Mainland vs Free Zone Business Setup in UAE: 2025 Comparison
Choosing between a mainland setup and a free zone setup in the UAE isn’t just a paperwork decision. It decides who you can sell to, how you hire, how you’re taxed, and even how fast you can scale. The rules look straightforward on the surface, but once you factor in licensing, market access, corporate tax, and ICV requirements, the choice becomes very situational.
This guide is for founders, finance leads, advisors who need a clear-eyed, up-to-date comparison of Mainland Business Setup in UAE vs Business Set Up in UAE Free Zone. All rules referenced are based on 2023–2025 updates from UAE government portals (u.ae, Ministry of Economy, Ministry of Finance, and Federal Tax Authority), as well as insights from leading advisory firms.
What Each Option Means
A Mainland Business Setup in UAE refers to registering an onshore company under UAE’s Commercial Companies Law, liaising with the relevant Emirate’s Department of Economic Development (DED) or equivalent local authority. You get to operate across the UAE market, deal with local clients directly, and bid for government contracts (subject to licensing).
On the other hand, Business Set Up in UAE Free Zone means incorporating under a Free Zone Authority (e.g. DMCC, JAFZA, ADGM, Ras Al Khaimah Free Zone). These zones have their own legal and regulatory regimes, typically offer 100% foreign ownership, customs and tax benefits within their zone, and streamlined administrative support.
Mainland opens the local market; free zones simplify foreign ownership.
Mainland vs Free Zone Head-to-Head Comparison
Let’s compare key dimensions. After each, a takeaway so you can see which tends to win (or where trade-offs lie).
| Dimension | Mainland Business Setup in UAE | Business Set Up in UAE Free Zone | Takeaway |
| Ownership & Licensing | Since 2021, the UAE allows 100% foreign ownership for most onshore activities. However, strategic sectors such as oil, defense, and banking still require Emirati participation or special approvals.(Cite: u.ae – Full Foreign Ownership in the UAE | Free zones generally allow 100% foreign ownership, though some zones with financial or legal jurisdictions (e.g., ADGM, DIFC) have governance or residency requirements. | Free zones have always allowed full foreign ownership, but mainland options now match this in many, though not all sectors. |
| Market Access & Contracts | Can freely trade anywhere in the UAE, serve onshore clients, bid for government contracts, deliver directly in other Emirates. | Free zone companies can only trade with mainland clients via a UAElicensed distributor or their own mainland branch/subsidiary, subject to customs and VAT implications. | Mainland is best for unrestricted local trading; free zones need smart partner arrangements to reach onshore clients. |
| Tax & Compliance (VAT, Corporate TAX) | “The mandatory VAT registration threshold is AED 375,000 in taxable supplies over a 12-month period; voluntary registration applies from AED 187,500. Voluntary registration is allowed at AED 187,500.”(Cite: Federal Tax Authority – VAT Registration | “Free zone entities can enjoy a 0% corporate tax rate on ‘qualifying income’ if they meet QFZP conditions under Ministerial Decision No. 139 of 2023 — including adequate substance, qualifying activities, and arm’s-length transactions.(Cite: FTA – Qualifying Free Zone Person Guide, April 2024 | Both setups must follow VAT rules; corporate tax obligations depend on substance, revenue mix and whether the free zone qualifies. |
| Accounting & CFO Needs | All companies must maintain proper accounting records, undergo annual audits, and file tax returns in line with UAE Corporate Tax and accounting standards (IFRS). Most mainland companies must maintain proper books and file tax returns; however, mandatory external audits depend on the entity type, Emirate, and tax-filing obligations. | Free zone authorities also require audits; plus for CT regime, audited financials and transfer pricing documentation may be required (even for free zones). KPMG+2DLA Piper+2 | Free zone auditors often deal with zone-specific formats; mainland demands compliance with local licensing and CT rules, so CFO Services or local accounting is crucial. |
| Visas & Workforce | Mainland companies can hire and operate across all Emirates, though visa quotas and labour approvals are still managed through MOHRE under each establishment’s registered location. | Free zones may grant visa quotas tied to office space or desk packages; but relocation within UAE may have limits depending on zone rules. | Mainland offers easier hiring and staffing across all Emirates; free zones give speed but sometimes in a narrower physical location. |
| Costs & Setup Time | Most mainland setups require a physical office space, with minimum size varying by Emirate and licence type. Check with your DED for exact requirements.Setup may take longer. | Many free zones allow virtual offices or flex-desk options, faster approvals, streamlined setup. | Free zones are quicker and more predictable to launch; mainland may cost more time or commitment. |
| Exit, Liquidation & Business Evaluation | Mainland company liquidation follows UAE Commercial Companies Law and DED procedures, including deregistration, debt settlement, and audited final accounts. | Liquidation in a free zone follows the free zone authority’s rules. Free zone may offer simpler repatriation of capital and profits. | Exit strategy matters, check how easy liquidation is under zone vs mainland before committing. |
| ICV Certification & Govt Contracts | “ICV certification applies mainly to suppliers bidding for tenders under the MOIAT ICV Program (e.g., ADNOC and related government entities).(Cite: MOIAT – ICV Program) | Free zone presence alone may not suffice for ICV or local content participation in government procurements. | If securing government or energy-sector contracts matters, mainland + ICV is often non-negotiable. |
What this really means is: there is no “one size fits all.” You pick based on what your business needs to do, not what sounds better on paper.
