Mainland vs. Free Zone Company Setup in Dubai: Key Differences, Benefits, and Choosing the Right Option for Your Business
Published Date:
Apr 18, 2025
UAE, the land of dreams, brings people, ideas, and goods together like nowhere else in the world. Its cosmopolitan blend of over 200 nationalities provides a multicultural and diverse environment, providing many opportunities to connect with international markets and attract global talent.
It is also known for innovative business outlooks, embracing forward-thinking approaches to leverage new technologies, encouraging entrepreneurship, and providing a business-friendly regulatory framework.
Most importantly, the UAE is renowned for its unique position as a leading trade and logistics centre, staging it as an ideal hub for global trade. This status is boosted by well-developed infrastructure, including ports and airports, making it easier and more efficient to import, export, and distribute goods.
Why Does the UAE Stand Out as a Strategic Location for Business Setups
Business-friendly environment with low taxes and supportive policies.
Strategic location connecting Europe, Asia, and Africa.
Favourable visa schemes for long-term investment.
Advanced infrastructure supporting smooth operations.
Diverse financial sector across multiple industries.
Attractive tax policies.
Dynamic environment promoting innovation and collaboration.
Culturally diverse population boosting creativity.
Participation in the Silk Road initiative enhancing global trade links.
Underpinned by such a thriving start-up ecosystem, a new study also shows that the UAE is the most preferred destination for entrepreneurs to launch a business in 2024. Out of the 52 nations analysed, it is positioned third after Hungary and the Netherlands and is the second-largest Arab economy that offers a strategic location to start a business.
It takes just 4 days to establish a company legally in the UAE, with options to set up in one of three business jurisdictions: Mainland, Free Zone, and Offshore.
Each jurisdiction has unique benefits and regulations tailored to different business needs and objectives, which should be thoroughly analysed to make an informed decision. Otherwise, your business setup will lack the structure and direction essential for organisational growth and success. It would be like boarding a bus without knowing the route or final destination.
Many prospective investors planning to start a business in the UAE commonly ask, “What is the difference between mainland and free zone companies in Dubai?”
This blog will provide a comprehensive comparison of a mainland vs. free zone company setup, highlighting over 15 key parameters.
What is a Dubai Mainland Company?
A mainland company in Dubai or the UAE, in general, is a business registered with the relevant emirate’s government body. The Department of Economic Development (DED) is the regulatory entity that oversees and issues this trade license.
Mainland companies have no restrictions on their commercial activities and are completely free to operate both within and outside the UAE.
Until recently, a foreign investor setting up a company in Dubai mainland was required to have a local sponsor or a UAE national partner in the company for specified business activities. In this case, the foreign investor was allowed to own only a maximum of 49%, while the remaining 51% had to be owned by the Emirati sponsor.
With the amendments to the Law on Commercial Companies (CCL) effective from June 1, 2021, expatriates can now enjoy 100% ownership of businesses in the UAE mainland and have no requirement for local sponsors.
What is a Dubai Free Zone Company?
Free zones are designated self-governing areas within each emirate, which are overseen and managed by a regulatory body called the Free Zone Authority (FZA).
The key feature of the free zone is it offers many attractive benefits and packages to potential investors, making it easy to set up a company in the UAE. Some of these incentives include full foreign ownership rights and a tax-free environment.
The first free zone in the UAE was opened in the 1980s, and today, there are over 45 of them all over the country, each managed and administered by its own regulatory entity and legal framework.
A free zone company is any business setup legally registered within any of the free zones in the UAE. So, a Dubai-free zone company is any business registered within one of the designated free zones in Dubai.
Free zone companies have exclusive freedom to trade within both the free zone and internationally. However, they cannot engage in any business activities in the UAE mainland.
Within a Free Zone, an investor can typically establish three types of business setups of their choice: a Free Zone Company (FZC), a Free Zone Establishment (FZE), or a branch of an existing business.
Mainland vs free zone companies: What is the difference?
There are over 15 factors that distinctly define the differences between mainland vs. free zone companies in Dubai and the UAE as a whole.
