Overview
One of the most fundamental decisions facing any foreign investor establishing a business in the UAE is the choice between a mainland (onshore) company and a free zone entity. Each structure carries distinct implications for ownership, permitted activities, geographic scope of operations, cost, and regulatory requirements. This analysis provides a structured comparison to inform that decision.
Structural Comparison
| Factor | Mainland | Free Zone |
|---|---|---|
| Foreign Ownership | 100% (since 2021 reform) | 100% |
| Trading Scope | Entire UAE market | Within free zone and internationally |
| Local Sponsor | Not required (most activities) | Not required |
| Office Requirement | Physical office mandatory | Flexi-desk options available |
| Minimum Capital | Varies by activity | Varies by zone (often lower) |
| Visa Allocation | Based on office space | Based on package |
| Customs Duty | Standard 5% | 0% within zone |
| Corporate Tax | 9% (above AED 375K) | 9% (Qualifying Free Zone: 0% on qualifying income) |
| Audit Requirement | Required | Required |
Key Considerations
Market Access. Mainland companies can trade freely across the entire UAE market, contract directly with UAE government entities, and operate without geographic restriction. Free zone companies are generally limited to operating within their zone and conducting international trade, though they can access the mainland market through a distributor arrangement or by establishing a mainland branch.
Cost Structure. Free zone setup costs are typically more transparent and standardised, with packages starting from AED 5,000 to AED 50,000 depending on the zone and licence type. Mainland setup involves government fees, trade name registration, initial approval, and office lease, with total costs generally starting from AED 15,000 to AED 30,000 for a professional licence.
Tax Implications. Following the introduction of UAE Corporate Tax in June 2023, the tax treatment between mainland and free zone entities has become a critical differentiator. Qualifying Free Zone Persons (QFZPs) benefit from a 0% rate on qualifying income, while maintaining the standard 9% rate on non-qualifying income. This creates a significant tax planning opportunity for businesses with predominantly international or intra-zone revenue.
Activity Restrictions. Certain activities are restricted to mainland licensing, including general trading with UAE market focus, real estate brokerage, and government contracting. Conversely, some specialised activities are more easily licensed within specific free zones designed for those sectors.
Sector-Specific Recommendations
Technology and Digital Services. Free zones such as Dubai Internet City, Dubai Silicon Oasis, or Hub71 in Abu Dhabi offer sector-specific ecosystems, networking opportunities, and often more favourable visa packages for tech companies.
Trading and Distribution. Mainland licensing is generally preferable for companies requiring direct access to the UAE domestic market, government procurement, or physical retail operations.
Financial Services. DIFC and ADGM offer independent regulatory frameworks, common law jurisdiction, and access to a concentrated financial services ecosystem that is difficult to replicate through mainland licensing.
Manufacturing. Industrial free zones such as KIZAD, JAFZA, or Dubai Industrial City offer purpose-built infrastructure, customs advantages for re-export, and streamlined logistics connectivity.
Decision Framework
The optimal structure depends on the business model, target market, sector, and long-term growth strategy. Many established businesses ultimately maintain both a free zone entity for international operations and tax efficiency and a mainland entity for domestic market access, creating a dual-structure approach that maximises the advantages of each framework.
Investors should consult qualified legal and tax advisors before making this decision, as the regulatory landscape continues to evolve rapidly.