Opening a business in Dubai presents an exciting and nerve-racking opportunity, yet careful preparation and decision-making before registration will make a difference. One of the most critical choices will be what platform to register your business under, as either a Free Zone commercial concern or with a Mainland license. Each offers a set of pros but caters to different business types and purposes.

When setting up your business in Dubai for the first time, sometimes the best approach is to get expert advice from business setup consultants like DASA, who can guide you through the decision-making stages.

Key Differences Between Free Zone and Mainland Licenses

Here, we explain the differences to help you decide how to register a company in Dubai that aligns with your goals.

Ownership Structure

Freezone

The primary benefit of setting up a company in one of the Dubai Free Zones is the ability to have 100% ownership. This means that you will not need a local partner or sponsor, and many foreign investors find this invaluable as it means you are in control of your business at all times. Without consulting with a local partner before making critical decisions, an entrepreneur can make quick and accurate decisions whenever you want.

Mainland

Mainland companies – at least historically – required the business to have a local sponsor with 51% ownership. This left foreign investors with only 49%, which was a considerable drawback for companies who otherwise would have considered operating on the Mainland. Requirements have since changed, and in some industries, you can acquire a Mainland license without a local sponsor. However, the types of business disciplines and industries this applies vary greatly, so ensure you get the correct information relevant to your sector.

Geographical Restrictions

Freezone

Free Zones are created to help attract businesses mainly involved in international trade. A Free Zone-registered company can freely trade products or services with other businesses registered in the same Free Zone and internationally. Still, they cannot offer products or services to customers in the local UAE market.

If you want to sell your products or services directly to clients within the UAE but outside the Free Zone, you will have to deal with the services of a local supplier, distributor or agent. This setup is best if your business is product-oriented and you cannot fulfil your demands without affecting Federal Law and Dubai Law regulations, which would be more favourable.

Mainland

As mentioned, Mainland businesses can be set up anywhere in Dubai and the UAE. In contrast, businesses are required to go through a different set of processes in each state. They can trade with clients or other companies in the same city and throughout the country. This is beneficial if you only want to work and service the local market.

Retail outlets, most restaurants, and service-based businesses cannot survive and work until and unless they target the local market only. Additionally, they can set up their business at any location and open shops, offices, or branches as and when required.

Taxation and Customs Duties

Freezone

One of the main reasons many businesses choose to set up a Free Zone is the tax benefits. Most companies in a Free Zone are exempt from corporate and personal income taxes, meaning they are a cheaper option. Additionally, many companies can import and export goods without paying customs duties when operating within a free zone. Naturally, this will benefit any trading company, and it should be considered when choosing between the two as it can help minimize operating costs.

Mainland

Standard regulations are followed for mainland business and taxes, including VAT tax. While some businesses may not have to pay corporate taxes, you must factor in the VAT cost for goods or services sold in the local market. This could result in higher taxes for some businesses than if they had to pay corporate taxes. Yet, the freedom to operate and trade anywhere in the UAE is a good reason to opt for a Mainland license.

Business Activities and Industry Sectors

Industries Suited for Free Zones

Some Free Zones cater to particular businesses, and each zone is dedicated to a specific type of activity. There are different pulls to each Free Zone and sometimes perks with these. Businesses in trading, consulting, IT, media, and manufacturing will thrive in a Free Zone because of the relaxed regulations, tax benefits, and the lack of reliance on direct contact with the customer.

Few Examples:

• Information Technology (IT)
• Media and Advertising
• E-commerce and Online Retail
• Logistics and Shipping
• Manufacturing and Assembly
• Trading and Import/Export
• Consulting Services
• Financial Services (e.g., investment firms, asset management)
• Education and Training Institutes
• Healthcare and Medical Equipment Trading
• Aviation and Aerospace Services
• Renewable Energy and Green Technology
• Jewelry and Precious Metals Trading
• Events and Exhibition Services
• Creative Arts and Design Studios (e.g., film, photography, graphic design)

Industries Suited for Mainland Licenses

On the other hand, a Mainland license is more suited to your needs if your business needs to be in direct contact with the local UAE market or if your business is spread out over different locations within the UAE. In particular, food and beverage industries, retail, construction and healthcare. On the contrary, with either licence type, to be able to bid for government contracts, companies should be formed in the Mainland to be eligible. A mainland licence may be more beneficial if you require a physical presence in the local market or have local suppliers and customers.

Few Examples:

• Retail Shops (clothing, electronics, groceries, etc.)
• Food and Beverage (restaurants, cafes, catering)
• Construction and Real Estate Development
• Hospitality (hotels, resorts, tourism services)
• Healthcare Services (hospitals, clinics, pharmacies)
• Transportation Services (taxis, delivery, car rentals)
• Educational Institutions (schools, daycare, tutoring centers)
• Beauty and Personal Care (salons, spas, cosmetic clinics)
• Fitness Centers and Gyms
• Automobile Services (dealerships, repair shops, rentals)
• Event Management and Planning Services
• Wholesale and Distribution (goods sold to local businesses)
• Cleaning and Maintenance Services
• Professional Services (law firms, accounting firms, consultancy)
• Recruitment and Staffing Agencies

Factors to Consider

Deciding between a Free Zone and a Mainland license depends on several factors. Here’s what you need to consider:

Nature of Business Activity

Your intended activities should be the main reason you decide on a licence type. Would you like to open a retail store or restaurant and sell items to local customers? If so, then a mainland licence is the best option. If you would rather be in an export business and would not necessarily deal with local customers, a Free Zone setup, in theory, would be a better choice.

Target Market

Following the first point, you must decide your desired target market. If you are mainly serving international customers and/or focussing on a larger extent on exports, then a Free Zone licence should be considered. But if you are targeting your services and operations more at a local Emirates level, then a Mainland licence may bring the freedom you need to operate anywhere in the UAE.

Ownership Preferences

If you are an activist of full company control, then a Free Zone is also your best chance. Free Zones generally offer 100% ownership structures, while on the Mainland, in most fields, you have to have a local partner or sponsor unless conditions are agreed upon for change. However, always verify conditions that might apply to your firm online.

Budget and Costs

Set-up and formation costs must also be high for the business. Compare and see which one is most effective for you. If you are on a tight budget and staying in the beginning phase, choose an appropriate Free Zone that does not require 3 years of residency and lease for your dedication at the beginning and then, over time, transfer it. Mainland also has additional costs, such as rent. Make a budget estimate by specifying all costs.

Future Expansion Plans

If you plan to set up your business in different areas of the UAE or open multiple branches, a Mainland license will give you this freedom. Free Zones may be great for companies looking to operate in a specialized, targeted manner, but staying in a single Free Zone and not being able to expand your operations throughout the city may be cumbersome, especially if you look at the big picture.

Quick Summary

Conclusion

When choosing between a Free Zone and a Mainland license in Dubai, remember that your business’s growth and operations will be affected.

Free Zones and Mainland licenses cater to companies differently, with pros and cons of their own. Free Zones are for those that cater to international trade, enjoying tax advantages and lower costs when it comes to setting up a business, and, of course, one can enjoy full ownership of their business.

Mainland licenses, however, come in handy for companies that wish to operate directly from the UAE via several buildings and main roads across the country and even engage in government contracts.

Understand the nature of your business, target audience and future to decide which license type would work for you. Identify the benefits and cons of the respective zones, and most importantly, if you have a business model that’s tricky to pick, reach out to professional company setup consultants in Dubai who can give you tailored advice. After all, making the right decision today can help your business set up the right way and eventually make your business stand out and beat the Dubai competition.