What is the difference between mainland and freezone companies in UAE?18 Apr, 2023
Do you intend to start a business in the United Arab Emirates? Then read this article before you invest. Read to know all about mainland and free zone companies.
Understanding business setups in UAE: Mainland vs free zone companies
UAE is considered to be one of the best places for investors looking to set up a business. Owing to its liberal but sound regulatory framework, numerous initiatives to promote business development, and favorable tax environment, many entrepreneurs seek to start new business ventures in UAE every year.
But before you gather your resources to set up shop in UAE, you need to be aware of the kinds of business set ups in UAE and the rules applicable to each of them. Read the full article to know what mainland and free zone companies are. Lack of knowledge about the business setups in UAE can cause many challenges in your journey towards success.
Quick Read Section
- Due to its lax regulatory environment, numerous programs to support business growth, and friendly tax climate, the UAE is a great location for investors to establish a business.
- In the UAE, there are primarily two kinds of business setups: Mainland companies and Freezone companies.
- Freezone companies operate under a trade license given by the Free Zone Authority of the location emirate.
- A mainland company and a free zone company are different in that a local sponsor is required for ownership of a mainland company, whereas full international ownership is permitted for free zone companies.
Types of business setups in UAE
Business setups in the UAE are broadly classified into two main types- Mainland and Freezone companies.
- Mainland Company: A mainland company is an onshore business setup that works under a license issued by the Department of Economic Development (DED) located in the emirate where the company is situated. Mainland companies are granted permission to function in tourism, trading, commerce, and industrial sectors. Permission is obtained as per the rules stipulated by the DED which is the governing body that regulates the mainland companies in each emirate of the UAE. The naming norms for mainland companies are stricter than for offshore and free zone companies. When you choose the name of your mainland company, ensure that the business name is self-explanatory and points to the type of service offered. Mainland companies are commonly named with the abbreviations LLC or PJSC which stand for Limited Liability Company and Public Joint Stock Company respectively.
- Freezone Companies: A free zone company is a business setup that operates under a trade license issued by the Free Zone Authority of the emirate of location. The regulations for free zone companies are different from mainland companies and are regulated by the Free Zone Authority. Freezone companies are commonly named with the abbreviations FZE, FZC, or FZ LLC which stand for Free zone establishment, Free Zone Company, and Free Zone Limited Liability Company respectively. A company with the suffix FZE denoted that it has a single owner while FZC and FZ LLC denote two or more owners.
What is the difference between a mainland company and a free zone company?
- In terms of ownership, mainland companies can be controlled by foreign investors but require a local sponsor as the company owner. Whereas free zone companies allow complete ownership by foreign investors.
- Mainland companies are permitted to trade both within and outside UAE. However, free zone companies can only practice trade within free zone areas in UAE and outside UAE.
- Financial audit is a compulsory process for mainland companies. It is not mandatory for free zone companies; however, it is recommended that they undertake a financial audit as well.
- Mainland companies have zero restrictions on the number of visas that can be issued but it depends on the office space rented by the company. Free zone companies have office agreements called flexi-desks which can incorporate up to six visas.
- Minimum share capital requirement is not specified for mainland companies. Unlike mainland companies, free zone companies have specific criteria for minimum share capital requirements. They also need to have proof of share capital deposits and amounts which vary from free zone to free zone.
- Mainland companies require a physical office space, but the size depends on the number of visas required. On the other hand, free zone companies can be set up in the UAE with or without office space. This too depends on the business activities and the number of staff.
- The legal documentation for mainland companies is required to be issued and signed in both Arabic and English by the founder of the company. An alternative to this is a Power of Attorney which enables the signatory to act in place of the founder. Whereas for free zone companies, documentation can be done in either English or Arabic. Free zones also allow digital signatures and payments.
- Free zone companies work based on regulations put forward by private free zone entities which are subject to change at any point in time. Mainland companies function in accordance with the government laws of UAE.
- Obtaining a license for mainland companies required several documents and permits from the government. Free zone licenses can be obtained through single window systems but can require certifications from legal bodies.
- The expense of starting a company in a free zone is dependent on various factors such as the nature of business activities and the size of the company. The total expense for setting up a mainland company depends on various factors, such as the business category, shareholders, and the rented space for the office.
Benefits of setting up a mainland company
These are some of the advantages of starting a mainland company.
- Establishing a mainland company is the most common business setup in UAE as it lets you conduct business activities anywhere in UAE with no restrictions.
- Mainland companies are allowed to repatriate capital and profits entirely.
- There is no limit on the number of visas that can be issued under the company sponsorship.
- Offices can be started anywhere in the emirate of registration. Multiple branches can also be set up.
- No restraints on access to global markets
- Can work on government contracts as well.
Benefits of starting a company in a free zone
These are some of the benefits of setting up a free zone company.
- Free zone companies have the exclusive advantage that lets you own a company without the requirement of a UAE sponsor.
- Free zone companies are allowed 100% repatriation of capital and profits.
- Companies that operate in the free zone are completely exempt from import and export duties.
- Fewer restrictions on recruitment policies.
Popular Free Zone Areas in UAE
These are some of the main free zone areas in UAE:
- Jebel Ali Free Zone
- Masdar City Free Zone
- Hamriyah Free Zone
- Creative City Free Zone, Fujairah
- Ajman Free Zone
- Dubai Design District
- Dubai World Trade Centre
- Dubai Silicon Oasis
- Dubai Internet City
- Meydan Free Zone
- Dubai Healthcare City
- Dubai Production City
Which is a better option- mainland companies or free zone companies?
Mainland companies are much more cost-effective and offer a wider scope for business activities. Free zone companies can be inexpensive to set up and have many restrictions on where business can be conducted. Therefore, mainland companies are a better option for budding entrepreneurs and investors.
However, a clear-cut answer to which company is best for starting a business really depends on your business needs, the type of business activity, and the location where you wish to conduct business.
Why choose Gargash to buy insurance coverage for your business setup?
Now that you have a clear distinction between mainland and free zone companies, it’s up to you to decide which one is a more suitable choice for your business setup. Once your company is established in UAE, it is wise to get your business insured to protect your investments from risks and losses.
No matter which type of company- mainland or free zone, Gargash Insurance can assist you with all your business insurance needs. With over 350+ experienced professionals to offer you expert advice on financial risks, all your investments will be safeguarded from threats and losses.
Gargash Insurance is one of the oldest insurance broker companies serving in the UAE for the past 30 years. Insurance brokers at Gargash specialize in providing quick, dependable, hassle-free, and knowledgeable assistance to help you choose a business insurance plan that best suits your requirements. We provide a range of services such as claims assistance, effective negotiation with insurers, risk mitigation solutions, and customized policies at discounted rates. Reach out to an insurance broker today to get quotes or clarify your insurance queries.
Contact us today for all your business insurance needs!