The differences between mainland, freezone and offshore companies

Difference Between Mainland, Freezone, and Offshore Companies in the UAE

by Priyadarshini Balamurugan 20, Feb 2019

While starting a business in the United Arab Emirates (UAE), you have to be familiar with the concepts “mainland”, “freezone”, and “offshore”. All three jurisdictions have pros and cons and 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.

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What is a 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 can do business in the local market and outside the UAE without any restrictions.

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What is a Free Zone Company in UAE?

There are more than 40 UAE free zones. 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.

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What is Offshore Company in UAE

An offshore company is established in another jurisdiction while its parent corporation is in another country. This is not a branch company since no physical office is required.

They are not physically present in the country where they choose to be registered as an offshore company.

Before diving in, you must know that converting the free zone offshore company into an onshore company is impossible.

Offshore Company has different status, legal documents and applicable regulations. Let us now move on to understand the difference between the three jurisdictions.

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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, it can acquire only 49% of the company shares. A local sponsor must acquire the remaining 51% 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 fully own the company until and unless it is outside the UAE. An offshore company cannot have any physical presence in the UAE
Office Space A minimum of 200 sq. ft of 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 some forms of entities have to deal with a mandatory audit of accounts. This includes free zone companies (FZCO) and free zone establishments (FZE). An offshore company does not have the mandate to prepare for 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 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 are available to the general public upon request The details of a free zone company are 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 permission from the 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 don’t require approvals from authorities outside 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

Since now you know the differences let's look at the benefits of each jurisdiction.

The Benefits of a Mainland Company Formation in UAE

The following are the benefits of establishing a mainland company setup;

  • Unrestricted freedom to conduct business throughout the UAE.
  • 100% exemption from corporate and personal taxes.
  • Allowed 100% repatriation of profits and capital.
  • Potential bid and work on UAE government contracts.
  • No visa restrictions based on the office space.
  • Can set up their office location anywhere in the registered emirate and establish multiple company branches creating a solid presence in the local market.

The Benefits of a Free Zone Company Setup in UAE

Some advantages of the UAE freezone company setup include the following;

  • 100% ownership without needing a UAE sponsor.
  • Quick and easy company creation.
  • 100% repatriation of cash and profits.
  • 100% exemption from import and export tariffs.
  • Relatively simple recruitment policy.

The Benefits of Offshore Company Formation in UAE

The following are some of the benefits of an Offshore company registration in UAE;

  • Zero Corporate Tax.
  • Low Authorised Capital.
  • Double Taxation Treaties.
  • Excellent Technological Infrastructure.

You now know better the benefits and differences between the Mainland, Freezone & Offshore. The sort of business and activities you intend to undertake will determine which choice is best for you. Everything comes down to your requirements and objectives.

The taxation of the free zone and an offshore company is similar. Unlike a free zone, the mainland and offshore can have bank accounts in UAE and abroad.

Neither free zone, offshore nor mainland setups are ‘better’ than one other; it simply comes down to what best fits your business. Therefore, for business setup in UAE, you must have complete knowledge of these jurisdictions to make proper decisions.

If you want more information on these jurisdictions or are ready to establish a company in the UAE, we at Commitbiz can help you.

Do contact us today- even if it’s for friendly advice.

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FAQs

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.