The UAE’s business landscape has changed forever since the amendments to the Commercial Companies Law (CCL) in June 2021. With these revolutionary reforms, several mainland companies are now permitted 100% foreign ownership, an offering that was unique to UAE’s free zones all these years. This has made people raise questions on the exclusivity of a free zone’s 100% ownership allowance, a factor that has distinguished them for years. Others have expressed reluctance to opt for free zones saying they can access a wider market with a mainland company. This is exactly what motivated us to write this article; the drive to educate aspiring entrepreneurs on what makes free zones a better option than the UAE mainland. Let’s deep dive.
Key differences between a free zone and a mainland company
‘How do free zones differ from the mainland for business setup?’ is a common question asked by expats looking to set up business in the UAE. Before we discuss the advantages you are likely to get with a free zone, it is necessary to comprehend the clear difference between a free zone and a mainland company.
What is a mainland company?
Simply put, a mainland company is an inland or onshore company which can conduct business across the UAE and beyond without any restrictions. Until recently, a mainland business required a UAE national to hold 51% of the company shares. Though this rule still exists, mainland companies conducting specific business activities can now operate with 100% foreign ownership. The Department of Economic Development (DED) in the relevant Emirates oversees the registration and trade licensing for a mainland company.
What is a free zone company?
A free zone is a designated geographical area with its own set of regulations and permitted business activities. A free zone company is restricted to trade within the free zone where it is based or between other UAE free zones or outside the UAE. It is not authorized to conduct trading business with the mainland market, and if required, can be done only with a local Emirati agent. The key distinguishing factor of a free zone company is 100% foreign ownership. Irrespective of the business activity, an expat can completely own a free zone company.
Why choose a free zone over the mainland for business setup?
While UAE’s mainland companies do offer 100% foreign ownership, one must bear in mind that this provision does not cover all business activities permitted on the mainland. Some of the activities may still require a UAE national to own 51% of the company shares. On the other hand, as explained above, a free zone company is permitted 100% foreign ownership irrespective of the business activity it conducts; and this applies to all of UAE’s 45+ free zones.
Besides ownership, a major reason to consider free zones is simply that they are tax-free. Also known as ‘free-trade zones’ for this very reason, free zones exempt you from paying any kind of tax that you would otherwise pay with a mainland company. Income tax, withholding tax, import/export tax, or any other tax you name, a free zone company is simply not required to pay it. Besides, a free zone company is not liable to pay corporate tax, the latest addition to the UAE’s tax regime.
Generally, free zones in the UAE happen to be industry-specific. Hence, companies here have easy access to infrastructure tailored to the industry they belong to. For example, Dubai Cars and Automotive Zone (DUCAMZ) boasts of facilities like automobile workshops, showrooms, and warehouses and is the go-to free zone for automobile dealers.
Free zones also provide support and assistance to businesses in the form of networking services, training, and mentorship programmes. A striking example is Dubai Knowledge Park (DKP) which is touted as the only talent development free zone in the world. As an initiative for business growth, the free zone provides entrepreneurs with access to investors and year-round workshops.
When based in a free zone, businesses can explore opportunities to create synergy by collaborating with others. Additionally, a business could outsource some operations to another business in the same free zone. For example, in a free zone like JAFZA, an e-commerce business could acquire delivery services of a logistics firm.
Unlike a mainland company, most free zone companies can be set up without a physical office space. However, this depends on your staff size and business activities. Additionally, all procedures to incorporate companies are conducted in English, which can be convenient for most entrepreneurs who happen to be expats.
It is imperative to assess your business needs thoroughly before you narrow down on the free zone for company formation. Various factors like setup costs, company license, visa processing, etc. come into play during company setup. As someone who is new to the UAE’s business arena, grasping these aspects on your own could be overwhelming. Consulting a business setup service provider like InZone can make your incorporation process much easier. InZone’s complete package of corporate services combined with valuable advice can help your business tread the right path.