While starting a business in the United Arab Emirates (UAE), you have to be familiar with the concepts “mainland”, “freezone”, and “offshore”. There are pros and cons for all three jurisdictions as well as business opportunities for entrepreneurs with different priorities.
The priorities can be subjected to the type of business entity, business activity performed by the company, and your intended trading partners. With that thought, let us first know basic things about each jurisdiction.
Mainland Company in UAE
Mainland UAE is also called an onshore company. It is licensed by the Department of Economic Development (DED) of the related emirate which is allowed to do business in the local market as well as outside the UAE without any restrictions.
Free Zone UAE
There are more than 40 free zones in the UAE. It is incorporated within a designated jurisdiction of the emirate where the company is allowed to do business inside the same free zone.
Most entrepreneurs, who want tax optimization, opt for a free zone formation as the free zone authorities bring out various benefits and incentives to the businesses set up in the zone.
An offshore company is the one established in another jurisdiction while its parent corporation is in another country. This is not a branch company since there is no physical office that is required.
They are not physically present in the country that they choose to be registered as an offshore company.
Before diving in, you must know that it is impossible to convert the free zone offshore company into an onshore company.
Offshore Free Zone Company has totally different status, legal documents and applicable regulations. Let us now move on to understand the difference between the three jurisdictions.
Difference between UAE Mainland vs. Freezone vs. Offshore
|Mainland Company||Free Zone Company||Offshore Company|
|Ownership||If an ex-pat establishes a business in the UAE mainland, then they can acquire only 49% of the company shares. The remaining 51% must be acquired by a local sponsor||A free zone company has no such restriction. An ex-pat can hold complete 100% shares of the company. Neither a local partner nor a service agent is needed to start a company||An ex-pat can have full ownership of the company until and unless it is located outside the UAE. An offshore company cannot have any physical presence in the UAE|
|Office Space||A minimum of 200 sq. ft physical office space is mandatory for any mainland company in the UAE||No office space requirement for a free zone company. Such companies can work without an office or can have virtual offices||They cannot have any physical office in the UAE. They can have it outside the country|
|Business Scope||A company present on the mainland is free to do business anywhere in the UAE. They are allowed to do business inside any free zone in the emirates||Unlike the mainland, a free zone company setup is not usually allowed to do business (manufacturing and selling) outside its free zone.||They are free to do business outside the emirates. They are restricted from doing business inside the UAE|
|Audit||The mainland companies must prepare an audit at the end of every financial year||Not all FZ companies require auditing. But there are some forms of entities which have to deal with a mandatory audit of accounts. This includes free zone companies (FZCO) and free zone establishments (FZE).||Offshore company does not have the mandate to prepare the audit. They can do one if they want to be financially updated|
|Visas||A residence visa is given depending on the size of the office/ work premises||A residence visa is given depending on the size of the office/ work premises||Since there is no need for an office space, an offshore company setup is not issued with a residency visa|
|Capital requirement||Minimum capital requirements for mainland company formation vary according to the legal form of business||A free zone company formation has a minimum capital requirement depending on the emirate it belongs to||An offshore company in the UAE has no minimum capital requirement|
|Privacy/Secrecy||The details of a free zone company is available to the general public upon request||The details of a free zone company is available to the general public upon request||The names and identities of owners, directors and shareholders of offshore companies are not made public|
|Govt Authorities for Company setup||They need to take permission from authorities like DED, Ministry of Labor (MIL), Dubai Municipality, Ministry of Interior (MOI) etc.||Free zones have their own rules for the approval of any company inside its jurisdiction and they don’t require approvals from authorities outside of the free zone.||Ras Al Khaimah (RAK) and the Jebel Ali Free Zone (JAFZA) offer offshore formation. The free zone authorities of that jurisdiction look after their approval|
|Cost of Company Set up||High||Medium||Low|
The taxation of the free zone and an offshore company is similar. Mainland and offshore can have bank accounts in UAE and abroad, unlike a free zone.
Neither free zone, offshore nor mainland setups are ‘better’ than one another; it simply comes down to what best is fit for your business. Therefore, to conduct a business in the UAE, you must have complete knowledge of these jurisdictions to make proper decisions.
If you want to have more information on these jurisdictions or are ready to establish a company in the UAE, we at Commitbiz can help you with it.
Do contact us today- even if it’s for friendly advice.
After how many days will I get a UAE Free zone License?
Generally, it takes around 15 days.
What is the cost of getting a Free zone License in UAE?
Depending on the type of license it’ll cost you somewhere between AED 10000 ($ 2722.6) and AED 50000 ($ 13612.98) annually.
What is the difference between Freezone Employment Visa & Mainland Employment Visa?
There are primarily 2 differences -
The validity of a Mainland employment visa is 2 years & for Freezone, it's 3 years.
If you have a Mainland employment visa you can work in any part of the UAE. Whereas with a Freezone employment visa you’ll have to consult a local agent for doing so.
Which zone is best suited for a Freelancer?
For Freelancers working in Freezones is always recommended because Freezones are best suited for B2B businesses & also have the best support from the government in terms of infrastructure & tax exemptions.
Which zone is best suited for B2C businesses in UAE?
Mainland companies are best suited for B2C businesses, or in other words established MNCs who have a huge capital for investing.