Difference between Mainland, Freezone, and Offshore Company in the UAE

by commitbizadmin 20, Feb 2019

Difference between Mainland, Freezone, and Offshore Company in the UAE

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 the three jurisdictions as well as business opportunities for entrepreneurs with different priorities. The priorities can be subjected to type of business entity, business activity performed by the company, and your intended trading partners. Therefore, to conduct a business in UAE, you must have a complete knowledge of these jurisdictions to make proper decisions. With that thought, let us first know basic things about each jurisdiction.

Mainland UAE

mainland in the UAE is also called as 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 of the 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 setup in the zone.

Offshore UAE

An offshore company is the one established in another jurisdiction while its parent corporation 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 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.

Mainland vs. Free Zone vs. Offshore Company in the UAE

 

Mainland Company

Free Zone Company

Offshore Company

Ownership

If an expat establishes a business in UAE mainland, then they can acquire only 49% of the company shares. Remaining 51% must be acquired by a local sponsor

A free zone company has no such restriction. An expat can hold complete 100% shares of the company. Neither a local partner nor a service agent is needed to start a company

An expat 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 of 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 in 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 mainland, a free zone company is not usually allowed to business (manufacturing and selling) outside its free zone.

They are free to business outside the emirates. They are restricted from doing business inside the UAE

Audit

The mainland companies must prepare audit at the end of every financial year

Not all FZ companies require to 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 a mandate to prepare 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 of office space, an offshore company is not issued with residency visa

Capital requirement

A minimum capital requirements for a company on the mainland vary according to the legal form of business

A free zone company 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 MunicipalityMinistry of Interior (MOI) etc.

Free zones have their own rules for 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

There are a few points where in all the three jurisdiction or any two jurisdictions have similarities, but they do have different role and purposes of doing a business. Like the taxation of free zone and an offshore company is similar. Mainland and offshore can have bank accounts in UAE and abroad unlike a free zone. But at the end of the day, whether or not to set up your business in any of these jurisdictions, there really is no off-the-peg answer. Neither free zone, offshore nor mainland setups are ‘better’ than one another; it simply comes down to what the best is fit for your business.

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. Our advisors can provide you advice and assistance with every aspect of company formation in any of the Emirates. Do contact us today- even if it’s for a friendly advice.