Differences between free zone and mainland companies in the UAE ᐅ Make the right choice!

ᐅ What is the main difference between free zone and mainland companies in the UAE?
The primary difference lies in the geographical and operational restrictions. Free zone companies operate within designated areas and benefit from 100% foreign ownership, tax exemptions, and customs privileges. Mainland companies, however, can trade directly with the UAE market and undertake projects outside their designated zone, but they require a local Emirati partner holding at least 51% of the shares.

ᐅ Can a free zone company operate in the mainland UAE?
No, a free zone company is not permitted to operate directly within the mainland market without the use of a mainland agent or distributor. They can, however, provide their services to clients within the free zone and export their goods internationally.

ᐅ What advantages does a mainland company have over a free zone company?
Mainland companies benefit from the ability to trade directly in the local UAE market, contract with the government, and have unlimited business scope across various sectors. They can also easily reach clients across the Emirates, unlike free zone companies which face restrictions.

ᐅ Are there minimum capital requirements for free zone and mainland companies?
Yes, the minimum capital requirements can vary significantly between free zones and mainland companies. Each free zone may have its own rules regarding minimum capital, often ranging from AED 50,000 to AED 1,000,000. In contrast, mainland companies typically have a higher minimum capital requirement, depending on the business type.

ᐅ What are the initial costs for setting up a free zone vs. a mainland company?
The initial costs can also differ substantially. Setting up a free zone company tends to be more economical with lower administrative and licensing fees. In contrast, mainland companies usually incur higher costs due to more complex licensing processes and shareholding requirements.

ᐅ Can a free zone company convert to a mainland company?
Yes, it is possible for a free zone company to convert into a mainland company, although this process can be intricate and may require specific approvals and compliance with local regulations. Consulting with a legal expert can streamline this transition.

ᐅ What are the tax benefits of setting up a free zone company?
Free zone companies enjoy significant tax benefits, including full foreign ownership, zero corporate tax for a set number of years, no personal income tax, and no import or export duties. These incentives make free zones attractive for many investors and businesses.

ᐅ Do mainland companies have to pay taxes in the UAE?
While the UAE has historically had very low taxation rates, companies operating on the mainland must comply with the federal tax framework. Generally, businesses registered on the mainland may be subject to corporate tax, depending on their income levels, while free zone businesses often enjoy extended tax holidays.

ᐅ How does the business registration process differ between free zone and mainland companies?
The business registration process for free zone companies is usually more streamlined, requiring fewer documents and approvals. In contrast, registering a mainland company can be more complex, involving multiple governmental bodies and a local sponsor.

ᐅ Which option is better for startups: free zone or mainland?
The best option depends on business goals. If you aim to engage directly with the local market, a mainland company might be more suitable. Conversely, if you plan to focus on international trade or services, a free zone may offer more favorable operating conditions.

ᐅ Can I set up a company in both a free zone and the mainland?
Yes, it is entirely possible to establish businesses in both free zone and mainland jurisdictions simultaneously. This can allow for the flexibility of enjoying the benefits of both types of companies, catering to various market needs.

ᐅ Do free zone companies have restrictions on the types of business activities?
Yes, free zone companies are often limited to specific business activities as outlined by the regulations of the respective free zone authority. Each free zone caters to particular sectors, so it is essential to choose a free zone that aligns with your business objectives.

ᐅ What are the licensing requirements for free zone and mainland companies?
Licensing requirements vary significantly. Free zone companies typically need to apply for a business license specific to their activities from the relevant authority in the free zone. Mainland companies require approvals from the Department of Economic Development and adhere to additional regulations set by the local government.

ᐅ Is it easier to relocate a free zone company compared to a mainland company?
Yes, relocating a free zone company can be more straightforward, as they are bound to the regulations of the free zone authority. However, mainland companies may face more restrictions and need to navigate complex processes involving local and federal regulations.

At Cassius Law, we specialize in providing expert legal assistance across various business areas, including licensing, immigration, labor law, commercial law, and business formation. Whether you are contemplating starting a company in the UAE or need guidance on the nuances between free zone and mainland structures, our experienced team is here to assist you.
Contact us today to explore how we can support your business endeavors in the UAE.