Difference between Mainland and Free zone company – The comparison
Planning for a company setup in Dubai? One of the main steps is to choose the right jurisdiction for your conducting business in Dubai. You need to decide whether you want to set up a company in Dubai Mainland or Free zone. It’s a big decision to make and thereby you must know the basic difference between these jurisdictions to make an informed choice.
So, today Prospr is unlocking a detailed guide that helps you pick the right jurisdiction for your business.
What is a Mainland company?
The Department of Economic Development (DED) is a government body that monitors and manages an economic zone named Dubai Mainland. A mainland company is a legal entity registered with DED. This company has freedom to conduct a wide variety of business activities, it can avail more than 2000 business opportunities all over UAE.
A Mainland company is allowed to do business with other companies all over UAE and also internationally. Another plus point of setting up a mainland company in Dubai is to bid on government contracts.
In the past, if foreigners have to set up a mainland company then they need to find an Emirati national as a local sponsor that holds 51% share ownership of the company. Thereby, foreigners hold only 49% ownership of their business.
According to new regulations, foreigners can now hold 100% ownership of mainland companies if they conduct certain business activities. Here is a list of all those business activities that allow expats to keep 100% ownership of their businesses.
Learn how to start a mainland company in Dubai?
What is a Free Zone company?
Dubai Freezone is a special economic area that unlocks many regional businesses. A freezone is either monitored by an independent government authority or a non-government freezone entity known as Freezone Authority FZA. Every freezone follows rules and regulations set by their distinct FZA. A free zone company is a legal entity registered with a specific self-governing area within each emirates, known as freezone.
Every freezone offers specific incentives and packages that attract entrepreneurs and investors. The biggest reason many companies are setup in freezone is that these designated areas offer 100 percent foreign ownership and a tax-free environment. These two benefits make the freezone an excellent jurisdiction for setting up a company in Dubai.
At the moment, there are more than 40 freezones all over the UAE. One thing that you must know about a freezone business is that it can conduct business within the freezone and internationally. It means if you set up a business in freezone that it won’t be allowed to do business on the UAE mainland.
Three types of companies can be set up with a freezone.
- Free Zone Company (FZC)
- Free Zone Establishment (FZE)
- A Branch of an existing business
No matter what kind of company setup you need in freezone, Prospr’s business consultant will help you in a successful company setup in Dubai.
Know how to setup a company in Meydan Freezone?
Mainland Vs. Freezone: what’s the difference?
Point of difference |
Dubai Freezone company |
Dubai Mainland company |
Authority |
FreeZone Authority -FZA | The Department of Economic Development (DED) |
Office |
Can have either a physical or virtual office depending on business operation. | Must have physical office location registered with Ejari and need approvals |
Ownership |
100% foreign ownership. | 51% local sponsor ownership, and 49% foreign ownership ; 100% ownership for some business activities |
Scope of Business |
Do business within freezone and internationally; not permitted to do business in the UAE mainland | Do business all over UAE and internationally; no area restriction |
Control on Business |
Jurisdiction is controlled by private entities that may change the rules and regulation of freezone anytime. | government bodies control Mainland companies. Your company needs to follow the contractual terms.. |
Tax |
Exempt from corporate tax, no income tax | 9% corporate tax on profits exceeding AED 375,000, if annual turnover is 1-million |
VAT |
Generally 5% but many freezones have 0% | 5% |
Import/export duties |
Exempt from import/export duties | Custom duties are applicable |
Cost |
The cost of free zone company setup in Dubai depends on business size and nature. Cost varies from one freezone to another. Company formation cost usually increase in a freezone where you need to fulfill minimum capital requirements. | Factors affecting the cost of mainland companies setup are business type, number of shareholders and rental space.
Minimum cost to start mainland company in Dubai is AED 260,000 |
Visa |
Limited visa | Issue unlimited visa depending on office location |
Annual audit |
Depends on freezone | Obligatory |
Cost -effectiveness |
Setting up a free zone company is an expensive option as you need to restrict business activities only within the freezone. | Setting up a company in Dubai mainland is a cost-effective option since it allows you to do business anywhere in the UAE. SME and budging entrepreneurs can make the most of Mainland company formation in Dubai.
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How to choose between Freezone and Mainland?
Finally you know the difference between mainland and freezone companies in Dubai. Now it’s time to choose one jurisdiction that seems suitable for your UAE business. Here are some important factors you need to consider.
Business activity
You can conduct limited business activities in freezones but more than 2000 possible activities are available in Mainland. There is a need to understand what jurisdiction is ideal based on your business activities. You can see a list of activities in both to find the answer of your question. Another good idea is to book a consultancy session with Prospr’s business consultant. We will help you find an ideal zone for your business.
Client Base
Another factor that helps you choose between mainland and freezone companies is your customers. What kind of customers are you planning to target? If you have a business plan to cover every area of UAE, you need a Mainland company license. However, when your customers are located in a specific freezone or internationally, you can set up a company in the Dubai Freezone.
For example, if you plan to set up multiple retail outlets in UAE, you need to go with Mainland company formation. However, when you are setting up an international e-commerce store, go with a quick and easy business setup in a freezone.
Numbers of Visa
A mainland company doesn’t have any restriction on issuing a number of visas as long as it expands the location. If you run this company, you need to deposit AED 3000 for each employee visa. Mainland employee visa costs are lower than freezones.
When you have a free zone company visa, you can only issue up to 6 visas per license. That means when your company is labor intensive and needs more staff, you should set up a company in Dubai Mainland. However, when you are okay with 6 company members, free zone company is a good option.
Tax
Another important consideration is tax. You will pay a 9% Corporate Tax on profits exceeding AED 375,000 every year but only when your Mainland company is having an annual turnover of over AED 1 million. Freezone companies are an ideal choice when you don’t want to pay any corporate tax. Both freezone and mainland companies pay 5% VAT but some freezone companies pay zero percent VAT.
How Prospr can help you choose between Mainland and Freezone company formation?
Every business is unique and our business consultants in Dubai have years of experience understanding needs and requirements of different businesses. We help set up a company in both Mainland and freezone areas. Even we can even help you with offshore company setup in Dubai.
It’s indeed overwhelming to pick the right jurisdiction for your company setup. Thereby, we are here to help you make the right choice. Book a consultation now
