You being on this page is a dead giveaway that your heart is set on Dubai for your next venture, but at the same time, you are torn between mainland company formation and free zone company formation. Location decisions are no less than solving a riddle! However, if you already know what are the pros and cons of each location and have clarity in your head about your short-term as well as long-term goals, every piece will fall right in its place on its own. So, let’s get to know about the location choices you have at your disposal for your business in Dubai.
Location Options for Business Setup in Dubai
The UAE is a confederation of seven emirates and Dubai is one of them, fully committed to maintaining a stable, proactive and business-friendly environment. Much ink has already been spilled by us on elaborating on “why Dubai is one of the most business-worthy locations in the world. So, we are coming straight to the point – Ways to enter the UAE market! Foreign investors, interested in establishing their formal presence in Dubai can essentially take either of three routes:
- Mainland (Onshore) Company Formation
- Free Zone Company Formation
- Offshore Company Formation
One more way of entering the UAE market could be through a joint venture with a local business or doing business by engaging an authorised distributor/ agent already operating in the UAE. In this blog, we will talk about the first two company setup options in Dubai only. Furthermore, this is worth noting that the prerequisites for a free zone and mainland Department of Economic Development (DED) authority may also differ.
Understand Dubai Mainland
Mainland or onshore is the area in Dubai that lies outside the free zones and is regulated by the Department of Economic Development (DED). This simply means all three types of Mainland trade licences – Professional/Services Licence, Commercial Licence and Industrial Licence – are issued by DED. Limited Liability Company (LLC) or a branch/representative of a foreign company are the most chosen business forms in Dubai mainland. Until June 1, 2021, complete foreign ownership was not possible with a mainland company, but now you are in luck as more than 2000+ commercial and industrial business activities are eligible for 100% business ownership under a mainland licence. Thanks to the latest amendment in the UAE Commercial Companies Law. This is one of the reasons why mainland company formation in Dubai is the most preferred choice amongst investors. Below, we will talk about other reasons as well, plus the downsides of operating under Dubai’s mainland jurisdiction.
Why would you want to choose Mainland?
With an onshore/mainland entity, you can enjoy a wide range of benefits, such as:
- Setting up a mainland company in Dubai is easy and easier with an experienced company formation expert in Dubai such as Adam Global
- Possibility of 100% foreign ownership unless a special exemption applies to restrict them. Before the new amendment in the UAE CCL (Decree Law No. 26 of 2020), the ex-pat business owners were only allowed to own a maximum of 49% ownership of their business
- Appointment of a local service agent is no longer mandatory to register professional licences, branches of foreign companies or free zone establishments and sole proprietorship companies
- The mainland licence holder is free to work with the UAE mainland companies, locally-based customers and/or governmental bodies. The latter surely improves your business reputation and status, both in the country and internationally
- There are no restrictions on the location of commercial premises provided it is located onshore and in the respective emirate from where the licence is dispensed
- The Dubai mainland business licence enables the licencee to trade internationally and expand their presence worldwide
- With a Mainland business licence in Dubai, you can grow your team by applying for unlimited visas, provided you have the required warehouse or office space, which is generally 100 square feet per visa. But the best part is – you can negotiate with the Dubai DED on the requirement to rent extra office space by hiring remote workers
- A Dubai DED licence is the best bet if branch expansion is a key goal of your start-up as it gives you the freedom to expand your business’ branches to other parts of Dubai and across the UAE
- A Dubai onshore setup offers significantly more scope for your business to evolve
- With a Dubai mainland licence the administrative process is smoother, faster, and less restrictive compared to free zone counterparts
Why would you not want to choose Mainland?
You would not want to opt for a mainland company in Dubai if:
- Your chosen business activity doesn’t qualify for 100% business ownership, and you have to share at least 51% of the shares with a local Emirati national as a mandatory requirement as per the Federal Law No. 2 of 2015, the Commercial Companies Law (CCL). This UAE national sponsor can be involved in three ways – individual sponsorship, corporate sponsorship, or local service agent, depending on the business activities that you are intended to conduct under the mainland licence
- There is always a risk associated with the sponsor as they can rightfully interfere in business operations, request a percentage of profits or possibly make it difficult for the foreign investor to exit in the future. The catch here is finding a genuine local sponsor is no easy feat, if not for a qualified Dubai-based business setup advisor
- Usually, LLCs, unlike FTZs, are not subject to any minimum share capital requirement, however, this is at the discretion of the DED, and in most cases, they require investors to cough up a paid-up capital of AED 300,000 or as per the selected legal structure
- Unlike free zones, mainland businesses are subject to all types of taxes applicable in Dubai, UAE including Value Added Tax (VAT) and the upcoming corporate taxes
- A periodic Financial Audit is obligatory for a Dubai mainland establishment
- Depending on the business activity chosen for a mainland trade licence you are required to seek approvals from various government bodies such as the Department of Economic Development, Dubai Municipality, Ministry of Labour, and so on
- A physical office address (a minimum office space requirement of 140 sq. ft. is mandatory to obtain a mainland company licence, for a Dubai, UAE mainland company
- The mainland authority might ask for special approvals from external bodies depending on the choice of business activities
Understand Dubai Free Zone
In some places called special economic zones and free trade zones, free zones in Dubai are business communities that are designed to attract foreign direct investment (FDI) by providing the member companies several unmatched benefits and relief from various taxes. These designated areas in Dubai are regulated by independent governmental or non-governmental free zone authorities and entities. For example, the Jebel Ali Free Zone Authority (JAFZA) in Dubai is in charge of managing, operating and supervising the Jebel Ali Free Zone, one of the largest seaport free zones in Dubai. At present, there are more than 25 operational free zones (List ahead) and most of them are dedicated to a particular industry. For instance, Dubai Internet City for IT and Technology businesses, DMCC for commodity-related trading, and Dubai Media City for media and related business activities.
