Every day, we come across one common inquiry by many entrepreneurs who are interested to invest in UAE Market as part of their global expansion i.e. “what is the difference between a Free Zone Establishment and a Mainland Company?”
This article will give you the most basic but major differences between Mainland and Free Zone Jurisdictions within UAE.
Let us explain the Mainland Company and Free Zone Establishment here.
Mainland Company:
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
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 government has posed a limitation for trading in local market through a distributor and by paying 5% duty on the local market invoices. Major comparisons 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 with in the same free zone or outside UAE. It is usually for the entrepreneurs who wish to setup 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 having 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 company chooses to use a distributor, the goods should be shipped in through the distributor itself. Otherwise, 5% duty is applicable for any goods coming out of the free zone. Restriction usually applies to the commercial licenses bringing in 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 |
| 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% shares are held by a UAE National and 49% shares go to the expat Partner. In professional license: 100% shares are held by expat 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 expat partner is the whole and sole for business operations with no input from the Local Partner/Service Agent unless agreed. |
As compared with Mainland, Free Zone license is 100% owned by the expat 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 issuance of the license. | Unlike Mainland, free zone license can be incorporated with or without physical office. Free zone Authorities allows the licensees to use the common business center desks for minimum of 5 hrs/week. It gives the security to the new market entrants to save on initial costs of registration. This facility of “plug in and go” business desks are 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 mainland by Ministry of Labor which shows their visas 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 more 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 more number of 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 license, DHA (Dubai Health Authority) for all medical related licenses, FOOD Department of Municipality for all food related license, Civil defense, Real Estate Regulation Authority etc. |
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 the 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 setup in the right jurisdiction. Right advice from the 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 detail discussion please contact 04-4542366 or email him
ali (at) flyingcolour (dot) com
This post first appeared on Business Setup Services Blog, Dubai, UAE | Flying, please read the originial post: here
