is the most recommended alternative for business setup in Dubai.

  • In Dubai, Mainland Companies are exempt from corporate tax.
  • The minimum capital requirement for establishing a Mainland Company is 0%.
  • Mainland corporations can do business in Dubai or the UAE with other mainland companies and have the freedom to operate in any region of the UAE or beyond. Because free zones are often restricted to conducting business exclusively within their particular free zones, this feature set gives them an advantage over free zone companies.
  • Mainland enterprises, unlike those in free zones, have a variety of options for conducting business. There are no restrictions for mainland businesses because they can cater to the entire UAE economy, which offers a wide range of opportunities.
  • Mainland companies can choose from a variety of office locations in Dubai. This feature not only allows them to conduct business with the local market, but also allows them to open various branches of the company, allowing them to create a strong presence in the UAE.
  • Mainland corporations are allowed to work on government contracts, whereas free zone enterprises are only allowed to work on private commercial projects.
  • On a mainland licence, there are no restrictions on the number of visas that can be issued. However, obtaining permits for mainland companies will be totally dependent on the amount of office space purchased.
  • There are no currency restrictions in Dubai for mainland companies.
  • Capital and profits can be repatriated in their entirety.
  • The registration process for mainland businesses is simple and does not require a yearly audit.

Freezone Company in UAE

A free zone company is a separate legal body that operates under its own set of rules and regulations. Each free zone is permitted to conduct business both within and outside the UAE. The primary distinction between mainland and free zones is that a free zone firm cannot operate in a non-free zone without the assistance of a local agent, but a mainland company can conduct business anywhere in the UAE. In Dubai, there are various free zones. Foreign investors choose free zone ventures for a variety of reasons, including total ownership privileges, access to world-class infrastructure, asset protection, and tax incentives.

 

Why would you want to set up in a Freezone?

There are several reasons to pick a free zone if you want to start a business in the UAE.

Setup in free zone is easy

The procedure of creating free zones is really basic and straightforward. The application process for establishing a free zone is determined by the nature of the business and the free zone chosen. A few pieces of evidence, such as passport copies and business registration, will be requested of investors. It will take around a week to complete the processing.

Taxation and duties

The tax system is by far the most intriguing justification for establishing a firm in a free zone. The establishment of a free zone gives 0% business and personal tax, as well as a 5% VAT exemption. Not only that, but the free zone businesses also offer import and export tax exemptions, as well as the ability to conduct business with no currency limits.

Ownership

Setting up a firm in a free zone provides foreign investors with entire ownership of the company. Most foreign investors who want to set up shop on the UAE mainland will need a local sponsor to do so.

Doing business in the United Arab Emirates

Businesses in free zones are not permitted to trade directly in the UAE's domestic market; however, this has been easily remedied. You can do business with a locally designated distributor, whose role will be to sell your goods and services on the market in exchange for a fee. Start your free zone business first, and then expand your free zone firm throughout the UAE.

Assistance and support

The officials of the free zone are ready to assist you both during and after the establishment of your business. Many free zones will help you apply for visas for both shareholders and dependants, such as spouses or other employees. Most free zones also assist with the opening of corporate bank accounts, as well as providing advice on the best bank for your needs and organising meetings in-branch for you. In terms of contemporary business support, it is standard practise for free zones to offer business advice and networking assistance, as well as connections to various start-up centres and growth programmes, in order to help new enterprises, succeed.

Protection of personal information

 

Finally, free zones are well-known among privacy-conscious investors since company ownership and other corporate information, such as shareholder details, are never made public.

Main benefits of a free zone business

  • Foreign investors can buy the entire company.
  • Capital and profits are fully repatriated.
  • Funds can be transferred completely free of charge.
  • Import and export duties are completely waived.
  • In comparison to forming a company outside of the city, forming a firm in a free zone takes less time.
  • A cost-effective workforce and a reasonably simple recruitment process
  • There is a 25-year lease plan, warehousing facilities, and the possibility of production and assembly spaces, among other things.

