Mainland Company vs Free Zone Company in UAE

The Difference Between Mainland And Freezone Companies In The UAE

Every day, we come across one common inquiry by many entrepreneurs who are interested to invest in the UAE Market as part of their global expansion: “What is the difference between mainland and free zone companies?”

This article will give you the most basic but major differences between LLC & Freezone establishments in the UAE.

Let us explain what a Mainland Company and a Free Zone Establishment are here.

Mainland Company:

A mainland company is an onshore company 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 UAE without any restriction.

Free Zone Company

A free zone establishment is incorporated within a designated jurisdiction of the emirate where the company is allowed to do business inside the same free zone or outside UAE. For commercial licenses and trading of physical goods, the company cannot do local business directly because the government has posed a limitation for trading in the local market through a distributor and by paying a 5% duty on the local market invoices. Major comparison details are given below.

1. Scope of Business

Mainland Company

Free Zone Company

It can freely do business in the local market, any free zone or outside UAE. It applies to all commercial or professional licenses.

It can do business within the same free zone or outside UAE. It is usually for entrepreneurs who wish to set up a base in UAE (tax optimization) for their international imports/re-exports. The restriction of local business through a distributor is mainly to differentiate the business in the local market by onshore company and free zone licenses used for imports and exports. The distributor has a Mainland license can act as your agent and charge a certain fee which is lesser than the 5% duty applicable on free zone invoices if they trade directly into the local market. In case the company chooses to use a distributor, the goods should be shipped in through the distributor itself. Otherwise, a 5% duty is applicable for any goods coming out of the free zone. Restriction usually applies to commercial licenses bringing physical goods outside of a particular free zone into the local market. Professional licenses can still have the liberty of providing the services without much hassle to the local market. Marketing through Printed Media and Door to Door sales becomes limited with a free zone license.

2. Ownership Structure

Mainland Company

Free Zone Company

The presence of a UAE National is mandatory in all mainland licenses either as a Local Partner or a Local Service Agent. Commercial License: LLC Structure In commercial Licenses: 51% of shares are held by a UAE National and 49% of shares go to the ex-pat Partner. In professional license: 100% shares are held by ex-pat partner and one UAE National is appointed as a Local Service Agent. Note: Local Partner/service agent is responsible for signing all government applications while the ex-pat partner is the whole and sole for business operations with no input from the Local Partner/Service Agent unless agreed.

As compared with Mainland, the Free Zone license is 100% owned by the ex-pat partner. There is no need for UAE National partner/service agent in the license

3. Office Space

Mainland Company	Free Zone Company
For every mainland license, there is a minimum requirement of 200 sq ft to be leased out on annual basis. Only then the Department of Economic Development (DED) will issue the license. Ejari Certificate issued from the land department makes the annual tenancy contract, legal and presentable in DED for the issuance of the license.	Unlike Mainland, free zone licenses can be incorporated with or without a physical office. Free zone Authorities allow the licensees to use the common business centre desks for a minimum of 5 hrs/per week. It gives security to the new market entrants to save on the initial costs of registration. This facility of “plug in and go” business desks is also referred to as Flexi Desks/Smart offices.

4. Visas Facility

Mainland Company

Free Zone Company

There is no limitation of visas on the mainland license, An E-quota (electronic quota) is issued to every company in the mainland by the Ministry of Labor which shows their visa eligibility and it can be increased if the company require more staff. Eligibility for visas depends on the office space. The more office space you have, the higher number of visas you may get. Outdoor sales staff/PRO and driver/messenger visas do not fall under this condition.

Usually, every Free Zone license offers 2 visas on the smart office package. However, different free zones in UAE allow 3 – 6 visas on the smart office package. If any entrepreneur requires more visas then a physical office/warehouse has to be leased out to avail of more visas.

5. Approvals from Government Authorities

Mainland Company

Free Zone Company

A mainland license does require standard government approvals per license. E.g. DED (Department of Economic Development), DM(Dubai Municipality), Ministry of Labor (MOL), Department for Naturalization and Residency affairs of Ministry of interiors or Immigration (MOI). Some external government authorities approvals are required for particular business activities i.e. KHDA (Knowledge and Human Development Authority) for all Education related licenses, DHA (Dubai Health Authority) for all medical-related licenses, FOOD Department of Municipality for all food-related licenses, Civil defence, Real Estate Regulation Authority etc.

The main purpose of having a free zone establishment is for imports and re-exports and Free Zone authorities usually do not need approvals from external authorities for license issuance unless and until there are special activities which require external authorities' approval.

For all new entrepreneurs, it is always necessary to seek advice from their Business Consultants in order to choose the best trade/professional license and that license to be set up in the right jurisdiction. The right advice from experienced minds always serves the business needs in the long term.

This blog is written by Mr Ali Usman Senior Business Consultant in Flyingcolour business setup services. For a detailed discussion about mainland company formation and Dubai Freezone company setup please contact 04-4542366 or email him ali (at) flyingcolour (dot) com

The Difference Between Mainland And Freezone Companies In The UAE

Mainland Company:

Free Zone Company

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