Starting a business in Dubai? There’s a distinction between Dubai Mainland and Free Zone companies. This guide will help you comprehend and decide which type is best for your business. Let’s dive in
Dubai Mainland vs Free Zone Companies: The Basics
- Dubai Mainland Companies are onshore companies registered under the government authority of the emirate.
- Free Zone Companies are situated within special economic zones with specific rules, regulations, tax benefits, and incentives. They’ve been designed to make it easier for foreigners to invest and start a business in Dubai.
Pros and Cons of Each Type:
Ownership:
- Dubai Mainland: Historically, foreigners could only own up to 49% of a Dubai Mainland company. A UAE national was required to own the remaining 51%. However, recent changes permit 100% foreign ownership for professional services, but the rule still stands for commercial or industrial licenses.
- Free Zone: Allows 100% foreign ownership irrespective of the type of business.
Taxation:
- Dubai Mainland: From June 1st, 2023, there’ll be a 9% corporate tax on companies earning more than 375,000 Dirhams (approx. $102,000).
- Free Zone: Zero corporate tax, personal income tax, tax on dividends, and capital gains for the foreseeable next 49 years.
Custom Duty:
- Dubai Mainland: Incurs custom duty taxes on imported goods.
- Free Zone: Exempted from custom duties.
Operational Region:
- Dubai Mainland: Can operate both within and outside the UAE and in the free zones.
- Free Zone: Primarily for international business and within its respective zone. However, offering professional services or e-commerce sales can be done to the UAE mainland via third parties.
License Type & Business Activities:
- Dubai Mainland: Offers Professional, Commercial, Industrial, and Tourism licenses.
- Free Zone: Primarily offers Professional, Commercial, and Industrial licenses. Tourism is often an exception.
Office Space Requirement:
- Dubai Mainland: Mostly mandatory depending on the business activity.
- Free Zone: Not obligatory unless you have more than four visas.
Visas:
- Dubai Mainland: Visa allocation depends on the company’s structure, operations, and size.
- Free Zone: Visa number relies on the respective Free Zone, with visas provided directly from there.
When to Choose Which?
- Market Reach: If you plan to sell internationally or within the free zone, the Free Zone company is ideal. But for specific services like tourism, construction, real estate, or if opening a physical store, a Mainland company makes sense.
- Tax Implications: Prefer paying zero taxes? Opt for a Free Zone company.
- Custom Duty: Those involved in importing and exporting goods might benefit from the Free Zone’s no custom duty rule.
- Ownership Concerns: If you want total ownership and your business doesn’t allow it on the Mainland, choose Free Zone.
- Office Space: For those who don’t require a physical office, Free Zone might be the choice.
How to Set Up a Company in Dubai Mainland: A Step-by-Step Guide
1. Determine Your Business Activity
Before anything else, identify the core activities your business will undertake. This is crucial because Dubai has specific regulations and licenses for different activities.
2. Choose a Business Name
Your company’s name should reflect its nature. Ensure it respects the cultural and legal guidelines of the UAE. Some words might be prohibited or already taken.
3. Select a Business Structure
Depending on your business activity, choose a relevant business structure:
- Sole Proprietorship
- Civil Company
- Limited Liability Company (LLC)
- Public Joint Stock Company (PJSC)
4. Find a Local Sponsor
For many business activities on the Mainland, a local sponsor is necessary. This sponsor will hold at least 51% of your company’s shares. However, note that certain professional services allow 100% foreign ownership.
5. Obtain Initial Approval
Apply for initial approval from the Department of Economic Development (DED). This indicates that the Dubai government has no objection to you starting a business.
6. Draft the Memorandum of Association (MOA)
Prepare a MOA with your local partner. This document outlines the nature of the business, its activities, and the share distribution among partners.
7. Rent an Office Space
For most Mainland companies, renting a physical office space is a requirement. The office size and its capacity might also determine the number of visas you can obtain for your employees.
8. Acquire the Required Licenses
Depending on your business type, you’ll need one of these licenses:
- Professional License: For service providers, consultants, and artisans.
- Commercial License: For trading activities.
- Industrial License: For manufacturing or processing activities.
- Tourism License: For travel and tourism activities.
9. Finalize Other Approvals
Some businesses (like finance, health, or food) might need additional approvals from relevant government departments.
10. Pay Necessary Fees
You’ll need to pay the necessary fees for licenses, approvals, and other admin costs. These vary based on your business activity and location.
11. Register with the Chamber of Commerce and Industry
It’s mandatory to register with the Dubai Chamber of Commerce and Industry to complete your company setup.
12. Hire Employees (if needed)
If you plan to hire employees, ensure they have proper visas and permissions. Depending on your office space, you might have limitations on the number of visas you can sponsor.
13. Open a Corporate Bank Account
With all paperwork in hand, you can now approach a local bank to open your company’s bank account.
14. Stay Compliant
Once your business is operational, make sure you renew your licenses, visas, and other permits as needed. Keep abreast of any changes in the UAE’s commercial laws.
15. Consider Additional Amenities
Mainland Dubai offers various services, like warehouses, logistics, and more. Depending on your business, you might benefit from these services.
