Introduction
Dubai offers two main options for setting up a business: Free Zone and Mainland. Both of these options come with unique benefits and considerations, catering to different types of businesses and goals.
Below is a detailed comparison of both company types. Once done going through the differences, check out this article on how to set up a business in Dubai.
1. Ownership Structure
- Free Zone:
- 100% foreign ownership is allowed.
- One does not need a local sponsor or partner.
- Mainland:
- Historically, one required a local Emirati sponsor holding 51% ownership, but recent government changes allow 100% foreign ownership in specific sectors.
- Allows partnerships with local sponsors for broader market access.
2. Operational Scope
- Free Zone:
- Again, another big change reform. Previously, businesses could only operate within the free zone or internationally. See more information in the related article below.
- Mainland:
- There are no restrictions on conducting business with the local UAE market.
- Ideal for businesses that want to interact extensively within the domestic market.
Related: Freezone Companies Can Now Operate in Dubai Mainland
3. Business Location
- Free Zone:
- Must be based within the designated free zone.
- There are specialized zones for different industries such as media, technology, healthcare, and logistics. This allows for greater networking and collaboration.
- Mainland:
- Businesses can set up offices anywhere in Dubai.
- This option offers more flexibility in choosing a location for operations.
4. Licensing
- Free Zone:
- Licenses granted are industry-specific (e.g., trading, service, or industrial licenses).
- License issuance is managed by the free zone authority.
- Now with the changes allowing free zone companies to operate in the mainland, some licenses will be granted not by the free zone authority but by the Dubai Department of Economic Development (DED).
- Mainland:
- Licenses are broader, allowing more diverse activities under one license.
- Issued by the Dubai Department of Economic Development (DED).
5. Office Requirements
- Free Zone:
- Having an office space is mandatory within the free zone one registers their company through, though virtual offices are available in some zones.
- Costs depend on the specific free zone.
- Mainland:
- Physical office space is required anywhere in Dubai.
- No virtual office options are permitted.
6. Tax Benefits and Regulations
- Free Zone:
- Personal income is not taxed in the UAE. This is for everyone irrespective of where your business is set up. When it comes to corporate tax, free zone companies are exempted from this. (specific to certain sectors).
- No import/export duties for goods traded within the free zone.
- Mainland:
- Subject to UAE’s corporate tax regulations.
- Must comply with VAT regulations if applicable.
7. Business Setup Costs
- Free Zone:
- Generally lower setup costs, especially for startups.
- May include bundled packages for licensing and office space.
- Mainland:
- Higher initial costs due to broader licensing and market access.
- Costs can vary based on the type of business activity.
8. Visa and Employment Flexibility
- Free Zone:
- Visas are linked to office space and company size.
- Employee visas are issued through the free zone authority.
- Mainland:
- Greater flexibility in obtaining visas for employees.
- No restrictions on the number of visas based on office size.
9. Target Audience
- Free Zone:
- Best for businesses that sell digital products or services and mostly target international clients.
- Also ideal for sole proprietorships or freelancers.
- Mainland:
- Ideal for businesses targeting the local UAE market.
9. Auditing
- Free Zone:
- Audit requirements vary by free zone. Some may exempt certain companies, while others mandate audits.
- Mainland:
- Mandatory financial audits are typically required.
Conclusion
When it comes to choosing between the two options, it depends on the type of company you have and the purpose of setting up a business in Dubai. If you run a small team and are looking to have the networks of Dubai, get tax incentives, and not necessarily engage with the UAE market, setting up a free zone business would suit you. As mentioned above, however, a new directive allows free zone registered companies to operate in Dubai mainland, allowing them to trade within the Dubai market.
On the other hand, if you want to set up base in UAE and also want to take advantage of its lucrative market, then choose the mainland option.
Be sure to engage the right professionals when setting up your business to avoid making costly mistakes and taking the burden away from you.
