April 24, 2024
key differencesmainland vs freezone

Differences Between Mainland and Free Zone Company in the UAE

Differences Between Mainland and Free Zone Company in the UAE

Dubai, UAE is a fantastic place to start a new business, whether you want to be a trader or have a new startup idea. The investors across the globe always look up to Dubai, UAE to invest in the potential businesses here. However, when it comes to starting a new business in the Dubai UAE, most people have to decide between the Dubai mainland and a free zone.

As businesses have to choose between objectives and their preferences according to the customer profile, it is slightly unlikely for new businesses to take the region into account. If you are reading this post, it is pretty sure that you are focusing from the core to take your business to another level with a broad scope.

Here, we are discussing the differences between mainland and free zone companies. The phenomenal differences come down to tax rates, type of work, approving authority, and much more. Let’s get started:

  • Client Classification

All the companies that are operating from the mainland have ease finding and dealing with clients from domestic as well as international regions, which means that they can transact with customers around the UAE and with customers outside the UAE. However, it is unlikely with Freezone clients because Freezone companies have certain restrictions on doing business with international companies, clients, or customers. The freezone companies can transact with customers within the jurisdiction of a particular freezone and also from outside the UAE.

To put it in simple words, mainland companies get to cater to a broader audience with no restrictions. On the other hand, free-zone companies have to meet critical guidelines.

  • Corporate Tax Tariffs

Even though businesses get ease in the emirates to start their businesses, the corporate tax rate varies with mainland vs. free zone businesses. In this category, free zone companies get a certain advantage with a 0% corporate tax rate, whereas corporate tax for mainland companies above AED 375,000 per annum is 9% on taxable income. The exemption for free zone companies is designed to help newcomers, but it is subject to certain conditions as per the CT regime.

A small company can get excellent benefits in terms of cash flow from investing in infrastructure, and they can float to bigger levels. One key thing to note here is that mainland companies also see the advantage, and many companies have shifted to the free zone just to get the tax exemption. Besides the tax advantages, it is crucial to understand the type of customer before finalising the region.

  • Minimum Office Space Requirement 

Office space can be a deal-breaker for businesses when they want to register as virtual spaces. If a company wants to establish itself as a mainland company, then the minimum requirement of the area must be met. For a mainland office, it is mandatory to have a registered office with adequate space; otherwise, it can’t be classified as a mainland office.

However, when it comes to free-zone companies, there is no requirement for office space. These companies can register without any office space, and they can be operated from any other place if they account for the sale of services.

For a new brand, company, or firm, Freezone can help save money on rental, and it is the most cost-efficient choice throughout the globe.

  • Easy to Set Up

Setting up a new business by getting licences, approvals, and other government documents can be tedious for new businesses. However, the UAE Dubai Mainland provides easy-to-setup options for free zone companies. Anyone establishing a small business in the UAE needs a specific set of documents, and it can come in handy for new small organisations.

For mainland companies, the process of establishing a company goes through various processes, and the time taken for verification is a critical issue here. The document requirements for both types of businesses are quite easy. However, when it comes to foreigners, there are specific sets of documents required other than the basic ones.

  • Authority of Approval

Licences to run a business in the UAE Dubai mainland are issued by the DED (Department of Economic Development), which is a government organization. The story is different when it comes to free-zone companies. Licenses are issued by the zone or region where the business is registered. Depending on the region, the authority for business licences may vary.

Some of the zones for freezone companies have easy access to laws, whereas others have strict guidelines. The variation might affect the workflow, so conducting thorough research based on your company’s persona is necessary.

  • Visa requisites

For the mainland companies, there are no specific restrictions on the number of visas issued, but they must meet the requirement of having sufficient workspace either by owning it or on a rental basis.

Whereas for the freezone companies, there are certain restrictions on the number of visas they can issue, and these restrictions vary based on the freezone in which the company is located.

Advantages of setting business in mainland

There are various advantages for investors who are planning to invest in the UAE or Dubai mainland. Some of the top-notch advantages include the following:

  • The MNCs that are planning to expand their operations beyond the borders can choose the UAE or Dubai mainland as their location to start their business. The businesses here can operate anywhere within the UAE and beyond the borders. Whereas freezone companies won’t have such freedom to conduct businesses across the border subject to certain restrictions.
  • Businesses with the vision of starting multiple operations can without doubt approach the UAE and the Dubai mainland, as the location provides more flexibility for choosing business operations with low restrictions as compared to freezone companies, which are bound to follow certain restrictions.
  • Businesses in the UAE and Dubai mainland have the freedom to choose the appropriate location for their business as per their requirements, which might not be available in freezone jurisdictions.
  • Investors who are planning to start businesses in the UAE within a short span of time can choose Dubai mainland as the duration required for setting up the business is shorter, and the procedure is also very simple as compared to that of the free zone, which required multiple documents and compliance requirements.
  • Businesses with a greater vision of taking their business to an international level can choose the UAE or Dubai mainland, as it provides a wider exposure to businesses in international markets whereas it is confined to freezone jurisdictions.

Advantages of setting up a business in free-zones

There are around 45 free zones in the UAE, which provides multiple opportunities for businesses from different sectors who can start their businesses at varying costs. There are various advantages that businesses can enjoy in free zones, including the following:

  • Investors who are planning to start businesses in the UAE at a very low cost can approach the different freezones as per their requirements and set up their businesses as the cost is lower as compared to that of the mainland.
  • Investors who are dedicated to providing quality goods and services to a small portion of the market can set their businesses in free zones, as companies can only trade within the free zones.
  • The SMEs who don’t have much finance to start their businesses can approach the freezone locations as they can enjoy multiple tax benefits, exemptions from financial audits, etc., which are not available in the UAE Dubai mainland.
  • Investors who are planning to start a labour-intensive business can confidently set up shop in the free zones, as they can smooth labour recruitment opportunities here.
  • Foreign investors can get easy access to free zones, and they can get 100% foreign ownership along with the facility to repatriate 100% of their capital and profit without any restrictions.

Bottom Line

Based on the given differences, you can easily distinguish the right jurisdiction according to the scope of business, type of customer, and preferences. Identifying the objectives and the long-term goals of your business is necessary while selecting the location and jurisdiction for starting the business. Hiring professional business set-up consultants in Dubai can turn out to be the best option, as your business can get proper insights into the advantages of starting a business in a free zone or on the mainland.

CDA as your business setup consultant

Whether you decide between the mainland or free zone to start your business or to get all the documents sorted and approved by the authorities for setting up a business, CDA can provide you with the perfect business set-up solutions as per your requirements. CDA has been one of the most trusted business set-up service providers, known for its professional services. Our team of experts can help you with hassle-free business setup procedures and assistance in the compliance framework.

To avail the best business setup services, approach our team now!