If you’ve been thinking of setting up a business, the UAE has plenty of opportunities to offer. Famed for igniting the growth of numerous startups from various industries and nationalities, the UAE can offer a stable, liberal, and business-friendly environment to entrepreneurs along with several business promotional initiatives to appeal to international investors.
When setting up a business in UAE, you can either choose to set roots in a freezone or the mainland. But before you can go ahead and make a decision, it’s important that you understand the real difference between the two areas, and how setting up in either of the areas could impact your business operations.
There are advantages and disadvantages associated with both options and you need to tally them with respect to your business needs in order to figure out the right choice. For your convenience, we have prepared this guide to help you get a basic understanding of the two zones along with their key differences.
Mainland and Freezone Companies – An Overview
A mainland company would be considered an onshore entity that has been registered with a relevant Emirate governmental body. The Department of Economic Development (DED) will be responsible for issuing a trade license to these companies. The feature that sets mainland companies apart is the ability to conduct commercial activities with zero restrictions. With recent changes announced by the UAE government, business owners can now take 100% ownership of selective business activities set up in the mainland companies in UAE.
Entrepreneurs who are would want to maintain 100% ownership of their companies usually prefer setting up a freezone company. Though the first freezone in UAE came into existence in the 1980s, the number of Freezones has fairly increased in scope and size recently. Currently, there are more than 45 Freezones across the nation. Each free zone has its own laws and regulations, administered, and managed by its own regulatory body.
What’s the Difference Between Mainland and Freezone?
Now that you have painted a picture of what mainland and freezone companies are all about, let’s look at the specifics. Though the jurisdictions of both types of areas can be quite varied – with each one operating with a distinct corporate structure, here are some of the key differences that can help you determine which among the two options would be right for you.
Until recently, foreign nationals establishing mainland companies were allowed to own 49% of the company shares, while the rest 51% stake belonged to the Emirati sponsor. However, it is possible now for foreign investors and entrepreneurs to have 100% ownership of mainland registered companies, but it’s only eligible for selective business activities.
Ownership may be an issue in the mainland, but certainly not in the freezones. Neither you’ll need a local sponsor nor have ownership restrictions when you set up a freezone company.
Business Scope –
Freezone companies aren’t allowed to engage in business activities outside the freezone without the support of a local agent. However, a mainland company won’t have such restrictions because they’re allowed to operate in any part of the UAE.
A mainland company would require a physical office space of at least 600 sq.ft., and only then the DED will issue a trading license for the company. However, such a rule isn’t mandatory for businesses operating from a freezone because most of these companies have virtual workspaces.
Mainland companies are not subject to visa restrictions by space, but the total number of visas issued will depend on the physical workspace area. If a company needs to issue additional visas, it has to rent or acquire a larger office space.
For Freezone companies, the number of visa applications will usually depend on the specific regulations of the area, usually ranging between 1 and 6.
Business Setup Approvals –
When it comes to setting up a mainland business, you’re going to need clearance from multiple governmental agencies. It would usually include the Department of Economic Development, the Ministry of Labor, the Municipality of Dubai, and so on.
On the other hand, each freezone has its own laws and regulations for business setup. Thus, you won’t need permission from non-free zone governmental agencies or authorities to establish your business.
Company Audit –
All mainland companies must prepare a financial audit by the end of every fiscal year. In the case of freezones, all of them do not mandate yearly financial audits. However, a few of them are known to conduct year-end audits.
Benefits of Having a Mainland Company
Let’s discuss some of the advantages of a mainland company below –
• Freedom of conducting business across the UAE without any restrictions
• 100% exemption from personal and corporate taxes
• 100% repatriation of capital and profits
• Freedom to bid and work on various UAE government contracts
• No restrictions on the number of visas issued
• Freedom to set up an office in any part of the registered emirate and scale up operations by opening multiple branches to target the local market
• Access to global markets without any restrictions
Benefits of Having a Freezone Company
Here are some of the advantages of a freezone company –
• 100% business ownership without needing a UAE sponsor
• Easy and quick company formation process
• 100% repatriation of capital and profits
• 100% exemption from export and import duties
• Freedom to keep details of shareholders private from the public
• Comparatively easy recruitment policy
• Easy access to networking support and business advice
Because there are key differences involved in setting up and running a mainland and freezone company, it is important to take a closer look at both the options to choose the one that’s right for your business and the activities you wish to pursue. Your decision will ultimately boil down to your goals and needs.
Whether you choose to set up a freezone or a mainland company, the process needs dedicated time and resources. Hence, it’s important to consult experts with local knowledge who can streamline the process for you. With TASC Corporate Services by your side, you can expect our professionals to take care of all your government-related work to ensure a smooth business setup.