Insights · UAE Company Setup
Setting Up a Company in the UAE: Free Zone vs Mainland
Free zone or mainland in the UAE: ownership, where you can trade, corporate tax at 0% or 9%, VAT and banking compared for founders.
A UAE company can be set up in a free zone or on the mainland. Since 1 June 2021 most mainland activities allow 100% foreign ownership, so ownership is no longer the deciding factor. The choice now turns on where your customers are, whether you can genuinely qualify for the 0% free-zone tax rate, and what your bank and your home-country tax position require.
Key figures
- 100% foreign ownership for most mainland activities since 1 June 2021 (UAE Government)
- Mainland: 0% corporate tax up to AED 375,000 of taxable income, 9% above
- Free zone: 0% on qualifying income for a Qualifying Free Zone Person, 9% on the rest
- VAT at 5% applies in both, with registration mandatory above AED 375,000 of taxable supplies
- Corporate tax registration is mandatory in both
Side by side
| Free zone | Mainland | |
|---|---|---|
| Licensing authority | The free zone authority | The emirate’s economic department |
| Foreign ownership | 100% | 100% for most activities; a short list of strategic sectors is restricted |
| Selling to mainland customers | Restricted for goods; usually through a distributor, a branch or a dual licence. Services are more flexible in practice | Unrestricted |
| Government contracts | Generally not | Yes |
| Corporate tax | 0% possible on qualifying income, with strict conditions | 0% up to AED 375,000, then 9% |
| Audit | Needed for the 0% rate; many zones also require it for renewal | Needed if revenue exceeds AED 50 million, and often by banks |
| Office | Flexi-desk to full office, inside the zone | Physical office with a registered tenancy |
| Visas | Tied to the package and office size | Tied to office space |
| Customs | Designated zones are outside the customs territory; duty is deferred until goods enter the mainland | 5% duty on import in most cases |
When a free zone fits
- International trading, re-export and logistics through a designated zone
- Holding companies for shares and investments
- Businesses whose customers are other free-zone companies or are outside the UAE, and whose activity is on the qualifying list
- Regulated financial and fund businesses in the financial free zones, which have their own common-law courts
The 0% rate is not automatic. General consulting, IT services and marketing services are not qualifying activities, so income from mainland or foreign clients for those services is taxed at 9% unless it stays within the de minimis limit. Read the Qualifying Free Zone Person conditions before choosing a free zone for tax reasons. For many small service companies the honest comparison is 9% in a free zone against 9% on the mainland, with the free zone being cheaper to run.
When the mainland fits
- Retail, restaurants, clinics, contracting and anything that sells to UAE consumers or businesses on the ground
- Companies that want to bid for government and semi-government work
- Businesses that need freedom to open branches across emirates
- Businesses that would not qualify for 0% anyway and want no restriction on customers
Under Federal Decree-Law No. 26 of 2020 and the Commercial Companies Law that followed, a local majority shareholder is no longer required for most commercial and industrial activities. A short list of activities with strategic impact, including security and defence, banking, insurance and telecommunications, still carries ownership limits or approvals.
Banking decides more than people expect
A licence can be issued in days. A corporate bank account can take weeks or months, and rejections are common where the company has no office, no local staff, no clear source of funds or an unclear business model. Banks look at the shareholder’s profile, the expected countries of payment and the substance in the UAE. A mainland company or a free-zone company with a real office and a resident manager generally finds this easier than a flexi-desk entity. See our UAE corporate banking service.
For Indian founders and companies
- Funding the company from India is overseas direct investment and must be reported before the money moves. See ODI vs LRS.
- If the company is actually run from India, India can tax its worldwide income. See POEM risk for a Dubai company.
- Dealings with the Indian group must be at arm’s length in both countries.
- Substance matters three times over: for the 0% rate, for the bank, and for Indian tax. Budget for a real office and at least one capable resident employee.
A decision sequence
- List your customers by location: mainland, free zone, overseas.
- Check whether your activity is on the qualifying list. If not, assume 9%.
- Decide what physical presence you will really have.
- Shortlist zones or emirates by activity, cost and visa needs.
- Confirm bank appetite for your profile before paying for the licence.
- Line up the Indian FEMA filing, then incorporate, then remit.
Related reading: UAE corporate tax for Indian businesses and UAE corporate tax explained. Our UAE company setup team handles formation across IFZA, Meydan, DMCC, JAFZA, RAKEZ and the mainland.