Entrepreneurs in Dubai have two main options: setting up in the mainland or in a free zone. Both these entities offer unique benefits and opportunities for businesses, but they also have significant differences that need to be taken into consideration before making a decision. If you are interested in Dubai mainland business setup, knowing how it compares to free zone companies will help you out.
Ownership structure:
One of the biggest differences between mainland and free zone businesses is ownership.
- Mainland business: Previously, foreign investors needed a local sponsor (UAE national) who owned 51% of the company. However, recent reforms allow 100% foreign ownership in many sectors, eliminating this requirement for certain businesses.
- Free Zone business: Investors in free zones enjoy 100% foreign ownership without any restrictions, making it a preferred choice for many international entrepreneurs.
Scope of operations:
- Mainland business: Companies can operate anywhere in the UAE, including working with government contracts and servicing the local market without restrictions.
- Free Zone business: Businesses in free zones are limited to operating within their designated zone or internationally. If they want to trade in the mainland, they must work through a distributor or obtain additional approvals.
Office space requirements:
- Mainland business: Requires a physical office space with a minimum size requirement depending on the business activity.
- Free Zone business: Some free zones allow businesses to operate with a flexi-desk or virtual office, making it a more cost-effective option for startups.
Business setup costs and licensing:
- Mainland business: The licensing process can be more expensive, with additional costs for office rent, government approvals, and sponsorship fees (if applicable).
- Free Zone business: Free zones offer cost-effective packages, including business licenses, visas, and office space at competitive rates.
Taxation and customs duty:
- Mainland business: Subject to 5% VAT and corporate tax (9%) on profits exceeding AED 375,000. Businesses also pay customs duties on imports.
- Free Zone business: Enjoys zero corporate and income tax (for a limited period), no customs duties on imports within the free zone, and full profit repatriation.
Choosing between a Dubai mainland business and a free zone setup depends on your business goals. If you need unrestricted UAE market access, a mainland company is ideal. However, for tax benefits and full foreign ownership, a free zone business may be the better option.
