Mainland vs Free Zone vs Offshore Company Setup in Dubai

Company Setup in Dubai

Have you ever thought about starting a business in Dubai but get confused between the mainland, free zone, and offshore setups? The confusion is not yours alone! With so many options available, it can get really tricky to know which one suits your needs best.

Each setup has its own rules and benefits with some having limitations – they are great for local trading but others for doing international business or simply tax saving.

In this article, we are going to differentiate between Mainland, Free Zone, and Offshore company setups in Dubai as per your business goals-the one you would want to choose:

Mainlain Vs FreeZone

 It is pertinent to say that setting up a business in Dubai provides different opportunities depending on whether one is going for Mainland or Free Zone conditions.

• Mainland companies register under the Dubai DED, enabling them to operate anywhere within the UAE market, including engaging directly with government entities.

The rule of 51% possession of shares by the local sponsor from among the foreign investors not expecting to see any other foreign investors in their worldly possessions within so many years, remained intact; however, with the latest changes in the law, 100% foreign ownership has been allowed in many sectors, enhancing the charm of Mainland setups.

• Unlike Special Economic Zones, Free Trade Zones are areas that offer several incentives to attract foreign investments, such as 100% foreign ownership, tax exemptions, and simpler import-export procedures.

Generally, businesses set up in a Free Trade Zone are prohibited from working in the mainland unless they appoint a local distributor or import into the mainland themselves. Dubai has more than 35 Free Trade Zones, with each serving specific industries and business activities.

On the other hand, if you are planning to focus only on international trade and avail tax-exemptions and want complete ownership without a local sponsor, you would realize the main benefits by operating in a Free Zone.

Each option has its own merits and demerits, and therefore it is important to select an option that best meets the needs and long-term objectives of your business.

Introduction: Business Structures in Dubai Explained

It can be quite an affordably exciting feeling to start a business in Dubai. But once you come across the real decision: to choose between the Mainland, Free Zone, and Offshore set-up offices, you find yourself stuck with the almost overwhelming feeling.

The dynamic business landscape of Dubai offers all these different setups to suit other needs, and each has its advantages.

Mainland companies can operate across UAE and internationally, making it ideal for businesses that target the local market.

Free Zones give 100% foreign ownership and tax exemptions, customized for certain sectors, and are tapping a huge chunk of foreign investors. Offshore companies, on the other hand, deal in international business and asset protection, providing secrecy and low taxation.

As of November 2024, Dubai accounts for approximately 53% of the Free Zone licenses in the UAE, with a total issuance of over 112,000 licenses. The Dubai Multi Commodities Centre (DMCC), one of the largest Free Zones, hosts over 23,000 companies and accounts for about 10% of Dubai’s GDP.

Mainland companies benefit from unfettered access to the market and can apply for government contracts. Offshore setups are legally constrained from doing business inside the UAE, and yet they provide attractive options for foreign operations in terms of tax and confidentiality.

Understanding these setups is integral toward selecting the one that will support your business objectives in Dubai.

What is a Mainland Company Setup?

A company in Dubai situated on the mainland gets registered in the Department of Economic Development (DED), thus able to operate both within the UAE and outside the country. This allows businesses to either trade with an internal market or be part of government contracts; therefore, it is favorable for those focusing on the local UAE market.

Unlike Free Zone companies, however, mainland businesses may not be limited in their operations on the specific geography of UAE; they can set an office anywhere within that emirate, thereby providing wider options for operational freedom.

In addition, a larger number of business activities can be carried out by area-based businesses with the consent of the DED.

Costs are incurred when one wants to set up a Mainland company. These costs include the license itself, office space, and visa fees. The basic license fee normally works out to be anywhere between AED 10,000 and AED 15,000, with variations depending on business activity.

Office space is compulsory, and rental costs vary depending on location and size; for example, shared offices can vary from AED 5,000 to AED 15,000 per annum, while private offices may range from AED 15,000 to AED 50,000 a year and above. Visa fees per employee can be around AED 3,000 to AED 6,000.

