Free Zone VS Dubai Mainland Company: Which is Better?
As one of the most lucrative and dynamic business hubs in the world, Dubai is a great place to embark on an entrepreneurial journey. However, one of the common challenges faced by businessmen when setting up a business in this region is choosing between the mainland and a free zone company.
If you are one of them, read on as this article seeks to shed light on which legal form of business is more ideal and more beneficial for you.
1. What is a Mainland Company in Dubai?
This is an onshore company that is licensed by the Department of Economic Development (DED) of the certain emirate which permits you to conduct business in the local market and outside the country with zero restrictions.
2. What is a Free Zone Company in Dubai?
This is incorporated within a certain jurisdiction of the emirate where the company is permitted to conduct business either inside the same free zone or outside the country. However, when it comes to the trading of physical goods or commercial licenses, the company won’t be permitted to conduct local business directly because the government has set a restriction for trading in the local market via a distributor and by paying 5 percent duty on the local market invoices.
3. Scope of Business
Business setup in Dubai mainland will enable you to conduct business in the local market, any of your chosen free zone, or even outside the country. What’s more, it applies to all professional or commercial licenses.
On the other hand, a free zone company in Dubai will enable you to do business in the same free zone or even outside the UAE. Typically, this is perfect for businessmen who desire to establish a base in the country for their international imports and/or re-exports.
The limitation of local business through a distributor is aimed at differentiating the enterprise in the local market by free zone and onshore company licenses used for both exports and imports. With a mainland license, the distributor can serve as your agent and impose a certain charge lesser than the 5 percent duty, which is applicable on free zone invoices in the event that they trade directly into the local market.
4. Structure of Ownership
If you opt for business setup in Dubai mainland, keep in mind that the presence of a local is required either as a service agent or as a partner.
In a commercial license, expect that:
- 49% shares go to the expat partner, and
- 51% of shares are held by a local.
Meanwhile, in a professional license, the shares are wholly held by the expat partner and one local is appointed as a service agent.
On the other hand, free zone license is wholly owned by the expat partner and a local partner or service agent is not required.
The great news is that if you opt for business setup in Dubai mainland, there are no visa limitations on the license. The Ministry of Labor gives an electronic quota, also known as E-quota, to every company. This is designed to show their visa’s eligibility, which can be increased in the event that the company needs more staff.
Meanwhile, if you decide to go for a free zone company in Dubai, 2 visas are basically offered on the smart office package. However, there are certain free zones in the country that permit 3 to 6 visas.
These are just some of the major differences between a free zone company and a mainland company in the UAE. take note that there is no one-size-fits-all solution for the business that you intend to set up as each of them have their fair share of pros and cons.
To determine the right legal form of business that will suit your needs and preferences, it would be great to seek help from a reputable and expert business setup consultant in Dubai that will walk you through the entire process.