Free Zone Vs. Mainland: How to select business licensor in the UAE
Free Zone Vs. Mainland: How to select business licensor in the UAE
Looking to establish your business in the UAE but not sure which licensor to go ahead with? With so many options available, it’s easy to get overwhelmed.
Look no further! We’ll take you through everything you need to know about selecting a licensor in the UAE and help you make the right choice for your business.
Introduction
Setting up a business is a significant decision that requires careful planning and consideration, especially when selecting a business location. The United Arab Emirates (UAE) is a popular destination for entrepreneurs and investors worldwide due to its favourable business environment, strategic location, and stable economy. However, the UAE has many licensing authorities who have the authority to issue business licenses in their respective jurisdictions. Selecting the right business location and choosing a suitable licensor can be challenging.
In the UAE, there are two broad types of licensors: Free Zones and Mainland. Every kind of licensor has advantages and disadvantages, and selecting the right one depends on your business needs and goals. In this article, we will explore the differences between Free Zone and Mainland licensors and guide on selecting the right one for your business.
Free Zone Licensors:
Free Zones are designated areas in the UAE where businesses can operate with 100% foreign ownership and tax exemptions. Free Zone licensors are responsible for issuing licenses to companies operating within their jurisdiction. Free Zones are attractive to foreign investors as they offer many benefits such as simplified procedures, fast processing times, and access to world-class infrastructure apart from tax benefits.
Advantages of Free Zone Licensors:
- 100% foreign ownership
- Corporate Income Tax exemption on profits
- Easy company registration
- Fast processing times
- World-class infrastructure
Disadvantages of Free Zone Licensors:
- Limited scope of operations
- Potential restrictions on access to the local market
- No physical presence in the local market
- Comparatively restricted business activities
- Enhanced compliance by banks while opening bank account
Mainland Licensors:
Mainland companies operate under the jurisdiction of the UAE government. Each of the UAE’s seven emirates(states) has its mainland licensing authorities. Mainland licensors are responsible for issuing licenses to companies operating within their jurisdiction, which is within the emirate, excluding free zones in the emirate. Mainland companies have access to the local market and are open to any activity businesses need to license for.
Advantages of Mainland Licensors:
- Unconditional access to the local market
- Availability of all business activities
- Availability of a large workforce
- No restrictions on physical presence
- Access to government contracts
- Ease of opening corporate bank account, in general
Disadvantages of Mainland Licensors:
- National shareholder / service agent required for some (very few) activities
- More complex company registration process
- Longer processing times and lack of clarity
- Applicability of Corporate income tax on profits
- Limited infrastructure in some areas
Choosing the Right Licensor: Free Zone Vs Mainland
When selecting a licensor, it is crucial to consider your business needs and goals. Suppose your company is focused on international trade and does not require access to the local market. In that case, a Free Zone licensor may be your best option. However, if you need access to the local market, a Mainland licensor may be the better choice. Target market is the most crucial consideration while deciding between Mainland Vs Free Zone.
It is important to note that some business activities, such as banking, insurance, and legal services, are restricted to Mainland companies. If your business falls under these categories, you must choose a Mainland licensor.
Factors to Consider When Choosing Between Free Zone and Mainland
- Nature of the business
- Target market
- Type of industry
- Legal structure
- Business goals and objectives
Conclusion:
Selecting the right business location and licensor is critical to the success of your business in the UAE, as it will have long-term repercussions on cost, operations and taxes. Free Zone and Mainland licensors offer advantages and disadvantages, and choosing the right one depends on your business needs and goals. By carefully considering your options and conducting thorough research, you can make an informed decision that will set your business up for success.
You can use our decision-making tool to decide which is the best-suited licensing authority in the UAE. The tool intends to help entrepreneurs select between all licensing authorities in the UAE, including Mainland and Free Zones.
FAQ
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1. What is a free zone license in the UAE?
A free zone license in the UAE is a business license issued to companies in designated economic zones with particular regulations and tax incentives. The Zones are given the autonomy to issue business licenses in their jurisdiction. -
2. What is a mainland license in the UAE?
A mainland license in the UAE is a business license issued to companies registered by Mainland licensing authorities in the UAE. Every emirate has one licencing authority, generally known as the Department of Economic Development, popularly known as DED. -
3. How free zones are formed in the UAE? What is the regulatory background of free zones?
The regulatory background of free zones in the UAE dates back to the early 1980s when the government began introducing policies to diversify the economy and reduce its dependence on oil. In 1985, the Jebel Ali Free Zone (JAFZA) was established in Dubai, making it the first free zone in the UAE. Since then, numerous free zones have been established nationwide, each with its regulations.