To see the whole picture, you may refer to Shuraa Business Setup for a detailed breakdown of these costs.

What is a Free Zone Company Setup?

A Free Zone company in Dubai is a company incorporated in a designated area that allows the application of special economic laws and benefits, thereby permitting 100% foreign ownership, tax exemptions, and an easier way of doing import and export business.

These zones are primarily aimed to attract foreign investment by providing a business-friendly environment complete with infrastructure and the least bureaucratic impediments.

Free Zone companies are ideal for international marketing, e-commerce, or particular business sectors such as media, technology, and logistics. However, they are generally forbidden from trading directly in the UAE mainland without the appointment of a local distributor or agent.

The cost of setting up a Free Zone company depends on the selected Free Zone and business requirements. For example, in the Dubai Multi Commodities Centre (DMCC), package setups start at AED 43,620 for startups.

Office space is mandatory and prices will vary depending on location and space required: small offices start from AED 10,000 per year, whereas larger, fully serviced offices may go anywhere from AED 100,000 or even more in annual rent. Visa issuance costs anywhere from AED 3,500 to AED 5,000 per visa.

For a more detailed costing, please refer to MachX Businessmen Services.

What is an Offshore Company Setup?

The formation of offshore companies in Dubai stands for the establishment of such companies registered in foreign jurisdictions outside an investor’s home country, particularly in the Ras Al Khaimah (RAK) or Jebel Ali jurisdictions. These companies enjoy the benefits of zero corporate and personal income tax, no import/export duties, and full foreign ownership.

They are considered perfect for international trading, asset protection, and though these companies can hold any intellectual property or real estate, they will truly shine in Dubai due to its world-class attributes in all respective areas.

The offshore entities in this setting, especially with Dubai’s strategic location between Europe, Asia, and Africa, make the global market truly accessible.

The overall cost of establishing an offshore company is much lesser as compared to mainland setups in Dubai. Initial package rates start around USD 3,290, whereas renewals are available at approximately USD 3,090 per year.

Minimum requirements state that there should only be a need for one shareholder and one director, no physical office needed. The simplified process is a great attraction for entrepreneurs who are looking for quick, cost-effective solutions to setup businesses.

Key Differences Between Mainland, Free Zone, and Offshore

Dubai has three types of company setups for a business: Mainland, Free Zone, and Offshore, each serving varied business purposes.

• Mainland companies fall under the jurisdiction of the Department of Economic Development (DED) and can operate anywhere in the UAE and internationally. Such companies are mainly suited for those companies that are targeting the local market or would like to obtain government contracts.
• Free Zone companies are, by definition, incorporated within a specific Free Zone. They enjoy benefits like 100% foreign ownership, tax exemptions, etc., but are generally deprived of trading with the UAE mainland unless with the help of a local agent or distributor.
• Offshore companies are primarily formed for international business along with protection of assets with a high degree of confidentiality and minimum taxation, fully intending not to engage in any operations related to the UAE market.

In regard to the project’s costs, Free Zone setups are usually the economical configurations as compared to Mainland ones. For example, a Free Zone setup will cost about AED 15,000 to AED 30,000 depending on the emirate and Free Zone specifications.

Mainland company setups are, however, usually costlier due to the need for office space in addition to extra government obligations for permits. Setting up offshore companies offered few financial savings, as the setup packages start from around AED 12,000.

The difference in the nominal costs and operational realms makes it necessary for the different entrepreneurs to choose a business setup that best correlates with their individual business objectives and their targeted markets.

Ownership Rules

There are different ownership types that can vary according to the types of setup in Dubai.

Mainland companies, which have been regulated by the DED since their inception, historically required a local Emirati partner to hold at least 51% of the shares.

Notwithstanding the provisions of Article 10 of the Commercial Company Act, recently amended by Presidential Decree No. 19 of 2018, granting the majority of commercial sectors foreign ownership wholly, with certain strategic exceptions such as oil and gas, defense, and telecommunication.

