Dubai Free Zone vs. Mainland: Explained

Difference Between Free Zone and Mainland Company

Dubai Free Zone vs. Mainland: Explained

Dubai has become synonymous with business and entrepreneurship. As a city known for its rapid development and business-friendly environment, Dubai offers various options for setting up a company. The two main choices for entrepreneurs are Dubai Mainland and Free Zones. 

Mainland company formation in Dubai refers to the areas in Dubai that are regulated by the Dubai Economic Department (DED). Setting up a business in the Dubai mainland allows for greater flexibility in terms of business activities and the ability to trade within the local market. 

On the other hand, Dubai Free Zones are specialized economic zones that cater to specific industries such as technology, media, finance, and logistics. It offers a range of benefits to businesses, including 100% foreign ownership, tax exemptions, and custom-duty privileges. 

Let’s understand the key differences between Dubai Mainland and Free Zones, the advantages and disadvantages of each option, and which one is right for you. 

Dubai Free Zone 

Dubai Free Zones are designated areas within the Emirate of Dubai that offer a variety of benefits and incentives to attract foreign investment and businesses. These zones are typically self-contained communities with their own infrastructure, regulations, and business environment. 

There are over 40 free zones in Dubai, each catering to a specific industry or sector. Some of the most popular free zones include: 

  1. International Free Zone Authority (IFZA): IFZA is a leading Free Zone Community in Dubai with top-tier infrastructure, cutting-edge amenities, and regulatory frameworks conducive to business. The Freezone offers the ideal destination for foreign investors looking to set up and grow their businesses.
  2. Jebel Ali Free Zone (JAFZA): The largest free zone in Dubai, JAFZA is a multi-purpose zone that caters to a wide range of industries, including manufacturing, logistics, and trading.
  3. Dubai International Financial Centre (DIFC): A leading financial center in the Middle East, DIFC offers a wide range of financial services, including banking, insurance, and asset management.
  4. Dubai Internet City (DIC): A hub for technology and media companies, DIC offers a range of services, including data centers, co-working spaces, and business support.
  5. Dubai Media City (DMC): A one-stop shop for media and entertainment companies, DMC offers a range of facilities and services, including studios, production facilities, and post-production services.

Key features of Free Zone Company Formation in Dubai 

  • 100% foreign ownership. Businesses can be fully owned by foreign investors. 
  • Companies operating in free zones are exempt from several taxes for a specified period. 
  • There are no restrictions on the movement of capital or profits. 
  • The process of setting up a business in a free zone is relatively quick and easy. 
  • Free zones offer state-of-the-art facilities and services. 
  • Dubai is a major transportation hub, located at the crossroads of Europe, Asia, and Africa. 

Benefits of Setting up a Business in a Dubai Free Zone

There are many benefits for Free Zone company formation in Dubai, including: 

1. Tax benefits 

Companies are exempt from paying corporate income tax, import or export duties, and other taxes. 

2. Ease of doing business 

The process of setting up a company in a free zone is quick and easy. 

3. Access to new markets 

Dubai is a strategic location with easy access to markets in the Middle East, Africa, and Asia. 

4. World-class infrastructure 

Free zones have world-class infrastructure, including office space, warehouses, and logistics facilities. 

5. Supportive government 

The Dubai government is committed to supporting businesses in free zones. 

6. Cost-Effective Options 

Depending on the free zone and business activity, setup and operational costs can be competitive. 

How to Setup a Company in Dubai Freezone?

Free Zone company formation in Dubai is a relatively straightforward process. The steps include: 

  1. Research and select the zone suited to your business activity and needs. Ensure your desired activity is permitted in the chosen zone. 
  2. Certain activities may require specific approvals from relevant authorities. 
  3. Submit required documents and fees to the Free Zone Authority. 
  4. Upon approval, receive your business license. 
  5. Open a dedicated account for your company operations. 
  6. Apply for visas and residence permits for employees (if applicable). 
  7. Activate your license, set up your office, and commence operations. 

Limitations of Operating in Dubai Free Zones 

While Dubai Free Zones offer numerous benefits, it’s crucial to understand the limitations before making a decision.  

