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UAE Business Setup: Free Zone vs. Mainland – Which is Right for You? (2025 Guide)

  • By raes
  • January 24, 2025

Starting a business in the UAE offers excellent opportunities, but one of the key decisions you need to make is whether to set up your business in a free zone or as a mainland company. In this guide, we’ll explore the characteristics, advantages, and disadvantages of both options to help you choose the right structure for your business in 2025.

What is a Free Zone Company?

A Free Zone company in the UAE is a business entity established within one of the country’s designated economic zones. These zones cater to various industries and offer specific regulatory frameworks that are distinct from those of the mainland. Free zones are designed to promote trade and international business by offering tax incentives, simplified business processes, and full ownership for foreign investors.

Key Features of Free Zone Companies

  • Free zone companies allow foreign investors to own 100% of their business without the need for a local sponsor.
  • Free zones typically offer a streamlined and efficient process for business setup.
  • Free zone companies often enjoy exemptions from corporate tax and import/export duties.
  • Free zone businesses are free to repatriate capital and profits without restrictions.
  • Free zones are often designed to cater to specific industries, making them an ideal choice for businesses in niche sectors.
  • Free zone companies can generally only operate within the free zone or export their products.

For more insights into setting up a free zone company, visit our Business Setup Services

What is a Mainland Company?

A Mainland company in the UAE is a business that is registered under the Department of Economic Development (DED) in the respective emirate. Unlike free zone companies, mainland businesses are not restricted to a specific geographical area and can operate anywhere within the UAE and internationally.

Key Features of Mainland Companies:

  • Mainland companies are free to conduct business across the UAE and beyond, without any geographic restrictions.
  • In certain sectors, a local sponsor (UAE national) may be required to hold 51% of the business, though recent regulatory changes allow 100% foreign ownership in some sectors.
  • Mainland companies can bid for government contracts and participate in public sector projects.
  • Mainland businesses can directly trade with customers across the UAE, without the need for a third-party distributor.
  • Mainland companies have no restrictions on the number of visas they can issue, as long as they meet office space requirements.

Need assistance with mainland business registration? Check out our Mainland Company Setup service

Free Zone vs. Mainland: A Detailed Comparison

Here’s a detailed comparison between free zone and mainland companies based on various factors:

Feature

Free Zone Company

Mainland Company

Ownership

100% foreign ownership

51% local sponsor (except in some sectors)

Market Access

Limited to the free zone or international

Unlimited access across UAE and international

Government Contracts

Not eligible for government contracts

Eligible for government contracts

Office Space

Flexible (e.g., virtual offices)

Physical office required (200 sq. ft. minimum)

Visa Allocation

Limited based on office space size

Unlimited, based on office space and business activity

Capital Requirements

Varies by free zone

Varies by business type and location

Business Activities

Restricted to certain activities in the free zone

No restrictions; can operate across all sectors

Taxation

Tax exemptions, including corporate tax

Corporate tax on profits over AED 375,000

Customs Duties

Exempt from customs duties within the zone

Subject to customs duties

For more tax-related queries, visit our Corporate Tax Services

Advantages and Disadvantages of Free Zone Companies

Advantages

✅ 100% foreign ownership without a local sponsor.
✅ Tax exemptions on corporate profits and import/export duties.
✅ Quick business registration with minimal paperwork.
✅ Industry-specific zones that provide tailored infrastructure.

Disadvantages

❌ Restricted market access within the UAE unless through a local distributor.
❌ Not eligible to bid for government projects.
❌ Visa allocation is limited based on office space.

Looking for a UAE Free Zone setup? Learn more on our Free Zone Company Setup .


Advantages and Disadvantages of Mainland Companies

Advantages

✅ Ability to trade anywhere in the UAE and internationally.
✅ Eligibility to bid for government projects.
✅ No restrictions on business activities.
✅ No minimum capital requirements (except in certain sectors).

Disadvantages

❌ May require a local Emirati sponsor (except in sectors allowing 100% ownership).
❌ Higher setup costs due to mandatory office space requirements.
❌ Subject to corporate tax on profits exceeding AED 375,000.

For expert consultation on UAE business structures, visit our UAE Business Setup Advisory

How to Choose the Right Structure for Your Business

Choosing between a free zone and mainland company depends on several factors, such as:

  • If 100% foreign ownership is crucial for you, a free zone may be the best option, unless your sector allows for full foreign ownership in the mainland.
  • If your target market is solely the UAE, a free zone might be suitable. However, if you plan to do business across the entire UAE or with the government, a mainland company is preferable.
  • If your business operates in a specific industry such as tech, media, or healthcare, some free zones offer industry-specific advantages and infrastructure.
  • If you have plans to expand internationally, a mainland company offers greater flexibility.
  • Free zone setups generally have lower costs, especially when considering office space and licensing fees.

Key Considerations for Both Free Zones and Mainland

Regardless of whether you choose a free zone or mainland company, there are some key considerations for both options:

  • Your choice should align with your business activity. Some activities may be restricted to either free zones or mainland.
  • Consider where your target customers are located. Free zones are often strategically located for international trade, while mainland companies can operate anywhere in the UAE.
  • Make sure to fully understand the financial, legal, and tax implications of each option.
  • Consider the initial setup time and costs associated with each option. Free zone setups tend to be faster and more cost-effective.
  • Think about your future business expansion plans. Mainland companies provide greater flexibility if you plan to expand within the UAE or take on government contracts.

For personalized business setup guidance, visit our Business Consultation Service

Choosing the Right Business Setup in the UAE – Your Path to Success

Deciding to start a business in the UAE’s mainland or a free zone depends on your needs. Mainland companies are great for those wanting to do business all over the UAE, offering wide market access. Free zone companies are perfect for those focusing on international trade, offering benefits like 100% foreign ownership and no taxes. Recent changes now allow more foreign ownership in mainland businesses too. Your choice should match your business plan, whether you’re aiming for a local presence or global reach from the UAE.

At Raes Associates, we understand the intricacies of setting up a business in both free zones and mainland locations. We offer expert guidance to ensure your business setup aligns with your goals and helps you thrive in the UAE market. Let us help you navigate the complexities and make the best decision for your future. Reach out today for professional advice tailored to your needs.

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