UAE is a major business hub in the Middle East. It has a robust trade ecosystem and infrastructure facilities for business establishments to easily scale up in the region. The Free Zones and Mainland business jurisdictions are both preferred by global investors.
However, there are many differences between Free Zones and Mainland jurisdictions when it comes to setting up a company in the UAE. The main difference between Free Zone and Mainland companies is the flexibility to expand the company.
Following are the driving forces for business growth in the UAE:
- Strong e-governance policies
- Government Support and Incentives
- Favorable business environment
Due to this a large number of companies are choosing UAE for setting up their offices.
The three main business jurisdictions in UAE are the Free Zone, Mainland, and Offshore. Free Zones and Mainland are onshore business jurisdiction that contributes to promoting trade and business in the region.
Whereas the Offshore jurisdiction is not based on onshore business governance and provides the required business infrastructure to predominantly drive international trade operations.
The difference between the Free zone and the Mainland is, for Mainland companies they have an ability to take larger office spaces, hire new employees, take retails shops and expand at a faster pace.
What is a Free Zone?
Free Zone is a designated area within a country where free trade and commerce are permitted with benefits to attract foreign investors. A Free Zone is governed by specific rules and regulations formulated for licensing and incorporation of companies.
There are regulations and procedures for each Free Zone Authority according to its physical location. The companies registered in a specific Free Zone can enjoy various privileges as specified by the respective Free Zone.
Hence, there is obvious differences between Mainland and Free Zone companies operating model, processes, registration & processing times, etc. Investors must choose the right business jurisdiction based on their business requirements.
Also, expert Business Consultants such as AURION will guide investors to the right place after studying the precise business requirements.
Free Zone Privileges for the Investors
In a nutshell, a Free Zone Company is eligible for the following privileges:
- Free Zone Company can rent an Office Premise in the Free Zone
- Investor, Director, Employee Visa is valid for 3 years
- Business can trade within and Outside of UAE
- Registration with the Chamber of Commerce
- The company can obtain the import-export code
- Tax Residency Certificate can be obtained so that investors get the benefit of DTAA (Double Taxation Avoidance Agreement)
- Certificate of Origin can be obtained for manufacturing companies
- 100% Foreign Ownership and 100% repatriation of profits
Additional Business Benefits for a Free Zone Company
Free Zones are the most expatriate-friendly business jurisdiction in UAE offering all the business infrastructure support to the investors.
UAE Free Zones offers umpteen business benefits for entrepreneurs to establish their company in UAE and easily start operating the business in the region without any hassles. The difference between Free Zone and Mainland is dependent mostly on the specific business activity.
For certain business activities such as management consultants, digital marketing consulting, etc., choosing a Free Zone works out to be profitable when considering the overall cost of business setup.
Similarly, for a trading company operating in local UAE Market, a retail store, etc., having a mainland company seems more profitable as the company will get more business by being present in the mainland of UAE.
Following are the benefits of a free zone company:
- Easily register the company by choosing the right business activity from a wide range of business activities
- Free Zone Establishment/ Free Zone Company is the most common company structure in the Free Zones. (Depending on the number of Shareholders the company structure varied, for a single shareholder company the structure followed is FZE, and for more than 2 to up to 50 FZC is the suffix in the trade license)
- Minimal documentation and approvals required for setting up the company
- Easily apply for UAE Residence Visa, sponsor family, and settle in UAE
- Proximity to the Airports and Seaports, in house Customs Clearance, etc., speeds up the trade operations
- Free Zones offer a robust business networking platform as there are a lot of similar types of companies in the Free Zone
- Free Zones offer competitive company setup package to easily set up a company for first-time entrepreneurs without spending too much on Company Setup cost.
Experienced Business Consultants like Aurion will assist you with the Company Registration process for seamless execution of the steps and ensure a comfortable company set up in the region.
What is a Mainland Company in UAE?
Mainland Company in UAE is a business jurisdiction with certain company structures – LLC, Sole Proprietorship, Civil Work Company, Public Stock Companies, etc. The Limited Liability Company is the most common company structure in the Mainland.
Almost 90% of the companies registered in the mainland of UAE are Limited Liability Companies followed by that it is sole establishments and Civil Work Companies (Professional License Companies). Hence, mainland companies in UAE have difference with a Free Zone company in many factors.
However, with the 100% foreign ownership as per the recent amendment in Commercial Companies law, the mainland company is also a preferable option for many expatriate investors. As there is no requirement of a UAE local sponsor for opening a mainland company.
What is a Limited Liability (LLC) Company in UAE?
Limited Liability Company (LLC) in UAE is the most common company type in the mainland of UAE. As per the amendments in the Companies Law in UAE, LLC Companies can be 100% owned by expatriates.
There is no requirement of having a shareholding pattern of 51% share to be owned by the UAE National Sponsor and the rest 49% by the foreign owner. The Department of Economic Development (DED) of the respective Emirates in UAE is the governing body for issuing the LLC Company License to the investors.
The Dubai Economy has initiated a virtual license (instant trade license in 30 minutes) to speed up the company registration and promote trade in the region. The major difference between Free Zone and Mainland company previously was the 100% ownership in Free Zones for foreign investors.
But with the change in the commercial company laws, there is no more a requirement for UAE National Sponsorship for opening a company. This makes LLC Company formation a more flexible and preferable option among expatriate investors presently.
Business Benefits for the Investors – LLC Company in UAE
The LLC Company offers a set of benefits for investors like the following:
- Open an office or branch anywhere in UAE under the LLC Company Trade License
- Hire more employees depending on the Office Space taken
- Expand business in the local market easily
- Reduced Maintenance and Office Rent Expenses as a lot of low-cost business Centres are available across UAE
- Easily trade in the local UAE market and the rest of the GCC region through delivery networks, distribution networks, and logistics service providers
- Easily locate a trusted Local Sponsor for forming the Limited Liability Company and liaising with the Government and Administrative tasks – Visa & Emirates ID Processing, Bank Account Opening, obtaining clearances, and more
Hence, Limited Liability Company is a favorable option for foreign investors who wish to expand more into the local UAE market. Using LLC Company the investors can sell in the UAE markets extensively.
The difference between Free Zone and Mainland Company persists with evident advantages and disadvantages for both business jurisdictions. However, the differences between Free Zones and the Mainland are mostly in terms of the modus operandi, company laws, regulations, and processing times.
Additionally, there is a difference between the Free zone and the Mainland in terms of office space size, company formation packages, and processing times for UAE residence visas. Investors, however, prefer both options depending on their specific business needs.
Expert Business Consultants will assist you in setting up an LLC Company in the UAE the right way.
You may also be interested to know more about the Pros and Cons Between UAE’s Mainland and Free Zone Companies.
