Free Zone vs Mainland Companies
Setting up a company in the UAE is now easier than ever. With multiple benefits, 100% ownership, structured business setup processes, and various industry-specific jurisdiction, the UAE is certainly an ideal place to start a business.
Businesses can set up their companies in any of the 3 main jurisdictions—Mainland, Free Zone and Offshore. In the following sections, we dive into the main differences between a Free Zone and a mainland (onshore) company.
Free Zone vs mainland companies
What is a Free Zone company?
A Free Zone is a specified autonomous jurisdiction area within each Emirate. Free Zones are operated by a regulatory body known as the Free Zone Authority (FZA) and function based on their own regulations.
Free Zones provide a host of competitive packages and benefits—including 100% foreign ownership and an income-tax-free environment—for investors looking to set up their company in the region.
A Free Zone company is any company registered within the 40+ Free Zones of the UAE. This type of company is only authorized to trade within the Free Zone and outside the UAE; this means that a Free Zone company cannot trade on the mainland.
An investor can commonly set up 3 types of business companies within a Free Zone—Free Zone Company (FZC), Free Zone Establishment (FZE) and a Branch of a business concern.
What is a mainland company?
A mainland company is a business entity that has been registered with the Ministry of Economy under the supervision of the Department of Economic Development (DED). A sponsor, who is a UAE resident, is required for the establishment of a mainland company.
A mainland company in the UAE is not restricted to trading and can conduct business within and outside the UAE.
The shareholding pattern will differ between Trade and Service Activities. In a Trade Activity setup, for certain activities, the shareholder (UAE national) would own 51% while the expat shareholder would own 49%. On the other hand, in a Service Activity setup, the foreign national would be able to own 100% of the company.
Benefits of setting up a Free Zone company in the UAE
Some of the benefits of setting up a Free Zone company in the UAE have been listed as follows.
Complete expat ownership: Expat investors looking to set up a Free Zone company in the UAE can own 100% of their company. This allows business owners to keep what they earn and even repatriate the profits to their homeland.
No income tax: Free Zone companies are exempt from income tax. In the case of corporate tax, however, the company will be exempt only if the trade is based outside of the UAE or if the total company net profits are less than AED 375,000. This is in line with the recent corporate tax law that subjects companies having net profits over AED 375,000 to a 9% corporate tax.
Import and export duty exemption: Free Zone companies are exempt from import and export duties. This, in turn, helps promote seamless international trade.
State-of-the-art infrastructure and technology: Free Zones provide state-of-the-art technology and infrastructure that are easily available. Setting up a business can be cost-effective, especially for SMEs and startup companies.
Benefits of setting up a mainland company in the UAE
Some of the popular advantages of setting up a mainland company in the UAE include the following:
Income-tax-free environment: Like Free Zones, mainland companies are also exempt from income taxes. This helps business owners keep everything they earn and help their business profit well.
No geographical restrictions: Unlike Free Zones which are restricted to trading within their designated Free Zones and outside the UAE, mainland companies can trade across the region within and outside the region.
More business activities: Comparatively, mainland companies have more business activities as compared to Free Zone businesses. This can help business owners to explore a wide range of opportunities, thereby assisting in the growth of the economy.
100% expat ownership: Mainland companies ideally require a UAE national as a sponsor; however, for selected commercial and service activities and company types, expats can enjoy 100% ownership.
Ease in obtaining a corporate bank account: Mainland companies can easily obtain and open a corporate bank account. For more details, check out this article on how to operate a corporate bank account in the UAE.
Key differences between a Free Zone and a mainland company
Ownership of businesses: Under specific commercial and service activities, expats can own 100% of their mainland company. In a Free Zone, on the other hand, foreign investors can enjoy complete ownership as a UAE national would not be required as a sponsor.
Scope of business: A mainland company can conduct business activities anywhere in and outside the UAE. However, Free Zone companies are restricted to conduct business only within the jurisdiction of the particular Free Zone and outside the UAE.
Visa eligibility: UAE mainland companies do not have any restrictions on visa eligibility. For Free Zone companies, the number of visas issued in ordinary cases ranges from 1 to 6 cases. However, the visa packages may vary based on the Free Zone jurisdiction. An employment visa issued for a mainland company is valid for 2 years whereas Free Zone visas are valid for 3 years.
Capital prerequisite: In a mainland company, the capital prerequisite of a UAE mainland company is determined by its legal structure. On the other hand, a Free Zone’s prerequisite is determined by the Emirate in which the company has been formed.
Business set up approvals: Mainland companies are required to seek approvals from various government bodies including the Department of Economic Development and Ministry of Economy. However, in the case of a Free Zone company, they would have to follow the regulations set up by the Free Zone Authority.
If you are considering investing in the UAE, knowing the main differences between its jurisdictions would be beneficial.
Ascent Partners is here to help you on your entrepreneurial journey!
Frequently asked questions
1. What is the difference between mainland and Free Zone UAE?
The main difference between mainland and Free Zone companies is that a Free Zone company cannot conduct its operation outside its jurisdiction without the support of a local agent whereas a mainland company can freely operate its business activities anywhere in UAE.
2. Does Free Zone sell on the mainland?
A Free Zone company can open its business in the mainland by registering its branch with the Ministry of Economy and the DED.
3. What is the difference between FZE and FZCO?
Free Zone Establishments have a single shareholder. Whereas a Free Zone Company is similar to a Limited Liability Company (LLC). A Free Zone Company has 2 or more shareholders.
4. What is the meaning of a Free Zone in the UAE?
Free Zones are geographically demarcated areas within the UAE and permit 100% foreign ownership and are, in most cases, dedicated to a specific industry.
5. What is the mainland in the UAE?
Companies in the mainland are onshore companies with their licenses issued by the Department of Economic Development (DED) or any related department in other Emirates. They can conduct their business anywhere in and outside the UAE.