Choosing between a free zone and a mainland company is one of the first decisions you make when you set up in Dubai. It affects who you can sell to, what kind of office you need, how many visas you can get and how your profits are taxed.
Neither option is better in general. The right choice depends on your customers, your activity and your plans. This guide sets out the differences that matter and how to decide.
The short version
- Mainland usually suits you if you want to sell directly to customers anywhere in the UAE, open a shop or showroom, or work with government entities.
- A free zone usually suits you if most of your customers are outside the UAE or in the same free zone, you want to start with a flexible desk rather than a full office, or your activity fits a specialist free zone.
What are mainland and free zone companies?
Mainland companies
A mainland company is licensed by the economic department of the emirate where it operates. In Dubai, that is the Department of Economy and Tourism (DET), formerly the Department of Economic Development (DED), and you apply through Invest in Dubai, the government's online business setup platform. A mainland trade licence lets you do business anywhere in the UAE and internationally.
Free zone companies
A free zone is a special economic area with its own authority, rules and licences. Dubai has more than 20 free zones, and several focus on specific sectors such as technology, media, commodities, logistics or finance. The free zone authority issues your licence, handles your visas and sets the rules on office space. Financial free zones such as the Dubai International Financial Centre (DIFC) also have their own legal framework and regulator.
You can compare the main options on our free zones page.
Ownership
Since 2021, foreign investors can own 100% of a mainland company in most commercial and industrial activities, under Federal Decree-Law No. 26 of 2020, which amended the Commercial Companies Law. Before then, most mainland companies needed a UAE national shareholder holding 51%. Activities with a strategic impact still have ownership restrictions or need extra approvals.
Free zone companies have always allowed 100% foreign ownership. For most founders, ownership is no longer the deciding factor.
Where you can do business
This is usually the biggest difference between the two.
A mainland company can trade directly with customers and businesses anywhere in the UAE, as well as abroad. It can open branches across the country, subject to approvals, and can work with government entities.
A free zone company can trade within its free zone and outside the UAE. To sell directly to customers on the UAE mainland, it usually needs a local distributor or agent, or a separate mainland licence or branch. Under Dubai Executive Council Resolution No. 11 of 2025, some free zone companies can also apply to DET, with their free zone authority's approval, to carry out approved activities on the mainland, but it depends on the activity and comes with its own conditions. Our guide to free zone companies doing business on the mainland compares these routes.
Office space, visas and staff
Office space
Mainland companies need premises suited to their activity, with a tenancy contract registered through Ejari, Dubai's tenancy registration system. The size of your premises affects how many visas you can apply for. Smaller businesses often start in a business centre that provides a registered tenancy contract.
Free zones usually offer more flexible options, from a shared or flexi desk to a private office or warehouse. Your package normally sets how many visas you can apply for, so choose it with your hiring plans in mind. Our guide to office requirements, Ejari and flexi-desks explains what each option allows.
Visas and staff
Both mainland and free zone companies can sponsor residence visas for owners, employees and their families. The differences are in who processes them and what sets the limit.
- Mainland: employment matters such as work permits and labour contracts go through the Ministry of Human Resources and Emiratisation (MOHRE), and residency goes through GDRFA Dubai. Your visa quota is linked to your premises. Larger mainland employers also have Emiratisation targets.
- Free zone: the free zone authority handles most of the employment and visa paperwork. Your visa quota depends on your office package.
In both cases, your company needs an establishment card, which is the immigration file that allows it to sponsor people. Each visa holder takes a medical fitness test and gets an Emirates ID.
Corporate tax and VAT
Tax applies to both structures, but it can apply differently.
- Corporate tax. The UAE introduced corporate tax for financial years starting on or after 1 June 2023. The standard rate is 9% on taxable income above AED 375,000, with 0% on income up to that amount. Companies in free zones and on the mainland must register for corporate tax and file returns.
- Qualifying free zone income. A free zone company that meets the conditions to be a Qualifying Free Zone Person may pay 0% on its qualifying income. The conditions include having adequate substance in the free zone, keeping audited financial statements and keeping non-qualifying revenue under a set limit. Income that does not qualify, which often includes income from mainland customers and from individuals, is taxed at 9%.
- VAT. The standard rate is 5%. Registration is mandatory once your taxable supplies and imports exceed AED 375,000 over the previous 12 months, or are expected to within the next 30 days. The same thresholds apply in free zones and on the mainland.
Do not choose a free zone only for the 0% rate. Check that your activity and customers will produce qualifying income, and that you can meet the substance and reporting conditions in practice. Our guide to qualifying income for free zone companies explains the tests. Tax rules are detailed and are updated through new decisions and guidance, so this is general information, not tax advice. Speak to a registered tax agent about your structure.
Costs and setup time
Costs
Costs vary too much to give useful figures here. They depend on your activity, the number of visas, the type of office and the authority you choose.
When you compare quotes, look at the total cost over two or three years rather than the first-year package price. Include licence renewals, visa costs for each person, office rent, and accounting and audit fees. Our guide to what cheap free zone packages leave out lists the costs that are easy to miss.
How long setup takes
A free zone licence can often be issued within a few working days once your documents are complete. Mainland setups usually take longer, because there are more approvals and you need premises. In both cases, opening a corporate bank account is often the slowest step, as each bank runs its own checks on the company and its owners.
How to decide
Work through these questions:
- Who are your customers? If most are UAE consumers or mainland businesses, lean towards mainland. If most are abroad, a free zone is often enough.
- Do you need a shop, showroom or warehouse? Retail is usually easier on the mainland. Some free zones offer warehousing for import and re-export.
- How many visas will you need, now and in two years? Your office choice sets your quota in both cases.
- Is your activity regulated? Financial services, healthcare, education and some other activities need approval from a regulator, which can decide where you are able to be licensed.
- How will you be taxed? If you plan to rely on 0% for qualifying free zone income, check that you can meet the conditions.
- Will you want to sell into the UAE later? Some founders start in a free zone and add a mainland licence as their UAE sales grow.
If you lean towards a free zone, our guide to choosing a UAE free zone covers the questions to answer next. Whichever you choose, owning a company lets you sponsor your own residence visa as an owner or partner, subject to the usual approvals, as our guide to investor and partner visas explains.
How Almahira can help
If you want a second opinion on your structure, our business setup team can compare mainland and free zone options for your activity, prepare your licence application, and help with bank account opening, tax registration, visas and Emirates ID once your company is formed.
Sources
Frequently asked questions
Can a free zone company open a branch on the mainland?
Do free zone companies charge VAT?
Can I own both a free zone company and a mainland company?
Found this useful? Pass it on.