Free Zone vs Mainland Company Setup in the UAE: Key Differences

When starting a business in the UAE, one of the most important decisions you'll make is whether to establish your company in the Mainland (onshore) or in a Free Zone. Each jurisdiction offers unique benefits, regulatory frameworks and operational scopes and choosing the right one depends on your business goals, target market and licensing needs.

Below is a comparative overview to help guide your decision:

1. Ownership Structure

• Mainland

• Historically required a UAE national sponsor for LLCs (51% local ownership), but many activities now allow 100% foreign ownership (subject to activity and emirate-specific rules)

• Certain regulated sectors still require Emirati participation

• Free Zone

• Allows 100% foreign ownership from day one - no local sponsor required

2. Business Scope

• Mainland

• Can trade directly within the UAE market, including with individuals, companies and government entities

• Eligible to bid for government contracts and open offices anywhere in the UAE

• Free Zone

• Can operate within the free zone and internationally

• Must appoint a local distributor or agent to conduct business in the mainland UAE

3. Office Requirements

• Mainland

• Physical office lease (Ejari) is mandatory

• Office size must meet activity and visa quota requirements

• Free Zone

• Offers flexible office options like shared desks, virtual offices, and warehouses

• Ideal for startups and small businesses looking to minimise overheads

4. Regulatory Authority

• Mainland

• Regulated by the Department of Economic Development (DED) of the respective emirate

• Free Zone

• Regulated by the individual free zone authority, each with its own rules and business activity lists

5. Visa Allocation

• Mainland

• Visa quota typically based on office size and activity

• Access to larger visa quotas and labour approvals

• Free Zone

• Fixed visa quota depending on office package (e.g., flexi-desk may allow 1–3 visas)

• Can be increased with larger office leases

6. Cost & Setup Time

• Mainland

• Often involves higher setup and ongoing costs, including Ejari registration and potential government approvals

• Setup can take longer, depending on complexity and external approvals

• Free Zone

• Typically offers faster and more cost-effective setup options with simplified procedures

• Bundled packages for SMEs and startups

7. Audit & Compliance Requirements

• Mainland

• Annual audit may be mandatory (especially for LLCs and certain regulated activities)

• Must comply with UAE's corporate tax, ESR, UBO and VAT laws

• Free Zone

• Some free zones require annual audits, while others do not.

• Corporate tax and ESR rules apply based on activity and revenue.

8. Corporate Tax Implications (as of 2025)

• Mainland

• Subject to 9% corporate tax if profits exceed AED 375,000

• Free zone entities with mainland income are also taxable

• Free Zone

• Qualifying free zone persons may enjoy a 0% corporate tax rate if they meet specific substance and income criteria

• Income from non-qualifying sources (e.g., mainland activities) is taxed at 9%

Conclusion

Both Mainland and Free Zone setups offer strategic advantages depending on your business model. The key is to align your choice with your operational needs, target customers and regulatory compliance requirements.

At MENA Consultancy, we help you assess your options and guide you through a seamless setup process tailored to your goals. Get in touch today to determine the most suitable jurisdiction for your UAE business.