Business Setup in Dubai Mainland vs. Dubai Freezone

Summary

In this session, Narin Khan from Dungard explains the key differences between setting up a business in the UAE Mainland versus a Free Zone. The discussion covers ownership rules, taxation, visa regulations, office requirements, and government approvals. Narin emphasizes that Mainland companies now allow 100% foreign ownership, while Free Zone companies have always had this option. Mainland businesses face tax obligations and must maintain physical offices, but offer more flexibility with employee visas. Free Zone companies, however, benefit from fewer administrative requirements and no need for a physical office, making them ideal for service-based industries.

Takeaways

• 🌍 Mainland companies in the UAE are formed under the direct jurisdiction of the specific Emirate, with licenses governed by the Economic Department of that Emirate.
• 🏢 Dubai's Economic Department offers over 100 business activities for Mainland companies, and free zones in Dubai often follow similar regulations.
• 🗝️ Foreign nationals can now own 100% of Mainland companies in the UAE, without needing a local Emirati partner.
• 🏝️ Free zone companies have always allowed 100% foreign ownership, and there are fewer restrictions on activities and ownership.
• 📊 Mainland companies are subject to both corporate tax (9%) and VAT (5%), while free zone companies are exempt from VAT unless they do business with Mainland companies.
• 📈 Free zone companies are generally restricted to six visas, while Mainland companies have no limit on the number of visas they can obtain.
• 💼 Free zone companies do not require a physical office and can operate with a lease agreement for a shared or flexi desk, but Mainland companies typically need a physical office.
• 🔍 Audits are required for Mainland companies but are not mandatory for free zone companies unless needed for internal purposes.
• ⏱️ Setting up a Mainland company may involve approvals from multiple government bodies, while free zone companies deal with only the free zone authority, making the process quicker.
• 📊 Free zone companies are suitable for businesses requiring fewer visas and no physical office, while Mainland companies are better for larger operations with more employees.

Q & A

What is the primary difference between a Mainland company and a Free Zone company in the UAE?

A Mainland company is under the direct jurisdiction of the specific Emirate's Economic Department, while a Free Zone company operates under a specific Free Zone authority, which allows 100% foreign ownership and has different rules for tax and visa issuance.

Can a foreign investor own 100% of a Mainland company in the UAE?

Yes, recently the UAE government changed the laws, allowing foreign investors to own 100% of a Mainland company, without the need for a local Emirati partner.

Are there any restrictions on the number of visas a Mainland company can obtain?

No, Mainland companies do not have any restrictions on the number of visas they can obtain for employees.

How many visas are typically allowed for a Free Zone company?

Free Zone companies are generally restricted to a maximum of six visas, including visas for investors or shareholders.

Do Free Zone companies need a physical office space?

No, Free Zone companies are not required to have a physical office. They can operate with a Flexi desk or shared desk lease agreement provided by the Free Zone.

Are Mainland companies required to have a physical office space?

Yes, most Mainland companies need a physical office space. However, recently introduced 'instant licenses' allow businesses to operate without a physical office for the first year.

What is the tax policy for Mainland companies in the UAE?

Mainland companies are subject to both corporate tax (9%) and value-added tax (VAT, 5%).

Are Free Zone companies exempt from VAT?

Free Zone companies are exempt from VAT as long as they do not conduct business with Mainland companies. If they do business with Mainland companies, they must pay 5% VAT.

Do Free Zone companies need to undergo audits?

No, Free Zone companies are not required to undergo audits unless needed for internal purposes. Mainland companies, on the other hand, must maintain audited financial statements.

Which authority governs Free Zone companies, and how does this differ from Mainland companies?

Free Zone companies are governed by the specific Free Zone authority under which they are registered. Mainland companies are governed by various government bodies such as the Ministry of Labor, Ministry of Health, and the Ministry of Human Resources and Emiratization.