Difference Between Mainland and Freezone UAE: License, Visa, Cost – 2024 Guide
The UAE is a prime destination for entrepreneurs and businesses looking to establish a presence in the Middle East. Known for its favorable business environment and strategic location, the UAE offers two primary options for company formation: mainland and freezone. Each has its unique benefits and limitations, making it essential to understand the differences to choose the best fit for your business needs.
Table of Contents
- Mainland Company: An Overview
- Freezone Company: An Overview
- Key Differences Between Mainland and Freezone Companies
1.Ownership
2.Office Space Requirements
3.Business Scope
4.Auditing Requirements
5.Minimum Capital Requirements
6.Regulatory Authorities
7.Cost of Establishing t Company
8.Workspace Requirements
9.Visa Allocation
10.Taxation
11.Customs and Import/Export
12.Value-Added Tax (VAT)
13.Market Access and Clientele
14.Government Contracts
15.Expansion and Branches
16.Licensing
4.Conclusion
Mainland Company: An Overview
A mainland company in the UAE is registered under the Economic Department of the emirate where it operates. Unlike freezone entities, mainland companies can conduct business across the entire UAE and beyond, without geographical restrictions. Here are the key benefits:
- Unrestricted Market Access: Operate anywhere in the UAE and undertake government projects.
- No Personal Income Tax: Benefit from a tax-free environment on personal income.
- Full Profit Repatriation: Return all profits and capital to the investor’s home country.
- Unlimited Visa Issuance: Expand your workforce without restrictions on the number of visas.
- Flexible Office Locations: Choose office locations within the emirate and open multiple branches.
- Global Market Access: Engage with international markets without limitations.
Freezone Company: An Overview
A freezone company is established within one of the UAE’s special economic zones, each catering to specific industries. Freezone companies benefit from a range of advantages:
- 100% Foreign Ownership: No need for a UAE national sponsor.
- Efficient Setup Process: Streamlined procedures for company formation.
- Full Repatriation of Capital and Profits: Enjoy complete freedom with your financial resources.
- Exemption from Import/Export Duties: Benefit from tax-free import and export operations.
- Confidential Shareholder Information: Shareholder details remain confidential.
- Simplified Recruitment: Easier recruitment processes within the free zone.
- Business Advisory Services: Access to support and networking opportunities.
Key Differences Between Mainland and Freezone Companies
1.Ownership
Mainland: Previously required a local Emirati sponsor for at least 51% ownership. Recent amendments allow 100% foreign ownership in many sectors, though some restrictions still apply.
Freezone: Foreign investors can own 100% of the business without needing a local sponsor.
2.Office Space Requirements
Mainland: Must secure a physical office space, with a minimum requirement based on business license type.
Freezone: Offers flexibility, including virtual offices or shared workspaces.
3.Business Scope
Mainland: Can operate across all UAE emirates and engage in government contracts.
Freezone: Restricted to operating within the free zone and international markets; requires a local agent for mainland operations.
4.Auditing Requirements
Mainland: Mandatory annual audit by an independent auditor following International Financial Reporting Standards (IFRS).
Freezone: Audit requirements vary; not uniformly enforced across all free zones.
5.Minimum Capital Requirements
Mainland: Determined by the nature and scope of business activities, varying by emirate.
Freezone: Dictated by the specific free zone authority, with requirements varying from zone to zone.
6.Regulatory Authorities
Mainland: Regulated by the Department of Economic Development (DED) of the respective emirate.
Freezone: Governed by the specific Free Zone Authority (FZA).
7.Cost of Establishing the Company
Mainland: Involves costs for physical office space, leasing, utilities, and fit-out expenses. Setup can start from AED 25,999, depending on various factors.
Freezone: Often more economical with flexible office solutions; initial and ongoing costs can be lower.
8.Workspace Requirements
Mainland: Requires a minimum of 200 square feet of physical office space.
Freezone: Offers virtual office options or flexi-desks, reducing overhead costs.
9.Visa Allocation
Mainland: No inherent visa restrictions; the number of visas is linked to office size.
Freezone: Visa quotas vary by free zone authority, often ranging from one to six visas.
10.Taxation
Mainland: Subject to a 9% corporate tax on profits exceeding AED 375,000. No personal income tax.
Freezone: Exempt from corporate and personal income taxes; certain zones may offer 0% VAT benefits under specific conditions.
11.Customs and Import/Export
Mainland: Subject to customs duties on imports.
Freezone: Generally exempt from customs duties on imports and exports within the free zone.
12.Value-Added Tax (VAT)
Mainland: Standard 5% VAT applies.
Freezone: Typically 5% VAT, with some zones offering 0% VAT benefits.
13.Market Access and Clientele
Mainland: Direct access to the UAE market.
Freezone: Focuses mainly on international markets; limited local market access without a local distributor.
14.Government Contracts
Mainland: Eligible to bid for government contracts.
Freezone: Typically not eligible unless operating through a mainland branch.
15.Expansion and Branches
Mainland: Easier to open branches across the UAE.
Freezone: Requires additional setup or partnership for expansion outside the free zone.
16.Licensing
Mainland: Requires a business license issued by the Department of Economic Development (DED), which can be specific to the type of business activity.
Freezone: Requires a license from the Free Zone Authority (FZA) tailored to the free zone’s business activity categories. Licensing is usually more streamlined but limited to the free zone’s jurisdiction.
Choosing between a mainland and a freezone company in the UAE depends on your business goals. Mainland companies offer broader market access and flexibility, ideal for those aiming for a strong local presence. Freezone companies are suited for those focusing on international trade, with advantages like 100% foreign ownership and tax exemptions. Recent legal changes have made mainland ownership more attractive, but the decision should align with your specific business needs.
At Raes Associates, we specialize in guiding businesses through the complexities of UAE company formation. Whether you’re considering a mainland or freezone setup, our experts provide tailored advice and support to help you navigate the process smoothly. Contact us to learn more about how we can assist with your business setup in the UAE.
