The United Arab Emirates (UAE) is a favored destination for foreign entrepreneurs seeking a launchpad for their businesses. The government actively promotes foreign investment by creating favorable conditions for commercial activities and facilitating the legal stay of foreigners. For investors, the key decision lies in selecting the best business structure, whether a free zone company in Dubai or other emirates, or a mainland company.
Free Economic Zones (FEZs) are designated areas governed by independent authorities. Within these zones, foreign investors can enjoy 100% ownership of their company without the need for a local agent, along with tax advantages. However, businesses operating in free zones are generally limited to functioning within the designated area or conducting activities entirely outside the UAE. A mainland company, on the other hand, operates in the core parts of the country and requires a local sponsor for setup. This structure offers expanded trading opportunities, including the ability to conduct business throughout the UAE and bid for government contracts. With over 40 free zones across the UAE, the country leads the region in attracting foreign direct investment, ranking first in West Asia, North Africa, and the Middle East.
Starting a business in the UAE provides a pathway to residency and access to excellent living conditions. For detailed information about available programs, schedule a consultation with our international law .
Comparative analysis
To better understand the distinctions between free zone-based businesses and mainland companies in the UAE, entrepreneurs should consider the following key aspects:
- Trade relations.
Mainland Companies: These businesses can trade freely in both the domestic UAE market and internationally, with no restrictions on partnerships. This flexibility allows for active business scaling.
Free Zones: Companies can operate only within their designated free zone or outside the UAE. To trade on the mainland, a local intermediary must be involved for importing goods.
- Office space requirements.
Mainland Companies: A physical office address is mandatory, with specific space requirements.
Free Zones: Physical office space is optional, as many zones allow businesses to operate virtually.
- Audit requirements.
Mainland Companies: All businesses are required to maintain financial records and submit timely reports.
Free Zones: Audit requirements depend on the specific zone. Some free zones do not require audits, while others enforce compliance.
- Minimum authorized capital.
Mainland Companies: The amount is determined by the legal form of the business.
Free Zones: The capital requirements vary by the specific free zone jurisdiction.
- Permits and licensing.
Mainland Companies: Licenses must be obtained from multiple government bodies, such as the Department of Economic Development (DED), the Ministry of Labor, and the Municipality.
Free Zones: Licenses are issued directly by the respective free zone authority, simplifying the process.
- Taxation.
Mainland Companies: As of June 1, 2023, mainland businesses earning over 375,000 AED (102,113 USD) are subject to a 9% corporate tax under Federal Law No. 47 of 2022. Additionally, VAT applies to most transactions.
Free Zones: Companies meeting specific conditions are exempt from corporate tax (0% rate). Most free zones also do not impose VAT, unlike mainland companies. However, salaries can be paid without income tax in both free zones and mainland areas.
- Visa processing.
Mainland Companies: There are no restrictions on the number of visas issued.
Free Zones: Licenses are issued directly by the respective free zone authority, simplifying the process.
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UAE Mainland
The UAE mainland refers to areas where business activities are fully regulated by the Department of Economic Development (DED). This authority oversees the issuance of licenses for all types of operations, including industrial, commercial, and professional services. Common business structures chosen by foreign investors for mainland companies in Dubai and other emirates include limited liability companies (LLCs) and branches or representative offices of foreign firms. Recent legislative changes granting foreigners the right to 100% ownership of capital in specific cases have significantly boosted the number of mainland businesses being established.
This business registration option is ideal for entrepreneurs focused on scaling their operations and expanding their presence in both the UAE and international markets. With no restrictions on regions for trade relations, mainland companies enjoy the flexibility to open branches across the country and actively strengthen their influence in the global market.
UAE Free Zones
UAE free zones are specialized business hubs designed to attract foreign investment. These zones foster regional economic growth while offering international entrepreneurs a range of benefits to support their business objectives. Operating as independent jurisdictions, free zones are governed by local regulatory authorities that oversee the establishment and management of companies within their territories, independent of the broader federal framework. This unique structure allows free zones to create a business-friendly environment tailored to the needs of foreign investors.
Advantages for companies in Free Zones
Operating a business in UAE free zones offers numerous benefits, including:
- 100% foreign ownership: Full ownership of capital without the need for local sponsors, regardless of the business activity or profitability.
- Tailored regulations: Each free zone has its own specific rules regarding authorized capital, auditing, and other operational requirements, allowing businesses to select the most suitable option for their needs.
- Tax and duty exemptions: Businesses benefit from exemptions on taxes and import/export duties, significantly lowering operational costs.
- Streamlined setup process: Establishing a company in a free zone involves a simplified procedure with minimal requirements for permits from government institutions.
Restrictions on business
While operating in free zones is generally flexible, there are some limitations to consider. Entrepreneurs must conduct trading activities strictly within the scope of their issued license and adhere to local regulations. In most cases, there is no requirement to file financial statements, which simplifies operations. However, a key limitation is the inability to operate directly in the UAE mainland or other economic zones. Businesses in free zones are restricted to their specific jurisdiction or international markets. To import goods into the mainland, entrepreneurs must collaborate with local distributors, which adds an extra layer to business operations.
How to start a company in a Free Zone
Registering a company in a UAE free zone typically takes a few weeks and involves the following steps:
- Selecting a license and corporate structure.
