Mainland or free zone? Choosing where to form your company in the UAE

The first decision in forming a UAE company is where to form it. A mainland (onshore) company is licensed by the economic department of an emirate, such as the Department of Economy and Tourism in Dubai, and can operate anywhere in the country. A free zone company is licensed by one of more than forty free zone authorities, each with its own rules, and traditionally operates within its zone and internationally. Offshore registries such as RAK ICC are a third option for holding companies that do not trade in the UAE. The right choice depends on your customers, your activity, your ownership and your tax position. This article compares the two main routes.

Ownership

Since the 2021 amendments to the Commercial Companies Law, now Federal Decree-Law No. 32 of 2021, most mainland commercial and industrial activities can be fully owned by foreign investors. A short list of activities of strategic impact still requires Emirati participation, and some professional licences have their own rules. Free zone companies have always allowed full foreign ownership. On ownership alone, therefore, the two routes are now close, and the old reason to prefer a free zone has largely disappeared.

Where you can do business

A mainland company can sell to customers anywhere in the UAE, take government contracts and open branches in any emirate. A free zone company can trade freely within its zone and abroad, but selling goods into the mainland requires a mainland distributor or importer, and providing services on the mainland has historically required a mainland branch. Dubai changed this in 2025 by allowing free zone companies to obtain a permit from the Department of Economy and Tourism to operate on the mainland for certain activities, subject to conditions; the rules are new and their scope should be checked for your activity. If your customers are mainly in the UAE, the mainland remains the simpler answer.

Corporate tax

Corporate tax applies to both at 9 per cent above AED 375,000 of taxable income, and both must register and file. The difference is that a free zone company can be a qualifying free zone person and pay 0 per cent on its qualifying income, which broadly covers income from other free zone companies, from abroad and from certain listed activities, provided it maintains substance in the zone, keeps non-qualifying income below the de minimis threshold and has audited accounts. Income from mainland customers is generally taxable at 9 per cent. For a business selling mainly abroad or to other free zone entities, the free zone benefit can be significant; for a business selling to the UAE market, it may be worth little.

Cost and premises

Free zones offer packages that combine the licence, a flexi-desk or small office and a number of visas, which makes the first year predictable and often cheaper for a small business. A mainland licence requires a physical office lease registered with Ejari or the equivalent, and the visa quota depends on the office size. For a business that needs a real office and staff in any case, the difference narrows.

Visas and staff

Both routes allow residence visas for owners and employees. Mainland companies come under the Ministry of Human Resources and Emiratisation, with its labour law, wage protection system and, for larger companies, Emiratisation targets. Free zone employees are sponsored by the free zone authority under the same federal labour law, except in the DIFC and ADGM, which have their own employment laws.

Banking

Opening a corporate bank account is often the slowest step for any new company. Banks apply the same due diligence to mainland and free zone companies, but some are more cautious with free zone companies that have no physical office or whose activity is general trading. A clear business plan, a real office and a credible explanation of the source of funds matter more than the jurisdiction.

Regulated activities

Financial services, healthcare, education, legal services and several other activities are regulated wherever they sit, and some free zones exist for specific sectors: the DIFC and ADGM for financial and professional services, Dubai Healthcare City for healthcare, and the media and technology zones for their industries. If your activity is regulated, the regulator often decides the jurisdiction for you.

A short decision guide

• Customers mainly in the UAE, government contracts, retail or restaurants: mainland.
• Customers mainly abroad or in other free zones, holding or consultancy work, small team: free zone, with the corporate tax conditions checked.
• Holding UAE property or shares without trading: free zone or offshore holding company.
• Regulated activity: the zone or authority that regulates it.
• Both markets: a free zone company with a mainland branch, or a mainland company with a free zone subsidiary, depending on where the profit arises.

How we help

Our paralegal team forms companies in the mainland, the free zones and the offshore registries, and our corporate and tax lawyers advise on the structure before you commit: ownership, licence, activity codes, tax qualification, shareholder agreement and bank file. Contact us with a description of what the business will do and where its customers are, and we will recommend a jurisdiction and a structure.