UAE, one of the most lucrative business hubs in the world, offers a few choices to the entrepreneurs setting up their business in the country. They can either go for a free zone company formation or a mainland limited liability company. While it’s good to have choices, most entrepreneurs struggle when it comes to choosing the right fit for their venture. Opting for a free zone company will allow a business to enjoy a tax free environment while working out of the country, but not trading within. However, a free zone company cannot operate in non-free zone areas, whereas a mainland company is free to trade wherever they want to in UAE, without a local agent, without limitations.
Difference of Free zone and Mainland company
UAE National as Sponsor is mandatory
In order to be eligible for a mainland company trade license in Dubai, it is mandatory to have a UAE National as a partner or service agent.
Share holder percentage
The local agent must own a minimum or 51% of shares, and the other owner may own the remaining 49%. Each of the seven emirates have their personal economic development department which is in charge of issuing a Dubai trade license to Mainland LLCs. Even companies which are starting their venture through social media only, are also required to officially register their business, otherwise their accounts will be blocked.
The trade license renewal Dubai is an annual matter so once issued, it must be renewed once a year.
No Geographical Limitations
Since mainland companies are not geographically limited, they can avail better offers when it comes to office rent and other such services. Another advantage of a mainland company set up is that the business may have clients from anywhere in UAE, as well as international clients.
Free zone Company
100% Foreign Ownership:
A free zone company is the best option for foreign investors who want complete control over their entity as businesses set up in one of UAE’s free zones allow 100% foreign ownership. It is set up as a separate legal entity and is entitled to its own rules and regulations.
Benefits of setting up in a free zone include: tax exemptions, high quality infrastructure and asset protection. Each free zone has a list of their own benefits and downsides so it is best to go through it carefully before choosing the most appropriate area for the particular company. The main disadvantage is geographical limitation but the amazing tax benefits make it worthwhile.
Other differences between Mainland and free zone company includes:
Min Work Space Required:
In order to be issued a mainland trade license in Dubai, it is a requirement to lease out a minimum of 200 sq. ft. on an annual basis.
Free zone Company:
No Physical Office Required
On the other hand, a free zone company is not even required to have a physical office space to get trade license Dubai. Depending on the type of service they offer, they may opt for a physical office or flexi desk service which saves a new venture a lot of money. The flexi desk service and the option to use common centre desks for a minimum of 5 hours a day is so cost effective that it encourages a lot of people to take the plunge and start their venture.
Visa Facilities in Mainland:
Mainland companies face no limitations when it comes to visas. Each mainland company receives an electronic portion which shows their ability for visa acquisition and it can be increased if they need more staff. The more office space they have, the more visas they can apply for. However, drivers and staff who are meant to work outside the premises are not eligible for visa facility.
Visa Facilities in Free zone:
Visas facilities for free zone companies differ area wise and package wise. Smart office packages offer fewer visas, the exact number differs from free zone to free zone. In order to get a higher number of visas, the company must rent a physical office or a warehouse.
Government Approval in Mainland:
In order to be registered as a mainland company, the business requires approval from the Department of Development, Labour Ministry and the Department of Naturalization and Residency. Besides these, the company may require more approvals from related authorities if they wish to operate in health, education or food related sectors.
Government Approval in Free Zone:
Free zone companies have it easier in terms of approval. If they are only exporting or re-exporting then they do not require any sort of outside approval. However, if they wish to partake in special services then they might require external approval.
It is true that mainland companies have a lot more freedom when it comes to trading opportunities and setting up offices. They also have no constraints when it comes to business activities. Although free zone companies are not allowed to trade in UAE’s local market directly, there are ways to work around it. It is possible to team up with a local distributor who will distribute the free zone company’s goods to the local market in return for a fee. Also, a company starting out in a free zone, can open branch offices in the future through which they can trade in the local mainland. So it may be concluded that neither business form is better per se, it just depends on which type is more suitable for the particular company.
When it comes to setting up a new venture in UAE, there numerous aspects to consider. Business structure, registration, trade license Dubai fees, trade license renewal, and many more issues which are very difficult for a new company to keep track of on their own. Not only that, but even making the choice between mainland and free zone is a big decision and in order to truly choose the right one for your company, it is best to team up with experts such as Company Setup Dubai who can help you make the best decisions for your company.