Choose a license based on your business activity, such as trade, services, or manufacturing. Some activities can be grouped under a single license. Corporate structures include options like Free Zone Limited Liability Company (FZ LLC), Free Zone Company (FZ Co.), or Free Zone Establishment (FZE). The choice depends on the number and type of shareholders (individuals or legal entities). Keep in mind that not all free zones offer every structure. Alternatively, you may consider opening a branch office.
- Determining the name and preparing the dossier.
Select three unique company name options. The required documents may vary by free zone and company structure but generally include:
- Application for registration
- Resolution for the appointment of a director
- Director’s photo and signature sample
- Articles of association
- Details of share capital
- Filing and signing documents
The local authority approves the business name, activity type, and structure. After approval, you’ll meet with free zone representatives to sign the company’s charter and finalize documentation.
- Obtaining a license.
Once all documents are signed and required fees are paid, the business license is issued. After completing the registration, the entrepreneur can apply for a resident visa and obtain an Emirates ID, granting access to a range of benefits and privileges.
The local authority approves the business name, activity type, and structure. After approval, you’ll meet with free zone representatives to sign the company’s charter and finalize documentationes.
How to choose the right Free Zone for your business
Given that each UAE free zone operates under its own regulations, selecting the right location requires careful consideration. Here are the key factors to evaluate when determining the most suitable free zone for your company:
- Industry and business type.
UAE free zones can be categorized into general-purpose zones and sector-specific zones.
General-purpose zones typically have less competition, while sector-specific zones offer more opportunities for partnerships, such as sourcing raw materials or consumables. - Location of the Free Zone.
The location should align with your business’s development needs.
This includes access to logistics (e.g., convenient supply chains) and a diverse workforce.
If your business plans to operate solely within the zone, ensure that the region has a potential target audience to support your operations. - Services offered by the Free Zone.
Assess the infrastructure and services provided by the free zone. For example, if your business involves manufacturing, check if suitable facilities with the required space and conditions are available.
Ensure the free zone can accommodate all aspects of your business needs, whether production, storage, or office space. - Costs and fees.
Free zones have varying rates for licenses, company registration, and other formalities.
Some zones may also have specific requirements for authorized capital, which can differ significantly.
Calculate the total anticipated costs across different zones to identify the most cost-effective option. - If unrestricted access to the entire UAE market and the ability to establish trade relations across all regions are priorities, opting for a mainland company is the better choice.
- On the other hand, if the focus is on operating within a limited market while benefiting from optimized taxation and a streamlined company setup process, a free zone is the ideal option.
- Live in a country with a developed economy
- Open accounts in reliable banks
- Do business in the UAE
- Easily obtain visas to Schengen countries and the USA
| Фризона | Amount of authorized capital in $ | Terms of business registration (in days) |
|---|---|---|
| Jebel Ali Free Zone, Jafta | Founders determine the amount themselves | 15–25 |
| Dubai South | 82 190 | 15–20 |
| Dubai CommerCity | 272 | 15–20 |
| Dubai Internet City | 13 616, | 20–25 |
| Dubai Studio City | 13 616 | 20–25 |
| DMCC | 13 616 | 20–25 |
| Dubai International Financial Centre | 50 000 | 28–42 |
| Dubai Media City (DMC) | 13 616 | 20–25 |
| Dubai Knowledge Park (DKP) | 13 616 | 20–25 |
| Dubai HealthCare City (DHCC) | 81 694 for medical centers, 13 616 for other types of business | 20–35 |
| Dubai Auto Zone (DAZ) | 13 616 | 30–40 |
| Dubai Silicon Oasis (DSO) | 27 232 | 15–20 |
| Dubai Production City (DPC) | 2 723 | 15–20 |
| Dubai World Trade Center (DWTC) | 81 694 | 21–30 |
| Dubai Outsource City (DOC) | 81 694 | 21–30 |
| Dubai Gold and Diamond Park (DGDP) | 81 694 | 21–30 |
| Dubai Science Park (DSP) | 81 694 | 21–30 |
| Dubai International Academic City (DIAC) | 13 616 | 21–30 |
| Dubai Design District D3 | 13 616 | 21–30 |
| Dubai International Humanitarian City (DIHC) | 13 616 | 30–90 |
| Sharjah Airport Free Zone (SAIF) | 40 847 | 6–7 |
| Sharjah Publishing Free Zone (SPFZ) | 13 616 | 2–5 |
Where is the best place for a foreigner to open a business?
After evaluating the key aspects of doing business in UAE free zones versus the mainland, a few conclusions can be drawn:
UAE residence permit gives you the opportunity to:
Leave an application and get a consultation with an immigration specialist
The United Arab Emirates offers various pathways for business-related immigration. Foreign nationals can relocate to Dubai or other emirates by obtaining a resident visa through establishing a new company or becoming a partner in an existing one. Additionally, UAE immigration law provides the option of a freelance visa, enabling individuals to secure residency and offer their services without requiring significant investment.
While obtaining UAE citizenship remains highly challenging due to specific legal restrictions, holding a UAE residence permit grants foreigners a comprehensive set of rights, ensuring comfort, long-term planning capabilities, and access to numerous privileges. International law specialists can assess each applicant’s unique circumstances to recommend the most suitable relocation program, assist with company registration or freelance licensing, and facilitate residency application processes.