List of Free Zones in Dubai
Why would you want to opt for a Dubai Free Zone?
Choosing a free zone for your company formation in Dubai opens doors to a different world of benefits you would fall for. Free zone companies are authorised to do business within the jurisdiction of the particular free zone and outside the UAE. Let’s have a look at the common advantages and disadvantages of operating from most of the free zones in Dubai:
- Complete foreign business ownership with no requirement of involving any UAE local sponsor
- Companies registered under free zone authorities don’t have to pay any kind of taxes or import/export duties, which is a huge plus
- Free zone company incorporation is possible with or without premises (Hello virtual offices!). This simply means a physical office space requirement is not mandatory to start a business in any of the free zones in Dubai
- Most free zone jurisdictions don’t mandate Financial Audits for the member companies
- The minimum capital prerequisite of a free zone company formation is possible in some of the Dubai free zones such as DIFC
- Each free zone in Dubai, UAE has a different set of rules and regulations applicable to the companies registered under its jurisdiction
- The business setup process in most of the Dubai free zones such as DMCC, DAFZ and DWTC is easy and effortless as the red flags there are negligible
- Usually, every free zone in Dubai has a dedicated team to provide AtoZ business formation assistance which makes company formation an easy breeze for foreign nationals who are new to the country
- In general, free zones in Dubai offer a wide range of innovative and affordable office space solutions including Flexi Desk at co-working spaces to lease and purchase to boot
- Unlike other free zones in the UAE, the free zones in Dubai allow the foreign business to have extremely risky nationalities of the shareholders
- The statement “The more activities you handpick, the more cost you pay for your trade licence” is not true in most free zones in Dubai. For example, with a Dubai Multi Commodities Centre (DMCC) Free Zone business setup, you can have up to six business activities under the same type of trade licence
- Most free zones in Dubai such as JAFZ come with strategic transportation routes and hubs which helps save member companies a fortune on logistics
- Attractive business setup packages covering a majority of services
- A dual licence option is available for those who want to establish a mainland branch company of their free zone establishment in Dubai
Why would you not want to register your company under a Dubai Free Zone?
Of course, a free zone business formation is a popular choice amongst foreign investors because of the advantages it brings. However, there are certain restrictions on the free zone-licenced company in Dubai or any emirate of the UAE because of which you might want to reconsider your business location decision. Here are some of the downsides that you must know before applying for a free zone company, licence in Dubai:
- Free zone establishments in Dubai are allowed to do business within the jurisdiction of the particular free zone and outside the UAE and are not permitted to do business in Dubai Mainland until a local distributor is engaged
- The tax exemption on companies registered under free zone authorities is for a renewal period of 50 years. What if the government decides to not extend it? (Pun intended but we can’t ignore the introduction of VAT and the corporate tax introduced lately in the UAE)
- There are certain restrictions on visa applications under a free zone licence in Dubai. For instance, in typical cases, the number of visas granted ranges from 1 to 6 and for more visas, the licencee must fulfil the requirement of renting additional work premises. You are dispensed only one UAE Residency Visa quota for every 9-10 sq. mt. office space
- Not all free zone entities are exempted from Financial Audits. For instance, companies registered under the FZE and FZCO jurisdictions must prepare a year-end audit
- Most free zones in Dubai require a certain amount in the name of minimum share capital as a prerequisite for starting a free zone company, which is at the sole discretion of the respective free zone authority and varies from business to business. There are two alternatives for share capital: Authorised where you don’t have to deposit share capital & Paid-up, where you must deposit share capital and provide the authority proof of deposit
- External approvals from government bodies and agencies that do not belong to the free zone are not required for forming a free zone company in Dubai
- All free zones might not register both types of companies. You need to check with individual free zone authorities about the type of company they can register. Refer to the list of free zones and their authorities
- Free zones in Dubai can register only a specific type of company or legal entity. For example, a foreign company can form either a Free Zone Establishment or a Free Zone Limited Liability Company (FZ LLC) aka Free Zone Co. (FZ Co.)
- The number of shareholders that a free zone company is allowed to have is also limited by the legal structure of the entity. The limited also relies on the nature of the shareholder (whether natural individual or legal entity)
- There are Dubai free zones where you will be required to have different types of licences for slightly different activities. For example, it is not possible to have a Commercial and Service licence under the same company in the Dubai South Free Zone
Dubai Mainland or Dubai Free Zone, which location is better for business formation in Dubai?
The biggest dilemma, when starting a business in Dubai, is whether to choose the mainland or the free zone for the company formation. Well, TBH, no choice is a wrong choice, considering the individual needs and visions of businesses, the type of intended activity, the scale of operations and of course, the location of the target audiences (whether inside or outside the UAE). The selection becomes a lot easier if you know what’s the difference between the two, and we are sure now you are no stranger to both terms. A piece of advice from Adam Global business setup consultant – Analyse your business plan for the next three years to be able to pick the right location for your company formation in Dubai. If you still are sitting on the fence about your business jurisdiction and seeking an expert opinion from our qualified business setup advisors in Dubai, then visit us and make our Dubai business advisor understand your business needs and objectives. What’s more? Working with the Adam Global company formation specialists means you can establish your business in Dubai swiftly, efficiently and most importantly cost-effectively with an affordable bespoke business formation package providing a wide range of benefits and services such as business formation & registration, automated legal administration, Dubai national sponsorship, visa & immigration processing, a dedicated service agency for your business, several post-business setup services amongst others. The cherry on the top is that we are a one-stop shop for all the business needs before, during, and after the business formation. Book your no-obligation free consultancy with our company formation specialists in Dubai to know how we can help you with your new dream project.