It has made the Free Zone companies 100% foreign-owned, and this provision is making them quite attractive for any foreign investor who looks for complete control of a business. These special zones are intended to encourage foreign investment in the form of tax exemptions or simplified bureaucracy.

Offshore companies that in most ways permit full foreign ownership are basically used for international trading and asset protection purposes.

Offshore companies are not allowed to operate in the UAE market but indeed allow benefits such as confidentiality and near to none taxations.

 Taxation

Taxes for corporations in the UAE are divided depending on how a company has been formed. from June 2023, businesses that accumulated annual profits exceeding AED 375,000 attract a 9% corporate tax.

But for those who made below this amount, their income is free from taxation. The tax structure holds for companies operating within the mainland and those in free zones save for additional conditions that apply to free zones.

Free zone companies can qualify for a 0% corporate tax rate, provided they meet certain conditions such as earning qualifying income and keeping sufficient business substance within the UAE.

In contrast, if a free zone company carries on business with mainland entities or receives non-qualifying income above the de minimis threshold-the lower of 5% of total revenues or AED 5 million-it becomes liable for the ordinary 9% corporate tax.

Offshore companies, on the whole engaged in foreign operations, are free from UAE corporate tax, but must comply with international tax rules.

More on the UAE’s corporate tax regime can be found on KPM Global.

Visa Eligibility

Visa possibilities in Dubai differ across the setups of companies in the Mainland, Free Zones, and Offshore.

The Mainland derives advantages from a flexible visa quota system in which visas are usually allotted depending on the area of office space rented. For example, a working average is one visa per 80 sq. feet of office space, allowing businesses to grow their workforce when needed.

Such flexibility makes the Mainland an ideal choice for setups wherein companies foresee growth with an increasing employee base.

Free Zone companies also grant visa sponsorship, quotas are generally tied to the size and type of leased office space. For instance, a Flexi-desk may be permitted three visas, whereas larger physical office space could take more according to the individual regulations of the Free Zone.

On the other hand, offshore companies cannot sponsor residency visas in the UAE since they have been set up chiefly for international business purposes. These companies are not permitted to establish presence and operate physically in the UAE territory.

For more details about visa quotas and criteria, refer to the UAE Government Portal.

Which Option is Best for Your Business?

The choice depends on your business objectives, target markets, and operational requirements.

• Mainland companies have a free hand to access the UAE market and engage in government contracts; thus, they are more suited for businesses with a local focus.

• Free Zones usually allow 100 percent foreign ownership, tax exemption, diverse incentives, and simplified processes; thus, they cater more to startups and SMEs looking into international trade or particular industries.

• Offshore formation is recommended for international business, asset protection, and those businesses without the need for a physical presence in the UAE.

Taking into consideration all cost elements, the final price will also include these costs. Mainlanders have higher costs because of the need for office space and additional government fees.

Free Zone offers different packages, which start at AED 12,500 depending on the zone and business activity. The least expensive solution is the offshore companies, setting up the business for about AED 12,000.

To know more about the comparison of the three options, you can go to Meydan Free Zone.

How G12 Can Help You Decide

Starting a business in Dubai becomes tricky. With G12, it becomes easier because they provide a solution to that with different types of solutions to fit individual needs. From formation of a company to procurement of trade licenses, processing of visas, and opening of bank accounts – their services cover all end-to-end provisions.

With that, it is possible to establish any company shape- whether it be a United States mainland, offshore, or free zone G12 will obligate you to prefer whatever shape perfectly fits your business goals because they have consulting facility personnel who guide towards personal decisions matching Dubai regulations.

Cost-effectiveness is an essential merit when going into partnership with G12. For example, its VIP Free Zone company incorporation packages start from AED 5,499, including a one-year trade license and a free lease agreement.

For entrepreneurs with residency needs, G12 has packages starting at AED 11,999, which involve a two-year UAE investor visa, medical and Emirates ID, and other required services.

It offers all these prices against G12’s promise of efficiency and transparency, making the company a first among many when it comes to business setup in Dubai.

You can further visit G12’s official website for details.