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17 December, 2019

Business Setup and Company Formation in Dubai – Mainland or Free zone?

Prior to taking a decision, the pertinent questions you’ll ask yourself as an entrepreneur or business owner is: What is the difference between mainland and free zone companies? What are the pros and cons while deciding on a suitable business structure in UAE? This is in brief what company formation is all about, the different types, advantages, and considerations:

Mainland Company Formation

A mainland company also called as an onshore or local company, is legal entity registered under the Dubai Economic Department (DED) and governed by the UAE commercial company, that allows you to freely operate throughout the Emirate with no territorial restrictions, however having an Emirati partner or agent, individual or corporate, holding at least 51% of the total equity is mandatory to operate inside Dubai and other Emirates in UAE.

Mainland License categories:
– Professional license- for service provider companies
– Industrial license- for manufacturing enterprises and industrial companies.
– Commercial license- for businesses involving trading or retail activities

Mainland Company types recognized in Dubai
– Sole Establishment Dubai- a business owned by an individual, not a company.
• Limited Liability Company Formation Dubai- an enterprise that mixes elements of partnership and corporate structures
• Branch of Foreign Company Formation Dubai- carrying out professional activities additional to some commercial and industrial activities.
• Representative Office- not a business structure in its own right but it is a business activity that a branch can conduct. It requires a Local Service Agent (LSA), UAE National individual or a company owned by at least one UAE Nationals.
• Civil Company- a business partnership for professionals such as doctors, lawyers, engineers and accountants.

Mainland versus free zone
Prior to taking a decision, here is the pertinent question for any business owner: What is the difference between mainland and free zone companies? What are the pros and cons while deciding on the suitable business structure in UAE?

The bellow table seeks to shed light on the appropriate legal form of business you would be looking for:
Business Activities Territorial restrictions:
ML: The geographical area of doing business on mainland license is unlimited. You will be free to do business in local, neighboring countries of the Arabian Gulf (GCC) and international markets, including free zones, with commercial or professional licenses, and applicable for most business activities, except those that require external approvals from local or federal governments.
FZ: Business activities are limited to the ones permissible and registered within the same free zone. A local agent, individual or company, is mandatory to engage in any business out of the Free Zone, inside or outside the UAE.

Clients:
Mainland Company Formation: When engaging with government classified clients, you should refer to the mainland’s jurisdiction
Free Zone Company Formation: Within UAE, you will be able to deal directly with clients registered among the same free zone.

Visa requirements:
Mainland Company Formation: When engaging with government classified clients, you should refer to the mainland’s jurisdiction: You will be eligible for an E-quota (electronic quota), issued by MOHRE, showing your visas entitlement, that can be increased if needed, not limited to the office space being owned or leased in the mainland.

Free Zone Company Formation: Number of visas depend on the office space, owned or leased in the free zone. Smart office package offers up to 6 visas, depending on the license and the free zone. A physical office or warehouse has to be leased out of the free zone to avail of more visas.

License Costs:
Mainland Company Formation: When engaging with government classified clients, you should refer to the mainland’s jurisdiction: You will require an office space of a minimum 200 sq ft, to be owned or leased on annual basis, through “Ejari”- a Certificate issued from the land department that makes your annual tenancy contract, legal and presentable to Department of Economic Development (DED) for the issuance of your mainland license. This is what makes this option costly.

Free Zone Company Formation: You will be saving on initial costs of registration as license fees are lower, besides no physical office is required. Free zone authorities allow the licensees to use flexi desks/smart offices, common business center desks for limited hours per week.

Ownership:
Mainland Company Formation in Dubai: When engaging with government classified clients, you should refer to the mainland’s jurisdiction: According to your business activity, you may require a UAE national agent (individual or company) called local sponsor who acquires 51% of the company shares. You wi’ll own the remaining 49%.
FZ: You will have full ownership of your company

Neither free zone nor mainland setups are ‘better’ than one another; it simply comes down to what the best is fit for your business.

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