10 July, 2020
Which is more Lucrative? Mainland or Free Zone Business?
Entrepreneurs already go through difficult and turbulent times trying to convert their need into an idea, and then present it as a lucrative business ready to operate. It is therefore a huge milestone when they successfully complete their company registration process.
But as start-up owners, or even as senior management of global firms trying to complete a company registration process successfully in Dubai, the first question that needs to be answered is also the most important one – do you get a mainland business license, or do you look the other way and complete a free zone business setup?
What is required for the Freezone Business Setup?
Getting a trade license in Dubai may not be that difficult, thanks to business advisory services offered by some expert companies in the field. The question is, how to complete a freezone business setup?
- Find the right advisory firm;
- Get your business activity clear;
- Understand the freezone business setup requirements from the advisory firm;
- Keep all required documentation ready at all times;
Typically, freezone business setup happens with the majority of the paperwork and steps being performed online, with only specific processes (such as notarization) being done with a physical presence. Freezone business setup also tends to be relatively inexpensive when compared with obtaining a mainland business license.
The cons of freezone business setup are the limited scope of the geographical operations of your business unless you operate under professional business activities such as consultancy or training. It is also important to note that higher credibility is obtained (and wider business development prospects come through) if your business is established as a mainland business license.
How can a mainland business license be any different?
Company registration under the mainland jurisdiction differs from freezone business setup on one major factor – the requirement for a local business partner.
A local business partnership is either an Emirati entity or an individual, who is mandated, as per law, to hold 51% or more of the ownership in the mainland business license. Yes, there are exceptions to these rules such as specific business activities, or legal structures that do not require ownership to be given to the local business partner. For further details on this, do refer to our earlier column here.
Another major factor is that the requirements of mainland business licenses are a little more stringent, which means the average turn-around time may be a little longer. However, this can vary on case-basis and the Dubai DED also has an instant license track, for a higher fee, that allows you to get your mainland business license within a single day (provided certain criteria are met).
What are the key leverage points between freezone business setup and mainland business license?
- If you complete a company registration under trading or real estate, then mainland business license would give you strong leverage for business growth;
- If your business is agnostic to the location, and getting a trade license was done keeping a professional activity at its core, then a free zone business setup would be the logically advantageous path;
- If you trade in products, but the sourcing is done by importing it from your factory abroad, and you choose to appoint a distributor to trade your products in mainland jurisdiction, then a freezone business setup will prove advantageous;
- If you are bidding for Government tenders or projects, a mainland business license lends strong credibility
In short, there is no clear answer as to whether a mainland business license or a freezone business setup is more advantageous than another. Both have their clear advantages depending on the scope and requirement that you lay out in your company registration.
- Do you require a local business partner?
Ans: The requirement depends on the jurisdiction, and also the business activity. Under a mainland business license, even if your activity is a professional category, you are not mandated to appoint a local business partner. Only a local service agent is required in this case. For freezone business setup, there is no requirement for appointing a local partner.
- Is it cheaper to set up a mainland business license?
Ans: Company registration in a freezone jurisdiction is usually cheaper than a mainland business license. Business consultancy companies also tend to charge relatively lower service fees for a freezone business setup as compared to a mainland business license. Overall, company registration is expected to be slightly inexpensive under freezones.
- After getting a trade license, can I apply for Government tenders/bids?
Ans: Technically, with a company registration completed within UAE, one may think it is possible to get a Government tender/bid. But most Government agencies (and some large private firms) tend to accept quotes based on strict conditions, such as availability of a mainland business license. It is always safer to have a mainland business license if business bids or development drives your scalability.