The first thing to consider before registering a company in Dubai or in any other emirate of UAE is whether you should incorporate a company in the Mainland or in the Freezone. In some cases, Freezone companies are considered to be better than Mainland Companies while in other cases, Mainland companies are considered better than Freezone companies.
Therefore, the decision to register a company in a Freezone or in Mainland depends on a case to case basis and the following are the 7 Most Important Practical Differences to be considered before opting for either a company in the Mainland or in the Freezone.
These differences are not only applicable in Dubai but in all the 7 emirates of UAE i.e. Abu Dhabi, Dubai, Ras Al Khaimah, Sharjah, Um Al Quain, Fujairah and Ajman. Irrespective of whether a company is located in Freezone or Mainland or in any of the above mentioned emirates – the bank account can be opened anywhere across UAE. Even if a company is registered in one emirate, the bank account can be opened in a bank located in some other emirate as well.
7 Important Practical Differences between Mainland vs Freezone Dubai
- Corporate Tax Rates
One of the most important thing to be checked before registering a company either in the mainland or in Freezone in Dubai are the Tax Rates. From 1st June 2023 – Companies located in the Mainland will have to pay Corporate Tax @ 9% on their profits above the threshold of AED 375,000 p.a. However, No Tax would be levied on companies which are located in the Freezone.
Thus, if you intent to avail of Corporate Tax exemption – you should register in the Freezone and not in Mainland Dubai as Freezone Companies are exempted from payment of Corporate Tax for a period of 50 Years.
As 9% Corporate Tax is applicable in all the emirates of UAE (incl. Dubai), a lot of companies have started shifting from Mainland to Freezone (wherever possible)
- Recommended Read: How to set-up a Freezone Company in Dubai
2. Type of Clients
Companies located in the Mainland can easily deal with both International as well as Domestic Clients whereas the same is not the case with a company located in Freezone in Dubai.
A company located in freezone in Dubai can easily deal with International Clients but there are certain restrictions when a company located in Freezone is dealing with a company located in the Mainland.
In some cases, a freezone company can deal with Mainland Company whereas in the other they may not be able to deal with Mainland Company.
International Business owners normally prefer to incorporate a company in a freezone only unless and until the client has a mandate that they will deal only with companies in mainland. Yes, sometimes the client (especially Govt clients) insist that they will deal only with a company which is located in the Mainland. So if the client insists – then international business owners incorporate a company in the mainland but if they location of the company is immaterial to the client or in case you have International clients – then business owners normally prefer to register a company in a freezone.
3. Office Space
It is mandatory for Mainland companies to have an office space of minimum 200 sq ft and they cannot register on a virtual space. The office space may be located anywhere but having an office space is mandatory.
On the other hand, it is not mandatory for Freezone companies to have an office space. A company located in the freezone can operate through a virtual office space as well. Most business owners prefer to register a company in a virtual office space as it saves cost.
4. Approving Authority
The license for a mainland company is issued by Department of Economic Development (DED) which is a Govt organization and the laws are the same irrespective of the fact where inside in Mainland is the company located.
On the other hand, the license in case of the Freezone company is issued by the freezone in which the company is registered. Different freezones have different set of laws and some freezones are more stringent whereas the others are relaxed in terms of laws and compliances.
5. Time taken to Set-up
Freezone companies are quick to incorporate as the freezone authorities are themselves allowed to issue licenses. Setting up a company in Mainland may take additional time in getting approvals from the Department of Economic Development.
6. Foreign Business Ownership
All types of freezone companies can be 100% owned by Non-UAE Nationals whereas in case of Mainland – some companies may have 100% shareholding with Non-UAE Nationals while others still require a local UAE National who holds 51% of the company while the Non-UAE National holds 49%.
7. VISA Restrictions
Mainland companies are allowed to issue VISA depending on the office space which they have. The more the office space – the more are the number of VISA which can be issued.
Unlike Freezone companies, there are some restrictions on the number of VISA which they can apply for. Typically, the number of VISA which can be applied for varies from freezone to freezone and is normally in the range of 1 to 6.
Other Important Points regarding Mainland and Freezone Companies
- Shifting a company from a Mainland to a Freezone is not allowed under any circumstances. The only possible solution in such cases is to shut down the Mainland company and separately start a freezone company. Some entrepreneurs set-up a company in both Mainland as well as freezones to take the benefits of both.
- No Customs Duty is levied if Goods are imported by companies located in Freezones. However, Customs Duty gets applicable when goods are imported by companies located in Mainland.
- There are more than 40 freezones in UAE so proper care should be exercised while shortlisting a freezone. There are some freezones which cater to a specific industry like the Dubai Internet City and there are some freezones which cater to all industries like Dubai Multi-Commodities Exchange (DMCC). Some freezones like centrally located whereas some freezones may be at a distance from the city. The license fees charged by the freezone also varies from freezone to freezone based on these factors.