The UAE’s business areas are divided into three economic zones: Mainland, free zone, and offshore. Free zone businesses in the UAE play a vital role in economic development. Opening a business in the free zone area of UAE will bring you many benefits. You can easily set up your bank account, 100% ownership, accessible visa applications, etc.
In the 1980s, the free zone economy was opened in the UAE. About 8% of companies are running in these economic areas in the UAE; most are in Dubai and Abu Dhabi.
According to ArabNews, the prominent news portal UAE‘s National Economic Register (NER) said around 60600 businesses would be registered in Dubai free zones by mid-February of 2021.
If you are considering opening a business in free zone areas in UAE, you can read this blog to get the necessary information. Let’s see what we will discuss in this blog:
- Can a free zone company do business in Dubai mainland?
- Why is a Dubai-free zone company not permitted to do business in Dubai Mainland?
- What is the difference between the free zone and the mainland in Dubai?
- What is the difference between Freezone and LLC?
- Cost of opening a company in Dubai free zone
- Can a free zone company rent an office in Dubai?
- Can a free zone company sell in the UAE?
- Benefits of doing business in a Dubai free zone
- Disadvantages of free zone companies in Dubai
Can A Free Zone Company Do Business In Dubai Mainland?
Yes, with approval from the free zone, some special free zone companies can do business in mainland areas. As per Law No 13 of 2011, conducting business activities in Dubai outside the free zones is prohibited for any company unless done through an authorized corporate entity.
Some free zone companies are permitted to do business in mainland areas. A free zone company can open a branch in mainland areas. But for this, those concerned companies need approval from free zone authorities to open a branch in mainland economic areas in UAE.
Why Is A Dubai Free Zone Company Not Permitted To Do Business In Dubai Mainland?
Law No. (13) of 2011 states that only the Department of Economic Development (DED) in Dubai is authorized to issue trade licenses to companies that do business on the Dubai mainland. According to this law, companies can only do business in Dubai (not in the free zones) if they have a corporate organization license from the DED. If you don’t follow this rule, you could be fined up to AED 100,000.
How a Free Zone Company Can Do Business in Mainland Areas of UAE?
Free zone companies in the UAE have several options for doing business in the mainland area:
- Partnership with a Dubai Mainland Logistics Partner: Free zone companies can collaborate with a logistics partner based in Dubai Mainland. This partner can sell products and services on behalf of the free zone company within the UAE.
- E-commerce and Courier/Delivery Partnership: For free zone businesses operating in e-commerce, partnering with a courier or delivery company is a viable option. This allows for delivering goods across the UAE without directly engaging in mainland trade.
- Establishing a Mainland Branch: Another strategy is to set up a branch of the free zone company in Dubai Mainland. This branch can facilitate direct trading with companies in Dubai and broader mainland areas.
- Application to Dubai DED: Free zone companies considering expanding their trade into Dubai Mainland must apply directly with the Dubai Department of Economic Development (DED). This involves submitting a detailed application form, structuring the company appropriately, aligning business activities, and meeting other regulatory requirements.
Free zone companies must navigate these options carefully, considering legal, financial, and operational implications. Partnering with business setup consultants like The Infinite Service or legal advisors can provide valuable guidance and streamline the process, ensuring compliance with all local regulations and laws.
What Is The Difference Between Free Zone And Mainland In Dubai?
There are differences between the free zone and mainland business area in UAE.
- Ownership and Control: In Free Zones, foreign nationals can hold 100% ownership of their companies, offering complete control over their business.
On the other hand, UAE locals have to possess most businesses in the case of the Mainland. - Business Scope: Mainland companies are open to what they can do in the UAE. This lets them do business directly with locals and get orders from the government.
However, Free Zone companies can only do business within their own Free Zone and internationally. If they want to do business outside their Free Zone, they must hire a local contact. - Taxation and Costs: Free Zone companies get exemption from Corporate Tax for a period of 50 years.
But mainland companies have to pay a 9% Corporate Tax on profits above AED 375,000 per annum from June 1, 2023. - Office and Visa Requirements: Mainland companies must have a physical office space, whereas Free Zone companies have the flexibility to use virtual offices, which can be a cost-saving measure.
- Regulatory and Setup Considerations: Free Zone companies often benefit from a quicker and more streamlined setup process. Each Free Zone has its governing authority and set of rules.
