Starting a business in the UAE offers great opportunities, but choosing the right setup is critical. Two of the most common structures are mainland and free zone businesses. Both offer unique advantages, but they suit different goals.

Understanding UAE Business Structures

Before diving into the differences, it’s important to understand what mainland and free zone setups mean.

1. What Is a Mainland Company?

A mainland company is registered under the UAE’s Department of Economic Development (DED). It allows you to do business anywhere in the UAE, including with government entities. Mainland businesses can open branches, hire unlimited employees (depending on office space), and trade freely across the country.

2. What Is a Free Zone Company?

A free zone company operates within a specially designated economic area in the UAE. These zones are designed to attract foreign investors by offering benefits like full foreign ownership, quick company registration, and simplified administrative processes. However, businesses set up in free zones are generally restricted to operating within the zone itself or conducting trade internationally, rather than directly within the UAE mainland. To trade within the UAE, they must appoint a local distributor.

Licensing and Cost Comparison

1. License Types

Mainland licenses include commercial (trade), professional (services), and industrial (manufacturing). Free zones offer licenses like e-commerce, service, or trading, depending on the zone and the business activity focus.

2. Costs

Mainland businesses face higher overall costs due to office rent, municipality fees, and regulatory approvals. Free zones are more budget-friendly, offering bundled packages that include a license, shared office, and basic visa quotas at a lower price.

3. Office Space

In the mainland, having a physical office with an Ejari (tenancy contract registered with Dubai’s real estate authority) is mandatory to get or renew a license and apply for visas. In contrast, free zones offer flexible options like flexi-desks, shared offices, or coworking spaces, making it easier and more affordable for startups or solo entrepreneurs to set up and operate without committing to long-term office leases.

Key Differences Between Mainland and Free Zone

Legal, Tax, and Audit Requirements

Understanding your financial obligations is key to staying compliant.

1. Corporate Taxation

• Mainland: Subject to 9% corporate tax for profits over AED 375,000.
• Free zone: Often exempt from corporate tax if compliant with qualifying conditions.

2. VAT and Compliance

• VAT at 5% applies to both if the annual revenue exceeds AED 375,000.
• Audits are usually required for mainland businesses; some free zones may not require them.

Advantages and Limitations of Each

1. Mainland Pros and Cons

Mainland companies have the advantage of operating throughout the UAE, partnering with government entities, and benefiting from flexible visa quotas linked to their office space. However, they come with higher setup costs, mandatory office space, and stricter legal and compliance requirements.

1. Pros

• Operate Across the UAE: Mainland businesses have the freedom to trade and offer services anywhere within the UAE, without geographic or commercial limitations. You can sell products or services directly to customers or companies in any emirate.
• Work with Government Entities: Mainland businesses can apply for government tenders and contracts, which is a big advantage for construction, consulting, and public service companies.
• More Visa Options: Visa limits are based on the size of your office space, giving you the flexibility to sponsor more employees or family members as your business grows.

2. Cons

• Higher Costs: Starting a mainland business often requires more investment due to mandatory office rent (Ejari), government fees, and legal approvals.
• Stricter Compliance Requirements: Mainland businesses must follow UAE labor laws, municipal regulations, and auditing procedures, which can involve more paperwork and ongoing renewals.

2. Freezone Pros and Cons

Free zone businesses offer quick setup, full foreign ownership, and lower startup costs with flexible office options. However, they face limits on trading in the UAE mainland and cannot directly take on government contracts without a local partner.

1. Pros

• Quick and Easy Setup: Freezone authorities simplify the registration process. You can often get a license in just a few days with minimal documentation.
• Lower Startup Costs: Free zones offer packages that bundle licenses, flexi-desk offices, and visas at affordable rates, making them ideal for startups and freelancers.
• 100% Foreign Ownership: No local partner or sponsor is required, giving you full control over your business and profits from day one.

2. Cons

• Limited Local Trading: Free Zone companies are restricted from directly conducting business within the UAE mainland and must use a local agent or distributor to offer products or services outside their free zone. To do so, they must appoint a local distributor or open a mainland branch.
• No Direct Government Work: Free zone companies are not eligible to apply for UAE government contracts or public sector projects unless they register a mainland entity.

How to Choose the Right Setup

Selecting the right setup depends on what your business aims to achieve.

1. Key Factors to Consider

• Target Market: For businesses focused on serving customers within the UAE, choosing a mainland setup is ideal because it provides unrestricted access to the local market. For international trade, a free zone works well.
• Business Activity: Some sectors are restricted to certain zones or license types.
• Budget: Free zones are more cost-effective initially.
• Visa Needs: The mainland gives more flexibility if you plan to hire staff.

2. Who Should Choose the Mainland?

• Companies Serving the Local UAE Market: If your business needs to sell products or offer services directly within the UAE, especially in multiple emirates, a mainland license allows you to do so without restrictions.
• Businesses Needing Multiple Visas: Mainland setups offer more flexibility in visa allocation. If you plan to hire a larger team or sponsor family members, the mainland is better, as visa quotas depend on your office size.
• Firms Aiming for Government Contracts: Only mainland companies can bid on public sector projects. If you want to work with UAE government departments or on national infrastructure projects, this is essential.

3. Who Should Choose Freezone?

• Freelancers, Startups, or Consultants: Free zones are ideal for solo professionals or new businesses due to low costs, simple setup, and the ability to work from flexi-desks or shared spaces.
• E-commerce or Export-Focused Businesses: If you sell online or deal mostly with international clients, free zones support cross-border trade and offer licenses for digital and export businesses.
• Businesses on a Tighter Budget: Free zones offer cost-effective packages that include licenses, office space, and visa quotas, making them a great option for those with limited startup capital.

Start Your UAE Business Setup with LUKADAH

At LUKADAH, we help entrepreneurs, investors, and startups make smart decisions about business setup in the UAE. Whether you’re choosing mainland or free zone, our experts offer end-to-end support from license registration to visa processing and beyond. Let us guide you toward the right path for your success.

📞: +971 4 394 0800
📧: info@lukadah.com

Conclusion

Both mainland and free zone setups offer distinct advantages. The mainland is ideal for companies looking to grow across the UAE, while free zones suit international traders and small businesses seeking low-cost, quick setup solutions. The best choice depends on your business model, goals, and how you plan to operate.