How to Decide: Freezone or Mainland – Which is Better for You?

Dubai continues to be an attractive hub for business owners across the globe because of its strategic location, world-class infrastructure, and pro-business culture.  

However, prior to establishing a business, there is a single, fundamental decision that every investor must make: do you open in a mainland jurisdiction or a free zone jurisdiction

One of the most frequently asked questions is: 'Which is better, free zone or mainland in Dubai?'—a question that does not have a one-size-fits-all answer.

Both offer distinct advantages depending on the activity, size, and aims of your business.  

This article guides you through the differences between free zone and mainland companies in Dubai, the pros and cons of Dubai free zone vs mainland and allows you to make the best decision based on your needs.

Here are the points you must consider before making this business decision:

1. Knowing the Basics

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A Dubai free zone business operates in a special business zone with its own jurisdiction.  

Jebel Ali Free Zone (JAFZA) or Dubai Internet City are examples of free zone jurisdictions designed to attract foreign investment by providing initiatives like 100% foreign ownership, no export/import tax, and tax free.  

Freezones cater to specific industries and offer streamlined licensing procedures, making them very popular among international entrepreneurs and startups.

On the other hand, a mainland company is licensed with the Department of Economic Development (DED) and can freely operate anywhere in the UAE legally.  

Previously, forming a mainland company required a UAE national to have 51% shareholding. New regulations now allow 100% foreign ownership for most business activities.  

This has increased the popularity of mainland setups among investors who require access to the local UAE market.

Overall, free zone and mainland companies in Dubai differ in operating scope, structure of ownership, and licensing government.

2. Advantages and Disadvantages of Dubai Free zone vs Mainland

Every jurisdiction has its own advantages and disadvantages. Which one to choose depends on the nature of the business, customers, and your future plans.

Free zone companies' most attractive feature among all is perhaps that they can be completely owned by foreigners. The owners enjoy complete control without the need for a local partner.  

Full repatriation of capital and profits and exemption from corporate and individual income tax (subject to recent tax amendments) are other significant benefits.  

They also offer access to state-of-the-art industry-specific facilities. The setup procedure has been made simple in free zones, with packages including office space, visas, and administrative assistance.

Whereas the disadvantages of free zone businesses include restrictions on trading in the UAE Mainland. To legally conduct business in the local market, free zone companies must have a UAE-based distributor or agent appointed, which can be cumbersome.  

Visa restrictions are also typically limited and tied to your office space or license package.

Mainland businesses, on the other hand, give complete business freedom in the UAE. You can rent a shop in Dubai Mall, provide services across all emirates, or sign contracts with UAE government ministries.  

Another advantage is expandability—mainland companies can request an increased number of visas, hire without any limitations, and expand office space without the barriers normally found inside free zones.

But more flexibility means more cost. Mainland licenses have a tendency to require the acquirement of physical office space, and compliance with regulations is stricter.  

There are also corporate tax levies (as of 2023, 9% on profits in excess of AED 375,000), but the majority of small businesses can stay exempt on activity and turnover grounds.

3. When is a Free Zone Setup Suitable?

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If your business offers digital services, export products worldwide, or operates remotely, then a free zone establishment may be the best possible option.  

Free zones are ideal for freelancers, consultants, e-commerce portals, software firms, and international traders. They facilitate a cheap way of working with global reach, in case you do not have direct interactions with UAE-based customers.

For instance, an individual owner of a content creation company with overseas clients would value lower establishment fees, fewer compliance procedures, and status of being within a reputable free zone like Dubai Media City or DMCC.

4. When is a Mainland Setup Appropriate?

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On the flip side, if your business model requires local market access—whether through a physical shop, restaurant, clinic, or logistics network—then setting up in the mainland is a smarter move.  

You’ll have the freedom to open multiple branches across the UAE, work directly with customers, and qualify for government projects or tenders.

Mainland businesses are appropriate for retailers, property agents, building contractors, transport operators, and restaurants. These businesses normally entail face-to-face interaction, local deliveries, or en masse employment.  

