The difference between setting up a company in a free zone and mainland
Setting up a business in Dubai is no easy task, and when taking on this task you might come to a bit of a struggle when choosing between either a freezone or a mainland business, freezone businesses are wildly different to a mainland business and there are several laws and benefits to starting them with the same going to mainland businesses.
What differentiates mainland enterprises from those located in free zones?
This is a frequent question posed by many potential investors who want to launch a business in the UAE market. An investor’s perspective would be similar to that of someone boarding a bus without knowing its route or destination if they did not have a clear and exact understanding of the various commercial jurisdictions in the UAE. So, if you’re interested in making investments in the UAE, it’s crucial to learn the truth, the fundamental laws, the norms, and the distinctions between these countries. The business jurisdictions include Offshore, Free zones, and Mainland. These differences should be considered by the investor or business owner before choosing the jurisdiction that best fits their goals for their company.
Regarding several criteria, there are obvious differences between the three jurisdictions—Mainland, Freezone, and Offshore. This article addresses the key distinctions between mainland and free zone jurisdictions in terms of elements like ownership and business scope, office space, visa eligibility, company audit and others.
- Mainland Company
An onshore company that has registered with the administration of the appropriate Emirate is all that makes up a mainland company. The Department of Economic Development of the Emirate is responsible for issuing the trade permit. The ability to trade without restrictions is what primarily distinguishes a UAE mainland company. A mainland UAE company that receives investment from a foreign investor can conduct business both domestically and abroad.
- Free zone Company
A free zone company is a business established within a designated legal framework that is governed by a certain Emirate. Currently, there are more than 40 free zones functioning over all of the United Arab Emirates. The Free Zone Authority is a federal regulatory agency that oversees free zone areas. Issuing trade licenses is the responsibility of the Free Zone Authority. A UAE-free zone is distinguished by the advantages of 100% foreign ownership and tax breaks. A free zone company is only permitted to conduct business inside the free zone and outside the UAE.
Possession of a Business
- Mainland Company
The UAE government has permitted 100% foreign ownership for enterprises based on the mainland if a foreign investor establishes a business there. Previously, expat business owners could only own up to 49% of their company, with the remaining 50% being owned by the Emirati sponsor.
- Free Zone Company
Full ownership of the business is enjoyed by the foreign investor. There is no requirement to transfer the shares to a UAE-based sponsor. Consequently, the part a local sponsor plays in this situation is unimportant.
The scope of the Business
- Mainland Company
A company that has its corporate headquarters on the UAE mainland is permitted to conduct business anywhere in the country. This indicates that both inside and outside of the UAE, the organization is permitted to conduct business.
- Free Zone Company
Companies founded in any UAE-free zone are subject to specific limitations. Free zone businesses are permitted to conduct business both inside and outside of the UAE.
Office space
- Mainland Company
For a UAE mainland corporation, a minimum requirement of 140 sq.ft in terms of physical office space is required.
- Free Zone Company
A Free zone company does not have to have real office space. Creating a business in a free zone is feasible with or without premises. Virtual offices are permitted in the UAE free zone.
Visa Eligibility
- Mainland Company
There are no restrictions on visa eligibility for mainland UAE businesses. The number of visas issued is based on the size of the workplace. In other words, if the business owner needs additional visas, they should create larger offices.
- Free Zone Company
Companies operating in free zones are subject to various visa eligibility requirements. The typical range for the number of visas issued is 1 to 6. The free zone jurisdiction affects the UAE visa packages differently. More visas must be issued, which necessitates renting out more workspace.
Company Audit
- Mainland Company
A mainland UAE corporation must perform a financial audit.
- Free Zone Company
The free zone jurisdiction determines how a financial audit for a free zone company should be prepared. Audit preparation is not required in several free zone jurisdictions. A year-end audit should be prepared by some free zone entities, such as FZE and FZCO.
Capital requirement
- Mainland Company
A UAE mainland company’s legal structure determines the required minimum capital.
- Free Zone Company
The Emirate in which the company is created determines the required minimum capital for a free zone company.
Requirements for setting up a business
- Mainland Company
The Department of Economic Development, Dubai Municipality, Ministry of Labor, and other government agencies are just a few of the agencies that mainland businesses must request approval from.
- Free Zone Company
Each free zone has a set of laws and guidelines that apply to any businesses established within. The establishment of a corporation in a free zone does not require clearance from external governmental bodies or organizations that are not part of the free zone.
The key distinctions between a Mainland and Free Zone Company in the UAE should now be clear to you. Global Link helps investors and business owners establish their ventures on both UAE mainland and free zones. Please don’t hesitate to get in touch with our team of business advisers and consultants if you have any questions about mainland or free zone companies in the UAE or their specific business setup costs. We can respond to any queries you may have.