Business Setup in Dubai 2025: Mainland vs. Free Zone (The Definitive Guide)

For decades, the choice was simple: "Mainland requires a Local Sponsor (51% share), Free Zone gives you 100% ownership."

That rule is dead.

With the historic amendment to the Commercial Companies Law allowing 100% foreign ownership for most Mainland licenses, the line between the two jurisdictions has blurred. Yet, critical operational differences remain.

This guide acts as your decision matrix for 2025.

1. Ownership and Scope of Business

Mainland (Department of Economy & Tourism - DET)

• Ownership: 100% Foreign Ownership is now available for 1,000+ commercial and industrial activities.
• Scope: You can trade anywhere—inside Dubai, across the UAE, and internationally. You can open a shop in Dubai Mall or an office in Business Bay.
• Government Contracts: Eligible to bid for government tenders directly.
• Banking: Easier to open corporate bank accounts due to regulatory clarity.

Free Zone (e.g., DMCC, JAFZA, DIFC)

• Ownership: Always 100% Foreign Ownership.
• Scope: Technically restricted to trading within the Free Zone or internationally. To sell to a Mainland customer (e.g., a supermarket in Deira), you must use a local distributor or logistics agent.
• Government Contracts: Harder to bid directly; usually need a Mainland partner.
• Banking: Some banks are stricter with Free Zone companies due to compliance concerns.

Popular Free Zone Comparison

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2. Visas and Office Space

Mainland

• Visas: The number of visas depends on your office size (approx. 9 sq. meters per person).
• Office: You must lease a physical office (Ejari) for most licenses. "Virtual" options are limited to specific instant licenses (e.g., e-commerce, general trading micro).
• MoHRE: Employees fall under the Ministry of Human Resources & Emiratization (MoHRE). You must comply with WPS (Wage Protection System) and Emiratization quotas (if applicable).
• Ejari Tip: Ensure your Ejari contract lists the correct activity. Mismatches delay license issuance.

Free Zone

• Visas: Visa quota is tied to the package you buy (e.g., "Flexi Desk" = 2 visas).
• Office: Physical space is optional. You can operate from a shared "Flexi-Desk" provided by the zone.
• MoHRE: Employees are sponsored by the Free Zone Authority, not MoHRE. Process is often faster, but rules (like end-of-service) differ slightly.
• Upgrade Path: Many zones allow you to upgrade from flexi-desk to serviced office as you grow.

3. Cost Comparison (Estimates - 2025)

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Verdict: Mainland has lower license fees but higher rent. Budget Free Zones have the lowest barrier to entry but may face banking challenges.

4. Corporate Tax Implications

Both are subject to the 9% Corporate Tax if profit > AED 375,000.

The Free Zone "Edge": A "Qualifying Free Zone Person" (QFZP) can enjoy 0% Tax on "Qualifying Income" (e.g., trade with other FZ companies or exports). Mainland companies generally pay 9% on everything. Understanding these nuances is critical for effective tax planning and compliance.

QFZP Requirements (Simplified)

To qualify for 0% tax, you must:

1. Derive qualifying income (FZ-to-FZ trade, international exports, qualifying services)
2. Maintain adequate substance (employees, assets, decision-making in the Free Zone)
3. Not elect out of the Free Zone regime
4. Have audited financial statements
5. Comply with transfer pricing rules

Warning: Maintaining QFZP status requires "Adequate Substance" and strict compliance auditing. The FTA actively reviews claims. Many companies engage external audit firms to ensure their financial statements meet regulatory requirements.

5. Step-by-Step Setup Process

Mainland Company Formation

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Total: 4-6 weeks (if documents are ready)

Free Zone Company Formation

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Total: 3-5 weeks (faster than Mainland)

6. Activity Restrictions

Some activities are still restricted or require special approvals:

Activities Still Requiring Local Partner

• Oil & gas exploration
• Defense and military equipment
• Certain banking and financial services
• Healthcare (varies by emirate)
• Education (varies by type)

Activities Requiring Special Approvals

• Legal consultancy (requires MOJ approval)
• Security services (requires Ministry of Interior)
• Insurance (requires Central Bank license)
• Real estate brokerage (requires RERA registration)

The Verdict: Which One for You?

Choose Mainland If:

• You are B2C (Retail, Restaurant, Clinic).
• You need to work physically with clients across Dubai.
• You plan to hire a large team.
• You want no geographic restrictions on your sales.
• You need to participate in government tenders.
• You want easier banking access.

Choose Free Zone If:

• You are 100% export-oriented/international (Consultancy, Trading).
• You want the 0% Corporate Tax benefit (and can meet the criteria).
• You are a freelancer/solopreneur needing a visa and a desk.
• You want to avoid MoHRE Emiratization quotas (for now).
• Minimal physical presence is needed.
• You plan to start small and scale gradually.

Frequently Asked Questions

Can I have both Mainland and Free Zone companies?

Yes. Many groups have a Free Zone trading company for international deals (0% tax) and a Mainland company for local retail or services.

Can I transfer my Free Zone company to Mainland (or vice versa)?

Not directly. You would need to close one and open another, or establish a new parallel entity.

Which Free Zone is best for e-commerce?

Dubai CommerCity (JAFZA subsidiary) is purpose-built for e-commerce. IFZA and Meydan also offer competitive packages.

Do I need a physical presence to open a bank account?

Yes. All UAE banks require in-person verification for corporate account opening. Some Free Zones facilitate introductions.

How long is a trade license valid?

One year. Renewal is mandatory and includes fresh Ejari (Mainland) or package renewal (Free Zone).

Related Resources

• Corporate Tax Registration Guide for UAE - Complete EmiraTax registration process
• Tax Consultation Services - Expert guidance on Free Zone tax optimization
• External Audit Services - Ensure compliance with audited financial statements
• Due Diligence Services - Pre-acquisition reviews for business purchases
• Small Business Tax Exemption Guide - Understand the AED 375,000 threshold

Still Undecided? Farahat & Co has set up over 10,000 companies. We analyze your business model to recommend the jurisdiction that saves you money and headaches down the road.