Business Ownership
The UAE government allows 100% foreign ownership for selective business activities registered on the Dubai mainland. This new amendment was enacted in 2021.
Until then, expat business owners were only allowed to own a maximum of 49% ownership of their business, while the remaining 51% share belonged to the Emirati sponsor.
Free zone business setups have always enjoyed complete ownership and have no restrictions on any grounds.
Scope of Business
The scope of business activities allowed varies for mainland and free zone companies. Dubai mainland companies have the full right to carry out business operations anywhere in the UAE and across the globe.
In contrast, free zone company setups can only operate within the free zone or outside the country. They cannot do business outside the registered free zone, i.e., the mainland, without the help of a local sponsor or through NOC from DED.
Authority
Dubai mainland is an economic zone in the UAE that is monitored by the Department of Economic Development (DED), a government body.
A free zone in the UAE is a special economic zone that provides regional benefits and is regulated by independent governmental or non-governmental free zone authorities and entities. There are 45+ free zones in the UAE, with Dubai alone having more than 30, tailored to specific industries or business activities, each with its own regulatory framework overlooked by a governing authority.
Office Space
To qualify for a business setup and license in Dubai mainland, the company must fulfil two requirements as stipulated by the DED.
A minimum of 200 sq ft of space for a physical office
A personal office address (virtual office) will also be required to open a bank account.
As for company setup in the free zone, there are no mandatory physical space requirements. They can opt to have virtual workspaces. However, they require a personal office address (flexi desk/private office) to open a bank account. The procedure for this may vary based on the type of free zone.
Company Audit
A mainland company set up in Dubai requires an obligatory financial audit. In contrast, the audit laws for a company in the Dubai free zone vary depending on the jurisdiction.
Free zones catering to small businesses or startups exempt selected companies from audits, especially if they do not cross certain revenue thresholds. Some of these free zones include the Sharjah Media City Free Zone (Shams), Ajman Free Zone (AFZ), Fujairah Free Zone (FFZ), and RAKEZ (Ras Al Khaimah Economic Zone). On the other hand, companies in FZE (Free Zone Establishment) and FZCO (Free Zone Company), often require audits due to stricter compliance requirements in certain free zones.
Taxation
Dubai mainland company setup has a standard application of 5% VAT on taxable supplies and
9% corporate tax on taxable Income from FY24 (This is calculated after making certain adjustments to the net profit as per Books of Accounts).
A free zone company in Dubai can enjoy a 0% corporate tax rate, provided it meets the requirements for a qualifying free zone person, such as generating income exclusively from activities specified in the Ministry’s decision, along with any other prescribed conditions.
If a business fails to qualify, then a corporate tax of 9% will apply, but there are no customs taxes, excluding import products sold to the mainland.
Capital Prerequisite
Another distinguishing factor between mainland vs freezone companies is their capital prerequisite. The legal structure of a mainland company determines its capital prerequisite. LLC, for instance, may have a minimum capital requirement.
A free zone’s prerequisite is determined by the regulations of the specific free zone in which the company is established.
Regulatory Control
A company set up in Dubai's mainland is controlled by relevant legal government bodies to protect the owner and the company. Dubai mainland companies should comply with the legally contracted terms. The regulatory body for mainland companies is the Department of Economic Development. While 100% ownership is now possible in mainland Dubai, it depends on the business activity and the specific regulations within that industry.
Whereas a company in the Dubai free zone enjoys 100% ownership. However, the justification is controlled by private free zone authorities that can change the legal frameworks and rules applied to the free zone at a given time. Free Zone Authority (FZA) is the governing body of a particular free zone, but each free zone in the UAE typically has its own regulatory authority.
Licensing
The process of getting a license for a business setup in Dubai mainland requires assessed documents and permissions. While administrative authorities are involved, the company is registered directly with the Department of Economic Development (DED), which oversees business incorporation and licensing for the mainland.
