In the Company formation in Dubai This raises the question for many as to whether a Mainland Company (LLC) or a Freezone Company (FZCO) makes more sense. Below are the key differences, advantages, and disadvantages of each legal form, as well as frequently asked questions.
In advance, it can be said that this decision should be well considered to avoid unnecessary costs and to operate legally and economically.
What is a mainland company?
A mainland company is an onshore company registered with the Department of Economic Development that can conduct business both within and outside the UAE.
The trade licenses for mainland companies are issued by the Department of Economic Development (DED), and their business activities are subject to few to no restrictions, which is considered the main characteristic of mainland companies. However, some business activities require a local sponsor or a UAE national as a partner in the company.
What is a free zone company?
A company in a free zone is a company registered in a free zone, which is an autonomous judicial district within each emirate. The Free Zone Authority (FZA) is the regulatory body that operates free zones and governs their functions. Currently, there are over 45 free zones nationwide, offering 100%iges ownership and many other unique features.
Differences at a glance
Companies in free zones and on the mainland offer business owners a wide range of benefits and features. For example, companies in a free zone offer foreign investors the advantage of being 100% owned by them, being exempt from taxes, and enjoying greater operational freedom within the free zone. Companies on the mainland, on the other hand, offer better access to the UAE and the global market, as well as the ability to conduct business throughout the country without restrictions.
Here are the main differences between the two companies:
- Ownership status: In free zones, entrepreneurs own 100 % of their companies without needing a local sponsor. For companies on the mainland, foreign investors must have an Emirati partner who holds at least 51 % of the company’s shares in order to conduct most business activities. This primarily applies to infrastructure and utilities, such as hospitals, telecommunications, and energy supply. However, most activities are now completely open to expats and, as of 2021, no longer require a local sponsor.
- Location Companies in free zones are based in the designated free zones of the UAE, while mainland companies can be located anywhere in the country.
Workspace: Mainland companies must have an office with a minimum area of 20 square meters to obtain a license. However, companies in free zones do not need to provide a physical location, and many free zones allow companies to operate from virtual workspaces.
Scope of Business Operations: Companies in free zones are restricted in their business operations within the UAE market as they are not permitted to trade directly with the UAE market, but only through locally appointed distributors. Companies in mainland, on the other hand, are exempt from this restriction and are allowed to conduct business anywhere within 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 their own regulations for company establishment, and you do not need permits from government agencies outside the free zone to establish your company.
- Visa For companies on the mainland, there are no visa restrictions. However, the number of visas issued depends on the size of the company's workspace; the larger the workspace, the more visas can be granted.
While there are restrictions on the number of visas that can be applied for by companies in free zones, this depends on the free zone's regulations and other conditions.
- Capital requirement The legal structure of a mainland company determines its capital requirements, while requirements in a free zone are determined by the emirate in which the company is established.
Advantages of both legal forms
As an entrepreneur looking to establish a business in the UAE, you need to be well-informed about the advantages of both company structures to make the right decision. Below are the advantages of both companies.
Mainland Advantages
Here are the most important points for a Mainland Company Formation in DubaiI speak.
- No restrictions on doing business in the UAE.
- 100%ige Repatriation of profits and capital in most business activities.
- No restrictions on the number of visas.
- Unrestricted access to local and global markets.
- More business activities compared to companies in a Free zone.
- Easy access to a business bank account.
Advantages of a Free Zone
Below is an overview of the main advantages of Freezone Company in Dubai.
- 100 % foreign ownership without the need for a local sponsor.
- Simple and fast company formation.
- 100%ige Repatriation of Capital and Profits
- Lighter employment policy.
- Advanced infrastructure and job opportunities.
- Low setup costs
FAQ
The most frequently asked questions for deciding between a mainland and free zone company at a glance.
Can I switch if needed?
No, changing the legal form of a company or restructuring is not possible. Therefore, one should definitely be clear about which legal form is needed. When in doubt, consulting beforehand makes sense to avoid unnecessary costs.
Which legal form is cheaper?
Free zones are at best always cheaper than mainland companies. This is due to the licenses, but also to the fact that they do not require a physical office.
I deal in real estate - do I need a mainland company?
For private investors, you fundamentally don't need a company at all. Even if you buy and sell dozens of properties every year. Nor is a company, neither free zone nor mainland, necessary for rentals.
However, anyone who conducts trade and brokerage for others needs a mainland company.
I conduct international trade with a warehouse in Dubai - Which legal structure is better?
Fundamentally, a free zone company is suitable for worldwide trade. Those who need storage space can, for example, opt for the Jebel Ali Freezone (JAFZA).
Summary
Whether to establish a Mainland or Freezone company depends heavily on the business's purpose, meaning its activity. Mainland LLCs offer many licenses and allow for the sale of physical products in the UAE. However, for those primarily operating internationally, a Freezone FZCO is usually better.
If you are still unsure which company structure is right for you, feel free to contact us at any time and we will help you with a no-obligation initial consultation.