However, mainland companies are regulated by the Department of Economic Development of the respective emirate, requiring adherence to a unified legal framework across the Mainland
.
What Is The Difference Between Freezone And Llc
A Free Zone company in Dubai allows 100% foreign ownership and is usually limited to operating within the Free Zone areas, with some exceptions for international business.
On the other hand, LLCs can trade freely across the UAE but typically require a local sponsor for majority ownership, though recent changes allow for 100% foreign ownership in specific sectors.
Free Zone entities offer benefits like tax exemptions and are subject to the regulations of the respective Free Zone Authority.
LLCs need a physical office on the Mainland and are governed by the Department of Economic Development, offering broader market access.
Cost Of Opening A Company In Dubai Free Zone
Setting up a business in Dubai’s Free Zone depends on your business’s needs, especially when it comes to staff visas. The initial cost to set up a business without a visa is AED 12,000.
If your business needs more employee visas, each application costs AED 1,850, but you might get a discount if you buy six or more visas. In addition, Free Zone has an easy payment plan that lets businesses start with as little as AED 1,042 monthly.
This flexible method makes it possible to start a business right away while still being able to plan for its finances.
Can A Free Zone Company Rent An Office In Dubai?
Yes, a free zone company can rent an office space in Dubai. But for this, the concerned free zone companies have to apply to free zone authorities for approval, like from the Meydan Free Zone.
In Dubai’s 40+ free zones, businesses can choose from various office options, including virtual, traditional, flexible, and hot desks.
- Virtual Desks: Provide a prestigious address and limited services without physical office space, cost-effective for a Dubai presence.
- Conventional Offices: Dedicated physical offices within free zones, offering privacy and space.
- Flexi Desks: Flexible workspace arrangements, suitable for occasional physical presence without commitment.
- Hot Desks: Shared workspaces with first-come, first-served access, cost-effective for flexible employee workspace needs.
Free zone companies primarily offer services like project management, consulting, advertising, and marketing, benefiting from tax incentives and 100% foreign ownership in Dubai’s business-friendly free zones.
Benefits Of Renting An Office Space In Uae Mainland
There are some benefits to renting office space in the UAE mainland. They are the following:
- Physically close to customers
- Potential for hiring more staff due to lower office rent
- Avoiding the complexities of obtaining a mainland trade license
- Employees can work in the mainland office with free zone visas
Demerits Of Renting A Mainland Office With a Free Zone License
Renting a mainland office with a free zone license has some demerits. They are the following:
- Not allowed to trade physical goods in the Mainland
- Restrictions on offering certain services or business activities
Can A Free Zone Company Sell In The UAE?
Free zone companies have some restrictions when selling their products or services. A free zone company can sell in the UAE. But they can need to sell physical products, only services like project management, consulting, advertising, marketing, etc.
That means a free zone company can sell its service directly in the UAE. Additionally. He can sell his product by following some rules and regulations that we mentioned above in “How a Free Zone Company Can Do Business in Mainland Areas of UAE?”
Benefits Of Doing Business In A Dubai Free Zone
There are some benefits of doing business in a Dubai-free zone. They are the following:
- 0% Income Tax: Enjoy tax advantages with no income tax, keeping more profits for your business.
- 100% Foreign Ownership: Free zones business owners can hold 100% ownership even if they are foreigners.
- Specialist Business Support: Free zones offer entrepreneur-friendly perks and support, easing the setup process.
- Efficient Processing: Digitalization reduces the time needed for business documentation and requests.
- Access to Local and International Markets: Your business can tap into local and global markets.
- B2B Opportunities: Interact with other companies in the free zone for potential business-to-business collaborations.
- Convenient Logistics: Proximity to seaports and airports provides efficient logistics for your business.
Disadvantages Of Free Zone Companies In Dubai
- Trade Barriers: Face restrictions on trading with the UAE mainland market.
- Higher Setup Costs: Initial setup costs in free zones can be relatively high.
- Annual Fees: Ongoing annual fees for maintaining the free zone license.
- Limited Office Locations: Limited choice of office locations within the free zone.
- Limited Activities: Restricted in engaging in some types of business activities.
- Limited Workforce Options: Constraints on hiring labor from the UAE mainland.
How The Infine Service Can Help You?
Our business setup consultants in The Infinite Service can help you start a business in either the free zone or the Mainland. Free zone company owners who are thinking of doing business in the mainland area can contact us for prompt help.