Difference between Freezone & Mainland Business Set up

The following are the differences between a free zone and a mainland setup:

Difference between Freezone & Mainland Business Set up

Ownership

If you want to start trading on the mainland, you'll need a UAE national in order to get a mainland licence. A local sponsor or a local service agency could get involved. If a commercial licence is chosen, a foreign investor who establishes a company in the mainland United Arab Emirates can own up to 49 percent of the company, with the remaining 51 percent held by UAE National.

However, in terms of a professional licence, overseas investors can purchase 100 percent of the shares, but they will still require the services of a local service agent. The local service agent's responsibilities include signing all government applications and has no financial stake in the company. Unless otherwise agreed upon, the foreign investor is completely responsible for all business activities, with no interference from the local service agent.

Foreign investors enjoy entire ownership of the business, as opposed to Mainland companies. It is not necessary to have a United Arab Emirates national on the licence. This is by far the most advantageous feature of a Dubai free zone company.

Scope of the business

Companies with a strong presence on the mainland The United Arab Emirates has no restrictions on the extent of its operations. Business can be conducted everywhere in Dubai, including free zones and even outside of the city. Apart from banking and insurance, they can engage in commercial, professional, and even industrial activity.

A free zone corporation, unlike a mainland company, can only operate within the authorised free zone territory. If they want to do business in the local market, they'll need the help of a local distributor or agent. The majority of the free zones are located around seaports and airports. Import and export-related services are thus the most popular business for these establishments.

Work Space

For a mainland corporation, the minimum annual leased out space is 200 square feet. The Department of Economic Development will grant a licence to your mainland company once you have gotten the company with the requisite area.

While a free zone corporation is not required to have real office space, it is recommended. The business may or may not have a physical office, depending on the activity and nature of the firm. A flexi desks service, which is also cost effective, is one benefit that a free zone company may take advantage of. With this licence, businesses can use the common centre workstations for a minimum of 5 hours.

Visa facility

For a mainland licence, there are no visa restrictions. The Ministry of Labour distributes an electronic version to each mainland enterprise. It demonstrates their ability to obtain visas, and if the organisation needs additional personnel, it can be enhanced. Visa eligibility is determined by the amount of office space you have; therefore, if you have more office space, you can apply for numerous visas for your company. Outdoor assignments, drivers and salespeople are not eligible for visas.

Each free zone licence comes with two visas as part of the smart office package, while different free zones in the UAE allow for 3-6 visas. If you need more visas, renting a real office or warehouse can help you obtain a large number of them.

Government approval is required

To get a licence, a mainland company must obtain normal government clearances, such as from the Department of Economic Development, the Ministry of Labour, and the Ministry of Interiors' Department of Naturalization and Residency Affairs, or immigration.

External government approvals are also required for certain commercial activities, such as those from the Knowledge and Human Development Authority for education-related licences, the Dubai Health Authority for medical licences, the Food Department of Municipality for all food licences, and others.

However, the majority of free zone businesses are primarily involved in imports and re-exports. In this instance, these companies are not obligated to seek approval from an external entity before issuing a licence. Only if they seek to obtain any specific services may they demand clearance from external authorities.

Conclusion

As a result, firms must choose between establishing a presence on the mainland and establishing a presence in a free zone. Simply expressed, the answer is entirely dependent on the type of activities and business you intend to pursue. So, if you want to do business in the UAE, you should go with a mainland setup, but if you want complete ownership and control over your business' activities, a free zone setup should be your first choice.

Everything boils down to your requirements and company goals, whether you choose to start up shop on the mainland or in a free zone. But one thing is certain: no matter whatever road you choose, there is always space for improvement. Dhanguard can assist you with making informed decisions about the creation of your business. With the team's skill and understanding in the area, you can rest assured that you'll get the greatest advice on what's ideal for you and your company.

 

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