When company formation in Dubai the question arises for many whether a Mainland Company (LLC) or a Freezone Company (FZCO) makes more sense. The most important differences, advantages and disadvantages of each legal form are described below, along with frequently asked questions.
It can be said in advance that this decision should be weighed up carefully in order to avoid unnecessary costs and to be able to operate with legal certainty.
What is a society on the Mainland?
A mainland company is an onshore company that is registered with the Ministry of Economy and can do business inside and outside the UAE.
The trading licenses of mainland companies are issued by the Department of Economic Development (DED) and there are little to no restrictions on their operations, which is considered a key feature of mainland companies. However, some business activities require a local sponsor or a UAE national as a partner of the company.
What is a freezone company?
A free zone company is a company that is registered in a free zone, an autonomous jurisdiction within each emirate. The Free Zone Authority (FZA) is the regulatory body that operates free zones and regulates their functions. Currently, there are over 45 free zones across the country, offering 100% ownership and many other unique features.
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More InformationMainland vs. Freezone: What are the differences?
Free zone and mainland companies offer business owners a variety of benefits and features. For example, free zone companies offer foreign investors the advantage of 100% ownership, tax exemption and greater operational freedom within the free zone. Mainland companies, on the other hand, offer better access to the UAE and the global market, as well as the ability to do business throughout the country without restrictions.
Here are the main differences between the two companies:
- Ownership structure: In free zones, entrepreneurs own 100% of their companies without the need for a local sponsor. For companies on the mainland, foreign investors must have an Emirati partner holding at least 51% of the company shares for certain activities in order to be able to carry out most business activities. This mainly concerns infrastructure and utilities such as hospitals, telecommunications and energy supply. However, most activities are now completely open to expats and have not required a local sponsor since 2021.
- Location: Free zone companies are based in the UAE’s designated free zones, while mainland companies can be located anywhere in the country.
Workspace: Mainland companies must have an office of at least 20 square meters to obtain a license. However, companies in free zones are not required to provide a physical location, and many free zones allow companies to operate their businesses from virtual workspaces.
Scope of business: Companies in free zones are restricted from doing business in the UAE market as they are not allowed to trade directly with the UAE market, but only through locally appointed distributors. Mainland companies, on the other hand, are exempt from this restriction and are allowed to do business anywhere in the UAE. - Permits: Mainland companies require permits from various government agencies, including the Ministry of Economic Development, municipalities, the Ministry of Labor and others. Free zones have their own jurisdiction and regulations for starting a business, and you do not need approval from government agencies outside the free zone to start your business.
- Visa: There are no visa restrictions for companies on the mainland. However, the number of visas issued depends on the size of the company’s workspace; the larger the workspace, the more visas can be issued.
For companies in free zones, there are restrictions on the number of visas that can be applied for, but this depends on the regulations of the free zone and other conditions.
- Capital requirement: The legal form of a company on the mainland determines its capital requirements, while the requirements in a free zone are determined by the emirate in which the company is based.
Advantages of both legal forms
As an entrepreneur who wants to set up a company in the UAE, you need to know the advantages of both types of companies in order to make the right decision. Below you will find the advantages of both companies.
Advantages Mainland
- No restrictions on doing business in the UAE.
- 100% repatriation of profits and capital for most business activities.
- No restrictions on the number of visas.
- Unrestricted access to local and global markets.
- More business activities compared to companies in Freezone.
- Easy access to a bank account for companies.
Advantages of Freezone
Below is an overview of the most important advantages of a freezone company in Dubai.
- 100% foreign ownership without the need for a local sponsor.
- Simple and fast company formation.
- 100% repatriation of capital and profits
- Easier recruitment policy.
- Advanced infrastructure and job opportunities.
- Low setup costs
FAQ
An overview of the most frequently asked questions when deciding between Mainland and Freezone companies.
Can I simply switch if necessary?
No, it is not possible to change or reorganize the legal form of the company. It is therefore essential to be clear about which legal form you need. If in doubt, it makes sense to seek advice in advance to avoid unnecessary costs.
Which legal form is more favorable?
At best, free zones are always cheaper than mainland companies. This is due to the licenses, but also to the fact that they do not need a physical office.
I deal in real estate - Do I need a Mainland company?
In principle, you don’t need a company for private investors. Even if you buy and sell dozens of properties every year. No company, neither Freezone nor Mainland, is necessary for letting either.
However, if you trade and broker for others, you need a Mainland company.
I trade worldwide with warehouse in Dubai - Which legal form is better?
A freezone company is generally suitable for global trade. If you need storage space, you can use the Jebel Ali Freezone (JAFZA), for example.
Summary
Whether you should set up a Mainland or Freezone Company depends very much on the purpose of the business. Mainland LLCs offer many licenses and allow physical products to be sold in the UAE. However, for those who are primarily internationally active, a Freezone FZCO is better in most cases.
If you are still unsure which company form is right for you, you are welcome to contact us at any time and we will help you in a non-binding initial consultation.
