The United Arab Emirates stands out globally due to its high standard of living, world-class facilities, and absence of personal income tax. Apart from these wonderful reasons, the country is also well-recognized for its ease of doing business. The government’s business-friendly policies have streamlined the entrepreneurial process.
The UAE is diverse, offering various options for every aspect of business setup in UAE , including its location. There are primarily two types: mainland and tax-free zones. Both are set apart from each other due to their specific set of advantages and disadvantages. Assessing them is necessary to make the right decision.
This comprehensive and informative guide covers all the details regarding both types. Go through it to choose the right location for your business in the United Arab Emirates. Quit all distractions around you and recline in a comfortable space to attentively explore it all.
Key Differences Between Mainland And Tax-Free Zones
| Basis | Mainland | Tax-Free Zone |
| Approvals for registration authority | An approval from Dubai Economy and Tourism (DET), previously referred to as Dubai Economic Department (DED), along with some additional permits is required. | A permit from your chosen authority will be necessary, in addition to approvals from other authorities. |
| Legal Entity Type | Limited partnership company (LLC), public/private joint stock company (LLC-SO), and a branch of an international organization. | Free Zone Establishment (FZE), Free Zone Company (FZCO), and a branch of an international organization. |
| Visa Quota | While opting for this option, you won’t have any restrictions on the number of visas you’ll acquire. However, it is mandatory to increase your office space while applying for additional visas. | While going for this option, you can’t apply for numerous visas. Your limitation would be only six or less. |
| Requirement For Audit | Audit for every account is a must. | As mentioned there are various free zones in the UAE. If an individual wants to enjoy benefits under the corporate tax, then they would be subjected to an audit. Ultimately, it depends on the area chosen and the individual’s personal preference. |
| Setup Timeline | A timeline of a month is necessary for business setup and the physical presence of a stakeholder is a must. | A timeline of one to three weeks is required for setup and physical presence is not necessary. |
| Restrictions For Foreign Ownership | 100% ownership is allowed in most activities. Abiding to the UAE’s federal law no.19 of 2018 on Foreign Direct Investment becomes obligatory. | 100% ownership of foreigners is possible. |
| Minimum Numbers Of Stakeholders | At least 2 stakeholders are required. | Only one can start their entrepreneurship. |
| Least Share Capital | Around AED 150,000 to AED 300,000 is a general amount, depending on the Emirate and specific activity. | Share capital requirements generally differ from AED 50,000 to AED 1,000,000, depending on various factors, like the activity and free zone area. |
| Virtual Or Physical Office | A minimum office space of 200 square feet, along with a personal office address (Virtual office) is necessary for bank account opening. | No minimum square feet is obligatory. However, a personal office address (Virtual/private office) is needed for bank account opening. Particular details depend on the free zone area you’ll choose. |
| Business Operations | Mainland businesses can operate without any restrictions all around the United Arab Emirates. The entrepreneurial proceedings are only permitted through NOC from DET. | FZ businesses can only operate in the free zone areas, or outside the UAE. However, there is an exception for a local distributor. |
| Taxation | The taxable will have to pay the standard application of 5% VAT. 9% corporate tax is also applied to the taxable income from FY24. The estimation is derived from making certain adjustments to the net profit as per Books of Accounts. | The owners will not even have to pay a single dime for taxation if they are classified as qualified free zone persons. Otherwise, they will also have to pay 9% corporate tax. No custom taxes will apply, except when import products are sold to the mainland. |
| Employee Quota | It varies on multiple criteria, including business activities and compliance with all applicable United Arab Emirates labor regulations. | It is allocated depending on the office space. |
| Emiratisation | Employers with 50 or more employees, irrespective of the economic sector, are generally subjected to Emiratisation ratios. According to the new regulations launched on 1 January 2024, businesses with 20 to 49 workers within the top 14 economic sectors will be exposed to Emiratisation requirements. | There are no such requirements in free zones. |
| Wage Protection System | WPS is an electric salary transfer and tracking system that ensures timely and complete payment of mutually agreed salaries. It is currently applicable in all mainland locations. | It applies to selected areas, like JAFZA and DMCC. |
How To Select The Right Location For Your Business? Mainland Vs. Tax-Free Zones
Selecting the right location for your business in the United Arab Emirates depends on your long-term entrepreneurial needs and goals. Nonetheless, here are a few considerations regarding this matter:
- Your Plan Regarding The Business Activity
As you read above, one of the major differences between both options is the freedom of business activities. Companies running on the mainland can conduct more than 2k activities, while most free zone ones have a subset of them. It, too, depends on the area’s specialization.
Investigate the level of entrepreneurial operations allowed in both options and assess your requirements. Choose the one that aligns with your requirements. These two locations allow entrepreneurs to have multiple activities on one business license. Nonetheless, it costs extra to add more than one to a single permit.
- Analyse Your Clientele
Another important factor you need to consider in this matter is your clientele. If you want to sell your products or services to clients throughout the United Arab Emirates, a mainland location is the way to go. On the other hand, if you want to establish your company in the country, while dealing with foreign customers, opt for a free zone land. So, analyze your potential customers and make the decision accordingly.
- The Number Of Visas You Need
Visas matter a lot when you run a company in the United Arab Emirates. Around 80% of the population in the country are expats. This means that most employees, even you, may require a visa. While setting up your company on the mainland, you won’t face any issues regarding the number of visas you secure.
On the other hand, a free zone company will get a quota of 0 to 6 visas per license. The cost will be also higher than its contrary option. If your business is labor-intensive, the mainland location is the best choice.
- Corporate Tax Or Tax Breaks?
Mainland companies pay a 9% corporate tax on profits above AED 375,000 annually. However, it is valid for ventures that generate an annual turnover of over 1 million AED. In contrast, the other location type doesn’t charge any corporate tax. So, will you go for a corporate tax area or a location with taxation breaks? The choice is entirely up to you, but choose wisely.
- Value Added Tax (VAT)
Both location types have to pay around 5% VAT on their services. However, companies within certain free zones enjoy 0% VAT, such as Jabel Ali FZ. It primarily entertains businesses involved in the export or import of goods. Note that the VAT registration threshold in the United Arab Emirates is around AED 375,000, while the voluntary threshold registration is about AED 187,500.
Final Verdict
Choosing between a mainland location and a tax-free zone in the UAE depends on your business goals and operational needs.
Mainland offers greater flexibility for entrepreneurial activities and market access across the UAE. It doesn’t have restrictions on the number of visas but comes with higher capital requirements and a 9% corporate tax on profits over AED 375,000. It’s ideal for companies needing broad local engagement or a larger workforce.
Tax-free zones provide 100% foreign ownership and tax exemptions but limitations on operational activities and visa quotas. They are suited for ventures focusing on international trade or requiring a quicker, lower-cost setup with fewer local operations.
Evaluate your business’s activity, market reach, and financial priorities to select the option that best aligns with your long-term objectives.