Here are some of the limitations for business operations in the Dubai Free Zone: 

  • Depending on the license type and free zone, trading within the UAE mainland might be restricted or require additional licenses. 
  • Hiring UAE nationals directly might be restricted or require special approvals. 
  • Each free zone has its own regulations and compliance requirements. 
  • Each free zone has a specific list of permitted activities. Businesses operating outside their designated activity may face penalties or restrictions. 

Dubai Mainland 

Setting up a business in the Dubai Mainland refers to establishing a company within the geographical area directly governed by the Emirati government, outside of any designated free zones. This setup offers several advantages and caters to a wider range of business activities compared to free zones. 

Unlike Free Zones with specific regulations and limitations, mainland companies enjoy wider operational freedom and greater market access. 

Key Features of Dubai Mainland 

Mainland company formation in Dubai has the following key advantages over Free Zones. 

1. Full Business Ownership 

Local partners are not mandatory for the majority of business activities. This allows for complete foreign ownership and control of the company. 

2. Wide range of business activities 

Mainland companies can operate in a diverse range of industries, unlike the specific focus of free zones. 

3. Direct access to the UAE market 

Mainland businesses can freely trade and offer services within the entire UAE, unlike free zones with potential restrictions. 

4. Greater flexibility 

Mainland companies have more flexibility in terms of location, business structure, and branch establishment within the UAE. 

5. Government Contracts 

You are eligible to bid on and secure government contracts, which are typically unavailable to free zone companies. 

Types of Business Structures 

  1. Limited Liability Company (LLC): Most popular option, offering limited liability for owners and various shareholding structures.
  2. Sole Proprietorship: One individual owns and operates the business, with unlimited liability.
  3. Branch of a Foreign Company: Existing foreign companies can establish a branch office in Dubai mainland.
  4. Civil Company: Two or more UAE nationals can form a company for professional activities.

Compared to free zones, mainland company formation in Dubai typically involves higher initial costs for licenses, visas, and office space. Mainland companies are subject to corporate income tax after a certain limit. 

As of now, there is 0% for taxable income up to AED 375,000 (approximately $102,200). This means small businesses with profits below this threshold are exempt from corporate tax. 9% for taxable income above AED 375,000. This applies to most mainland companies in Dubai. 

How to Setup a Company in Dubai Mainland?

Setting up a company in Dubai’s Mainland involves several key steps: 

  • Choose your business activity from the DED (Department of Economic Development) list and opt for a legal structure. 
  • Submit desired names to DED for approval. 
  • Submit application, documents, and fees to DED. 
  • Secure office space and obtain an attested lease agreement. 
  • Submit all requirements and pay the final fees to receive your trade license. 
  • Open a dedicated business bank account. 
  • Apply for visas and residence permits for employees. 

Which One is Right for You? Dubai Free Zone Vs Mainland 

Choosing between a Dubai Free Zone and the Mainland for your business depends on several factors, and there’s no one-size-fits-all answer. It’s always a good idea to get an expert consultation from a leading business setup consultant in Dubai such as Shuraa.  

However, here are some key factors to consider: 

  1. Target Market

Free Zone: Ideal for international trade and export-oriented businesses. 

Mainland: Better suited for businesses primarily serving the local UAE market. 

  1. Business Activity

Free Zone: Each zone has specific permitted activities. Research carefully to ensure your activity is allowed. 

Mainland: More flexibility in choosing your business activity, subject to DED regulations. 

  1. Ownership

Free Zone: 100% foreign ownership allowed in most cases. 

Mainland: Full business ownership allowed for most of the business activities but may require a local partner for some specific activities. 

  1. Budget

Free Zone: Typically, lower initial setup costs, but annual fees and renewals apply. 

Mainland: Higher setup costs due to licensing, rent, and other operational expenses. 

  1. Operational Flexibility

Free Zone: May have restrictions on trading within the mainland and employing local staff. 

Mainland: Greater freedom to operate within the UAE and hire local employees. 

Choose the Right Path with Expert Guidance

Deciding between Dubai Free Zone and Mainland for your business depends on your specific needs and goals. Both options have their own advantages and disadvantages, so it’s important to carefully consider your priorities before making a decision.  

Seeking professional advice from experts like Shuraa Business Setup can be incredibly valuable during this process. We have the knowledge and experience to guide you in the right direction to ensure that you make an informed choice that aligns with your business objectives.  

With our comprehensive services, from company registration and licensing to PRO services and visa assistance, we’ll assist you at every step of the way. Contact Shuraa Business Setup today!