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Difference Between Mainland and Free Zone Companies in Dubai

When you start a company in Dubai, the first step that should look forward to is selecting the city where you would like to operate the business. In Dubai businessmen are mostly offered two options while selecting their company’s location.

Among these two options, one is a mainland office and the other one is a free zone office. There lie some distinctions between mainland and free zone companies within Dubai. Here is a list of their main differences along with their benefits as well as constraints.

Mainland company-

It is an onshore company which is allowed to operate in the local market and also outside the United Arab Emirates without restrictions. Thus it is not limited geographically to carry out any business procedures. A mainland company is qualified by Department of Economics Development.

Free zone company-

It is established in separate business jurisdiction known as free zone. Businessmen who wish to setup a base in United Arab Emirates for their imports internationally choose the free zone option. It is a completely different entity which has its own rules as well as regulations.

Business activities are only executed inside the free zone and are not permitted outside it. A free zone company cannot work in a non free zone without the help of an agent. Dubai has many free zones. Foreign investors are seen to opt for free zone establishments in order to avail benefits of ownership, make use of world class infrastructure, take care of their assets as well as enjoy exemption of tax.

Differences

Ownership

If you are setting up a Mainland Company, then presence of a United Arab Emirates National is compulsory in each and every mainland licenses. It can be as a local partner or as a local service agent. In case of a commercial license, a foreign investor who establishes a company in mainland United Arab Emirates can acquire 49% of the share of the company and the rest 51% of the company’s shares are held by the United Arab Emirates National.

But in case of a professional license, 100% shares can be owned by the foreign investor and he needs to appoint a local service agent. The local service agent is responsible for signing all the government applications and on the other hand the foreign investor is the sole for the operations related the business with no input from the local service agent until and unless agreed.

As compared with Mainland Company, foreign investors enjoy complete ownership of the business. Free zone license is 100% owned by them. Existence of any United Arab Emirates National in the license is not required. This is considered to be the best benefit of free zone Company in Dubai.

Scope of business

Companies that are established in mainland United Arab Emirates faces no restriction related to scope of business. They can operate their business anywhere in Dubai, such as in free zones and also outside Dubai. They can perform commercial, professional and even industrial activities other than banking and insurance.

Whereas free zone companies can operate within the area assigned for any particular free zone. If they wish to operate in local market then they will require the assistance of local distributor or an agent. The free zones are located mostly near sea ports and airports. So the most favourable business for these companies is import and re-export as well as courier services.

Work space

200 sqft is the minimum requirement of area that should be leased out annually for a mainland company. Then the company will be issued a license by Department of Economic Development.

Alternatively, free zone companies require no physical office. So depending on their work requirements, they could or might not have physical office buildings for their business. A special service known as flexi desks exists in free zone which saves a lot of money because with the help of this licensees can avail common business centre desks for at least 5 hours every week. The initial cost of registration is thus saved by the new market entrants.

Visa facility

A mainland license, has no visa limitation. An electronic quota is issued by the Ministry of Labour to every mainland company.  It shows their eligibility for visas and if the company requires more staff then it can be increased. Visa eligibility is dependent on the office space. So if you have more office space then more visas will be granted for your company. But driver and outdoor sales staff do not qualify for visa facility.

Each and every free zone license usually has 2 visas offer on the package of smart office. But different free zones in United Arab Emirates allow 3-6 visas on this package. If any businessman needs more visas then he needs to lease out a physical office or a warehouse to get more visas.

Approval from government authorities

Mainland companies license needs standard government approvals for each license such as Department of Economic Development, Ministry of Labour, and Department of Naturalization and Residency affairs of Ministry of interiors or immigration.

Some approvals are also required from external government authorities for particular business activities such as Knowledge and Human Development Authority for every education related licenses, Dubai Health Authority for every medical related licenses, Food Department of Municipality for all food related license and many others.

But in case of free zone companies since the business is related mainly to imports and re-exports, hence the authorities of these companies do not require external authorities approval for issuing any license. Only if they opt for special services then they might require approval of external authorities.

Time frame for business setup

After you discover the right local sponsor, the setup of mainland companies will depend on that. So it will take lot of time to establish a mainland company.

In case of free zone business after the best are for the business is decided then the setup will depend on it. It takes 3-6 weeks usually for both the setups.

Thus for all new businessman it is essential to take advice from experienced minds as it will serve their business requirement for a long run.

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