Mainland vs Free Zone Which Setup Works Best
Here are rough rules of thumb. Use them, but always validate with your tax and legal advisors.
- Export / re-export trading company → Free zone is compelling. You get full ownership, low interference, customs advantages, and can route via the zone.
- Retail, F&B, local services, stores, consulting in UAE → Mainland. You’ll need direct access to UAE customers.
- Government contracting, large B2B tenders, infrastructure / energy projects → Mainland with ICV presence is usually a must.
- Tech startups, SaaS, remote services with global clients → Could go either way. Free zone gives ownership comfort and clean structure; mainland gives flexibility if you decide to tap UAE local clients.
Tech startups and SaaS companies can benefit from free zone incentives like 100% ownership and simplified licensing, but if you plan to serve UAE-based clients, a mainland entity or dual structure (mainland branch + free zone HQ) offers more flexibility. - Large enterprises aiming to be a core player in the UAE market → Mainland, or hybrid (free zone + mainland branch) might make sense.
In every case: loop in Tax Consultants, VAT Consultancy Services or CFO Services early to run a Business Evaluation of your revenue model, margins, risks.
Quick Checklist Before You Decide
Before you commit:
- Do you need to sell to onshore UAE clients or bid government contracts?
- How important is 100% ownership to you?
- What visa quotas / workforce flexibility do you require?
- What are your projected profits — will you exceed AED 375,000?
- Can you meet substance rules (staff, assets) in a free zone?
- Do you need ICV Certification or will public tenders be critical?
- What’s your exit / liquidation strategy?
- Do you have trusted Tax Consultants or Accounting Services lined up?
If your group operates internationally, monitor the UAE’s ongoing consultation on the OECD 15% Global Minimum Tax, expected to influence large multinationals.
Conclusion & CTA
Mainland gives you local reach, contract access, and ICV credibility. Free zones give you speed, ownership comfort, and zone efficiency. The right choice hinges on your market access, growth plan, and compliance appetite.
The smartest move is to model your business scenarios with a qualified tax or accounting advisor familiar with both mainland and free zone compliance. That way, your setup aligns with what you can do, and what you must do under UAE law.
Disclaimer:
This article reflects UAE laws and guidance available as of publication (Q4 2025). Business regulations and tax rules may evolve without prior notice; always confirm with the Ministry of Finance, FTA, or a licensed advisor. Always consult qualified Tax Consultants, Accounting Services, or VAT Consultancy Services providers before making any Business Setup decision in the UAE. References are based on guidance from the UAE Ministry of Finance, Federal Tax Authority, MOIAT, and official Emirate DED portals as of Q4 2025. Readers should verify updates through official channels before making business decisions.
FAQ
1. What is the difference between mainland and free zone companies in the UAE in 2025?
Mainland companies are licensed by each Emirate’s Department of Economic Development (DED) and can trade freely across the UAE and with government entities. Free zone companies are incorporated within designated zones like DMCC, ADGM, or JAFZA, which have their own authorities and regulations. They offer benefits such as 100% foreign ownership, simplified setup, and tax incentives, but their trading activity is limited to within the zone or abroad unless they work with a UAE-licensed distributor.
(Sources: u.ae; Ministry of Economy; respective Free Zone Authorities)
2. Which is better for my business: mainland or free zone in the UAE?
It depends on your business model.
- Choose the mainland if you need to sell directly to UAE customers, open retail stores, or bid for government contracts (you’ll also qualify for ICV certification).
- Choose a free zone if your focus is international trade, exports, tech services, or global clients, you’ll enjoy faster setup, tax benefits, and full ownership.
Many companies now combine both: a free zone HQ for ownership comfort and a mainland branch for local operations.
(Sources: Ministry of Economy; MOIAT; FTA 2025 Corporate Tax Guide)
3. Can a free zone company trade directly in the UAE mainland?
Not without a middle layer. A free zone company can’t sell goods or services directly to mainland customers unless it appoints a UAE-licensed distributor or creates a mainland branch or subsidiary. When products cross from the free zone into the mainland, customs duty and VAT apply.
(Sources: Federal Tax Authority; UAE Customs; DMCC Trade Rules)
4. Are foreign investors allowed 100% ownership in mainland companies?
Yes, in most sectors. Since the 2021 Commercial Companies Law reform, foreign investors can own 100% of a mainland company in many activities, though some strategic sectors (like oil, defense, or banking) still require Emirati participation or approval from specific authorities. The exact ownership rules depend on your activity code and the Emirate’s DED list.
(Sources: u.ae — Full Foreign Ownership; Ministry of Economy, 2025 updates)
5. How fast is the registration process for free zone vs mainland?
Free zones are generally faster. Many now offer company registration within 3 to 10 working days, depending on documentation and office package. Mainland setup usually takes longer: 10 to 20 working days, since it involves DED licensing, tenancy contracts, and sometimes external approvals. The timeline varies by Emirate and business activity.
(Sources: Dubai DED; DMCC; ADGM; Ras Al Khaimah Economic Zone)