Difference between mainland and free zone company setup

With the upcoming world expo, Dubai is one of the best business destinations and the most talked about right now. When investors choose a country, it is frequently unclear to them where to set up the company. The seven emirates that make up the United Arab Emirates each have a Department of Economic Development (commonly referred to as Mainland) and a number of Free Zones. Which jurisdiction meets their requirements and its benefits and drawbacks is a frequent concern for all business owners. This blog focuses on the pronounced distinctions between a mainland company setup and a freezone company setup in Dubai.

Mainland Company:

A mainland company formation in Dubai is an onshore license registered with the Department of Economic Development and is primarily suitable for companies looking to have a local presence with transactions in the local market as well as transactions outside the country without any restrictions.

Free zone Company:

A free zone company setup is typically for businesses that are primarily focused on international trade, such as import and export, and are only permitted to conduct business within the designated zone and outside of the United Arab Emirates. Any local market business that a Free Zone company formation in Dubai is interested in can be obtained by designating a distributor who is registered in the Main Land. The choice of whether to choose the Mainland or the free zone depends entirely on the business model, as the legal environment and costs are currently more or less comparable for both.

The following are the distinctions between a free zone company and a mainland company:

Business's Type and Scope

A company formation in Dubai mainland has complete business freedom, which includes the freedom to operate on the local market, enter into agreements with free zones, and conduct unrestricted business outside of the United Arab Emirates. It is present in the local market.

A Free Zone Company can only conduct business inside the designated Free Zone and outside the United Arab Emirates. If a company wishes to conduct any local business transactions, it must designate a local distributor or agent who will clear the goods from the free zone port and pay 5% in customs.

Ownership

A UAE national is needed by a mainland company, either as a shareholder or a service agent. For all commercial licenses, a Local Partner must hold 51% of the shares, and for all professional licenses, a Local Agent is required. In either situation, a fixed Annual remuneration is paid against the shares and the agent ship in the case of a commercial license, and a protection side agreement is signed to protect the 51% shares mentioned on the UAE National.

A free zone company, on the other hand, is entirely owned by the ex-pat without any involvement from a citizen of the UAE. The number of shareholders determines the company's legal structure.

Office Room

A Mainland Company is free to select any office within the chosen Emirate based on their needs for location and size. Particularly in Dubai, the department of economic development has developed options like a Flexi desk and shared facilities to entice new start-ups to choose the mainland so they can save money. There is also the option to choose an INSTANT LICENSE SETUP for a few activities, which means you don't need an office at all for the first year. While you can choose between a Flexi desk and an office in the free zone, there are only a few options available for the office, and you can only choose from the designated free zone. The Flexi desks can be used for 5 hours per week and are more like a virtual office just for issuing licenses.

Qualifications for the Visa

If the partners' names are on the trade license, a mainland company may have two visas for partners in the business. A maximum of 2 can be used when there are more than 2 partners involved as well. The size of the office has an impact on the availability of employment visas. One employment visa is allowed for every 9 square meters of office space. The number of visa packages a company has requested determines the free zone's visa requirements in full. The Visa packages range from 1 to 6 and include various free zones. The same criteria of 9 sq. mt per visa applies to free zone companies that are registered at a physical office.

Depending on the activity, certain activities require external approvals from various external governing bodies for both Mainland Companies and Free Zone Companies. Choosing which of the two is the best jurisdiction for doing business is a very difficult task. As previously mentioned, the choice of which of the two to select entirely depends on the business model and facility needs of the business owners.