In contrast, the licensing process for a company in the Dubai free zone or the UAE is done through a single-window system, meaning registration, licensing, visa applications, and document approvals can be performed under one authority or platform, making it hassle-free. The process may call for certain clarifications from various judicial bodies but is integrated by an independent free zone authority depending on the region and type.
Approvals Related To Business Setup
Mainland vs. free zone companies have different approval processes related to their business setups. For a Dubai mainland company to be registered, the process requires approval from the Department of Development, the Labour Ministry, and the Department of Naturalization and Residency. In addition, companies wishing to operate in the health, education, or food sectors will need additional approval from related regulatory bodies.
A business setup in the Dubai free zone or the UAE generally has an easier approval process. If the business activities involve only exporting or re-exporting, they do not need external approvals and are only required to carry out special services.
Visa Eligibility
Business setup in Dubai mainland has no restrictions with visa eligibility. However, the space or square feet of the office will influence the number of visas that can be issued. This means that if the company requires more visas, it is mandatory to expand the office space.
A business setup in the Dubai free zone cannot apply for many visas and have restrictions of only 6 as an upper limit. However, the visa packages vary with each free zone jurisdiction and come with certain restrictions. Issuance of more visas demands leasing out additional work premises.
Type of Legal Entity
Mainland company setups in Dubai or the UAE can be classified for these types of legal entities:
Limited Liability Company (LLC)
Limited Partnership Company
Private Joint Stock Company
Public Joint Stock Company
Sole Proprietorship (LLC-SO)
Branch of a Foreign Company
Whereas a business setup in the Dubai free zone or the UAE can be classified as these types of legal entities:
Free Zone Establishment (FZE) (single shareholder)
Free Zone Company (FZCO/FZC) (multiple shareholders)
Branch of a Foreign Company
Timeline for Setup
The length of time needed to finalise business setup varies for mainland and free zone companies. Dubai mainland company setup timeline is around 1 month, and the physical presence of shareholders is a must.
The timeline for the Dubai free zone setup is around 1 to 3 weeks, depending on the type, and physical presence is not generally required.
Minimum Shareholder
The minimum shareholder requirement for mainland vs free zone companies in Dubai is at least 2 and 1, respectively.
Minimum Share Capital
A company setup in Dubai mainland requires around AED 150,000 to AED 300,000. This will vary depending on the emirates and activities.
In contrast, the capital requirements for a free zone business setup in Dubai vary from AED 50,000 to AED 1,000,000. This again depends on the type of free zone based on different emirates and the business activity.
Cost
The cost of business setup in Dubai mainland involves many variables. The minimum price can start from AED 25,999 (all-inclusive). However, this depends on factors like business type, number of shareholders, and the space of the rental office.
In the UAE, each free zone has its own formation cost, and it depends on the nature and size of the business. Some Dubai-free zones also have a minimum share capital, which can further increase the cost of setting up a company.
Cost-Effectiveness
It is important to remember that mainland vs free zone companies in Dubai have their own pros and cons, and it all comes down to unique objectives and financial capacities. In general, company setup in Dubai mainland presents better options than free zones, as it offers extended business opportunities and drafts a stable future for the company.
Dubai mainland company setups are attractive, especially for SMEs and budding entrepreneurs. The entire business, along with one visa, can be started at only AED 25,999 in any part of the city. While the UAE and Dubai free zones have certain restrictions on the scope of business activities, advantages include a relatively lower cost and fewer legal procedures for business setup.
Benefits of Mainland Office
Has the complete freedom to do business throughout the UAE and outside the country without restrictions
100% exemption from personal and corporate taxes
Allowed for 100% repatriation of profits and capital
Potential to bid and work on UAE government contracts
No limitations on the number of visas
Business setups can be established anywhere in the registered emirate with the possibility of expanding company branches, creating a strong presence in the local market
Unrestricted access to international markets
Benefits of Free Zone Office
100% ownership without the need for a UAE sponsor
Quick, easy, and hassle-free company formation
Allowed for 100% repatriation of profits and capital
100% exemption from import and export duties
The details of shareholders remain private to the public
Relatively easy recruitment policies
Free zones provide advisory services and networking support
