When people approach me concerning their business setup or investment setup in the UAE, one of the first questions I hear is, “What is the difference between mainland and free zone companies?
From an investor’s perspective, it is crucial to have a clear and precise understanding of the business jurisdictions in the UAE. The lack of knowledge about the jurisdictions is funny enough—something I’d compare to boarding a bus without knowledge of its route or final destination.
Therefore, if you are keen on investing in the UAE, it is essential to get to know the facts, the basic rules and regulations and the differences between these jurisdictions. The business jurisdictions are Mainland, Free Zone, and Offshore. The investor or entrepreneur must go through these differences and select the appropriate jurisdiction that perfectly suits their business aspirations. If you cannot figure out or comprehend the differences fully, feel free to contact Kiltons team of business consultants and advisors right away.
This article will highlight some of the key differences between the jurisdictions, based on which you will have a basic understanding of the location that will be more suitable for your business needs. Let’s get started.
UAE Mainland vs. Free zone Company
The 3 jurisdictions—Mainland, Freezone, and Offshore—have evident differences concerning several criteria. This article discusses the major differences between Mainland and Free Zone jurisdictions concerning parameters like ownership and scope of business, office space, visa eligibility, company audit, and others.
UAE Mainland Company – A mainland company is nothing but an onshore company that is registered under the government authority of the concerned emirate. The Department of Economic Development of the particular emirate is responsible for issuing the trade license. A UAE mainland company is mainly characterized by restriction-less trading opportunities. When an investor invests in a mainland company in the UAE, the company is authorized to trade in the UAE local market as well as outside the UAE.
Free zone Company – A free zone company is a company formed within a special jurisdiction that comes under a particular Emirate. As of now, over 40 free zones are operating in the UAE as a whole. The free zone jurisdictions have their own regulations and have a government regulatory body called the Free Zone Authority. The Free zone Authority is in charge of trade license issuance. A UAE free zone is characterized by the benefits of 100% foreign ownership and tax concessions. A free zone company is authorised to trade only within the free zone and outside the UAE.
Offshore Company - An offshore company in the UAE is a legal entity that is established and operates in one of the designated offshore jurisdictions within the country. These offshore jurisdictions are usually situated in designated free zones and provide distinct regulatory frameworks designed to attract international business activity. An offshore company in the UAE can be a valuable resource for businesses looking to enhance their international operations, safeguard their assets, and optimize their tax strategies.
Now let us move on to the major differences between a Mainland and free zone company in UAE. These differences are arranged in tables for the benefit of the reader. Kindly go through the same.
Ownership of Business
| Mainland Company | Free Zone Company |
| If a foreign investor forms a business establishment on the UAE mainland, the UAE government has allowed for 100% foreign ownership of the businesses located on the mainland. Earlier, expat business owners were only allowed to own a maximum of 49% of their business, while the remaining 50% belonged to the Emirati sponsor. | The foreign investor enjoys complete ownership of the company. Assigning the shares to a UAE local sponsor is not required. Therefore, the role of a local sponsor is irrelevant here. |
Scope of business
| Mainland Company | Free Zone Company |
| A business concern incorporated in the UAE mainland is free to do business anywhere in the UAE market. This means that the company is allowed to do business both inside and outside the UAE. | There are certain restrictions on the company incorporated in any of the UAE free zones. Free zone companies are allowed to do business within the jurisdiction of the particular free zone and outside UAE. |
Office space
| Mainland Company | Free Zone Company |
| When it comes to physical office space, a minimum office space requirement of 140 sq.ft is obligatory for a UAE mainland company. | A physical office space requirement is not obligatory for a Free zone company. Free zone company formation is possible with or without premises. In the case of the UAE free zone, virtual offices are allowed. |
Visa Eligibility
| Mainland Company | Free Zone Company |
| UAE mainland companies do not have any kind of restrictions connected with visa eligibility. The area of the workspace determines the number of visas issued. This means that, if the owner of the company requires more visas, he/she should have bigger work premises. | Free zone companies have certain restrictions connected with visa eligibility. In ordinary cases, the number of visas issued ranges from 1 to 6. The UAE visa packages vary with the free zone jurisdiction. Issuance of more visas demands leasing out additional work premises. |
Company Audit
| Mainland Company | Free Zone Company |
| A Financial Audit is mandatory for a UAE mainland company. | Preparing a Financial audit for a free zone company varies with the Free zone jurisdiction. Certain Free zone jurisdictions are exempted from Audit preparation. Certain Free zone entities like FZE and FZCO should prepare a year-end audit. |
Capital prerequisite
| Mainland Company | Free Zone Company |
| A UAE mainland company's legal structure determines the minimum capital requirement. | The minimum capital requirement of a free zone company is determined by the emirate in which the company is formed. |
Approvals related to business setup
| Mainland Company | Free Zone Company |
| The mainland companies need to seek approvals from various government bodies like the Department of Economic Development, Dubai Municipality, Ministry of Labour etc. | Each free zone has a set of rules and regulations applicable to all the companies that are formed within the jurisdiction of the particular free zone. External approvals from government bodies and agencies that do not belong to the free zone are not needed for the free zone company setup. |
I hope this brief article clarifies some of the major differences between the jurisdictions. We at Kiltons Business Setup Services LCC, assist investors and entrepreneurs set up their business dreams in both UAE mainland and Free zones. If you would like to know more about a mainland and Free zone company in UAE and their detailed business setup cost, feel free to contact our team of business advisors and consultants. We are ready to solve all your queries.
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