Zurich
+41 435 50 73 23Kyiv
+38 094 712 03 54London
+44 203 868 34 37Tallinn
+372 880 41 85Vilnius
+370 52 11 14 32New York
+1 (888) 647 05 40Setting up enterprises in the UAE is one of the global strategic moves that businessmen and depositors are making. It provides a very stable political environment, very nice legal framework, low taxes, and ease of access to global fields. But out of all the decisions to make before launching your enterprise, one of the most critical is whether to establish it in the Mainland or in a Free Zone.
These 2 jurisdictions differ greatly in terms of permitting, ownership rules, taxation, and admission to fields. The best one for your enterprise is truly dependent on the nature of your enterprise activity, operational needs, and expansion objectives. This article tries to outline those major differences, pros, and cons of each.
A Mainland Firm? This is a enterprise entity licensed by the Department of Economic Development of the emirate in which the enterprise is enrolled, like Dubai, Abu Dhabi, Sharjah, etc. Such a firm will allow enterprise operations all over the UAE, which includes working with the provincial field and Governance entities.
In the past, to have a enterprise within the Mainland, one had to have a UAE national owning 51% of the shares. Recent reforms now put the majority of sectors under 100% non-citizen ownership, giving more control and flexibility to depositors.
It enables mainland-based firms to open branches in any emirate, manage office space anywhere in the state, and get qualifications to bid for contracts in the public sector. It is the most applied structure for firms in the UAE that almost entirely depend on the domestic field.
Free Zones are special geographically demarcated areas within a city and operate under independent authorities, which may include the DMCC, DIFC, or ADGM, among others. The purpose of these zones is to attract non-citizen investment by way of simple regulations, easy licensing, and advantageous tax incentives.
The Free Zone firm is allowed to conduct movements within the Free Zone and globally, but it may not do enterprise instantly with the UAE Mainland without a regional distributor or branch office on the Mainland.
A 100% non-citizen request firm, quick set-up firms are favored by globally or regionally focused enterprises, import/export, consulting, e-commerce or tech firms because of the possibilities given by 100% non-citizen ownership and the ease with which one can find office space like flexi-desks.
Establishment and Licensing Foreigners may freely own firms in the Mainland and Free Zone jurisdictions. However, the conditions of operation differ. The Free Zone has always been more accommodating to depositors in terms of ownership in the firm. In some cases, the Mainland firms now offer an equally friendly approach towards limits on ownership for most commercial actions; though there will be some regulated sectors requiring local partnership or greater approval.
The licensing is done by two separate authorities, one for mainland firms and another for free-zone enterprisees. They have different demands for the same actions, different processing times, and sometimes different lists of allowed/allowed actions.
Perhaps the most significant difference is where the firm can do enterprise.
Mainland firms do enterprise freely all over the UAE and with the governance. Such firms further have the freedom to engage in any job from public or private sectors and open a physical office in any location countrywide.
Free Zone firms are limited to actions conducted within the Free Zone or at an global level. If a enterprise wishes to sell goods or services to the domestic field of the UAE, it should assure itself a distributor holding a valid license in the UAE or establish a new legal entity in the Mainland.
This can have serious implications for the long-term growth plans for enterprises that aim to scale up in local fields. It is required that Mainland firms rent a physical office whose standard is approved by the DED. Mainland firms will have to rent a physical office whose standard is approved by the DED.
The number of visas that will be issued to the firm will be based on the office size rented for its operations.
The other end of the spectrum is occupied by Free Zones, equipped with very flexible options. Shared workspaces, flexi-desks, virtual office solutions—you name it—almost all come with Free Zones. That brings overhead costs down. However, most standard packages are generally open to very few visas that a firm may need, so normally this would not be a good option for a enterprise expecting to hire big teams.
Generally, setup costs are lower in Free Zones, which are usually designed for bundled packages that include licensing, office space, and visa eligibility. It makes the perfect choice for startups and solo businessmen. Organization enrollment takes between one to three weeks.
Normally, more upfront investments are required in the mainland firm setup since it must involve renting commercial office space and the DED fees. Enrollment might also need to be longer pending on the enterprise activity and regulatory checks that have to be done.
Mainland firms in the UAE are also subject to the corporate tax residents of the UAE. This means that 9% is levied on profits above AED 375,000.
A Mainland firm can use across the entire UAE and engage instantly with local clients and administration entities, whereas a Free Zone firm is limited to enterprise within its zone or globally. Free Zone firms cannot directly trade in the UAE domestic field without a local agent.
The main disadvantage is limited field access. Free Zone firms cannot trade directly in the UAE-Mainland and must use a distributor or establish a branch to do so. They also face restrictions on office locations and visa quotas based on space.
Free Zones offer 100% non-citizen request, tax immunities, fast setup, simplified regulations, and affordable office solutions. They are especially appealing to global enterprisees and startups looking for an efficient entry into the area.
An FZE (Free Zone Establishment) is a single-shareholder firm, while an FZC (Free Zone Company) has considerable shareholders. Both operate under the rules of their respective Free Zones but differ in ownership structure.
The international company Eternity Law International provides professional services in the field of international consulting, auditing services, legal and tax services.