A mainland license also fits big operations and arrangements with UAE companies.

5. Licensing, Office Space, and Visa Considerations

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Your mainland or free zone selection will also decide your licensing model, visa entitlement, and office space requirements.  

Lean operations are ideally supported by free zone packages, which are usually accompanied by a flexi-desk and a handful of visas.  

Mainland licenses call for an actual lease of an office, and your allocation of visas is directly proportional to your space.

An additional constraint is the permits for activities. While free zones cater to niche sectors, specific professional or commercial permits—such as legal services, audit, or healthcare—may be granted only in mainland or under special approvals within places.

Cost is also an important factor. Free zone set-up costs will normally be lower upfront, especially if you are utilizing a virtual office or shared office space.  

But renewal fees, growth restrictions, and limited market access will accumulate your costs over time. Mainland businesses are more costly to set up due to rent and administrative fees, but they are more flexible for development, size, and diversification.

6. Recent Reforms Affecting Your Choice

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The UAE has implemented significant reforms in the last couple of years that have bridged the gap between free zone and mainland advantages.  

Among the most important of these was the abolition of the 51% local sponsorship rule for most mainland business activities.  

This has facilitated foreign investors enjoying full ownership and access to the local market simultaneously.

In addition, the levying of 9% corporate tax on earnings over AED 375,000 (applicable from June 2023) will include mainland as well as free zone companies. However, free zone businesses that are "Qualifying Free Zone Persons" can still benefit from 0% taxation subject to certain conditions.

The easing of Golden Visa requirements to achieve eligibility also grants business leaders and investors under both mainland and free zone regimes access to long-term residency once they achieve the investment thresholds.

Making the Right Choice for Your Business

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In order to choose the most appropriate jurisdiction, ask yourself the following few key questions:

• Is your business model export, B2C, or B2B?

• Do you need a physical shop or office space?

• How many employees do you intend to hire?

• Is the primary customer base located in the UAE or abroad?

• What is your startup and long-term budget to operate the business?

If your strategy is to have a local presence, penetrate the consumer market in the UAE, and hire a growing team, the mainland is the ticket. If you're looking to start lean, serve international customers, or test the waters before scaling, free zones provide a low-risk entry point.

Some entrepreneurs even use a hybrid strategy, starting with a free zone for ease and velocity, then scaling to mainland once the brand has momentum.

Getting Professional Help
With the existing regulatory framework and continuing reforms in UAE business legislation, getting professional help from a business setup consultant can save you time, money, and even future legal problems.  

Such specialists can analyze your business activity, recommend license selection, and manage paperwork, visa application, and compliance requirements.

Whether you’re launching a digital startup or a brick-and-mortar enterprise, an experienced consultant ensures your company is built on the right foundation.

So, which is better—free zone or mainland in Dubai? The answer depends entirely on your business needs. There is no universal winner. Instead, it is about understanding your market, growth goals, and budget.

A free zone company offers convenience, value for money, and international focus. A mainland license offers access, scale, and entry into the UAE market.  

Both are powerful options, subject to being aligned to your vision.

FAQs

Q1: Which jurisdiction is better, free zone or mainland in Dubai?
Depends. International companies and new companies are best placed in free zones, while mainland suits businesses targeting the UAE market.

Q2: Can a free zone company conduct business in the UAE Mainland?
Only from a licensed distributor or local agent. Direct trade in the mainland is license dependent.

Q3: What are the main differences between free zone and mainland companies in Dubai?
The difference lies in market access, ownership structure, price, and freedom of business.

Q4: Are free zones more affordable than the mainland?
Yes, at first. But long-term costs depend on visa requirements, office requirements, and market strategy.

Q5: Can I convert my free zone company to a mainland company later?
Not necessarily, but you can create a separate mainland entity or branch. Professional advice is recommended in the transition process.

Seek our professional on-the-ground guidance, contact us via mail at info@radiantbiz.com or WhatsApp & call us at +971 55 234 7124!