A decree law of the respective government regulates the formation of free zones in the UAE. The free zone authorities are given responsibility for enforcing the laws and regulations governing the operation of businesses within the zone. -
4. How many free zone licensing authorities are in the UAE? How does it differ?
There are over 45 free zone licensing authorities in the UAE, each with its own set of regulations and requirements depending on the type of business activity. Some of the most popular ones include Dubai Multi Commodities Centre (DMCC), Jebel Ali Free Zone (JAFZA), and Abu Dhabi Global Market (ADGM). - 5.List free zones in the UAE indicating the respective emirate in which it is located.
|
Emirate |
Name of the free zone |
|
Abu Dhabi |
Abu Dhabi Airport Free Zone (ADAFZ) |
|
Abu Dhabi |
Abu Dhabi Global Markets (ADGM) |
|
Abu Dhabi |
Higher Corporation for Specialized Economic Zones (ZonesCorp) |
|
Abu Dhabi |
Khalifa Industrial Zone Abu Dhabi (KIZAD) |
|
Abu Dhabi |
Masdar City Free Zone |
|
Dubai |
Dubai Airport Free Zone (DAFZA) |
|
Dubai |
Dubai Cars and Automotive Zone (DUCAMZ) |
|
Dubai |
Dubai Design District (d3) |
|
Dubai |
Dubai Gold and Diamond Park |
|
Dubai |
Dubai Healthcare City (DHCC) |
|
Dubai |
Dubai International Academic City (DIAC) |
|
Dubai |
Dubai International Financial Centre (DIFC) |
|
Dubai |
Dubai Internet City (DIC) |
|
Dubai |
Dubai Knowledge Park (DKP) |
|
Dubai |
Dubai Media City (DMC) |
|
Dubai |
Dubai Multi Commodities Centre (DMCC) |
|
Dubai |
Dubai Silicon Oasis (DSO) |
|
Dubai |
Dubai Studio City (DSC) |
|
Dubai |
Dubai World Trade Centre (DWTC) |
|
Dubai |
Jebel Ali Free Zone (JAFZA) |
|
Sharjah |
Hamriyah Free Zone Authority (HFZA) |
|
Sharjah |
Sharjah Airport International Free Zone (SAIF-Zone) |
|
Sharjah |
Sharjah Media City (Shams) |
|
Fujairah |
Fujairah Free Zone |
|
Fujairah |
Fujairah Creative City |
|
Ras Al Khaimah |
Ras Al Khaimah Economic Zone (RAKEZ) |
|
Ras Al Khaimah |
Ras Al Khaimah Free Trade Zone (RAK FTZ) |
|
Ajman |
Ajman Free Zone Authority (AFZA) |
|
Umm Al Quwain |
Umm Al Quwain Free Trade Zone (UAQ FTZ) |
6. How many mainland licensing authorities are in the UAE? List them.
There are seven mainland licensing authorities in the UAE, including
- Department of Economic Development (DED) in Dubai,
- Abu Dhabi Department of Economic Development (ADDED),
- Sharjah Economic Development Department (SEDD).
-
7. Can free zone companies move their registered office from the free zone to the mainland?
Yes, free zone companies can move their registered office from a free zone to the mainland. However, they will be subject to UAE laws and regulations and require a mainland business license. -
8. Can Free Zone companies form branches in the mainland?
Yes, free zone companies can form branches on the mainland. However, they will be subject to UAE laws and regulations and require a mainland business license. -
9. Can free zone companies form branches in free zones in other emirates?
Yes, free zone companies can form branches in free zones in other emirates. The companies will have to obtain a No Objection Certificate from the licensing authority, among other documentation requirements. However, branches will be subject to the regulations and conditions of the respective free zone authority. -
10. Can free zone companies form branches in other emirates?
Yes, free zone companies can form branches in other emirates. -
11. Can Free Zone companies form branches overseas or outside UAE?
Yes, free zone companies can form branches overseas or outside UAE. However, the process and requirements will vary depending on the country and its regulations. -
12.Can mainland companies form branches in free zones?
Yes, mainland companies are allowed to form branches in free zones. However, they will be subject to the regulations and requirements of the respective free zone authority. -
13. Can mainland companies form branches in free zones in other emirates?
Yes, mainland companies can form branches in free zones in other emirates. However, they will be subject to the regulations and requirements of the respective free zone authority. -
14. What are the tax advantages to free zone companies compared to mainland companies?
Free zone companies are typically exempt from corporate and personal income taxes, customs duties and VAT (in customs-free zones). Mainland companies, on the other hand, are subject to UAE federal corporate laws and regulations. -
15. What are the differences in regulatory compliance between free zone and mainland companies?
Free zone companies are subject to the regulations and requirements of the respective free zone authority. In contrast, mainland companies are subject to UAE federal and emirate-level laws and regulations. The level of regulatory compliance required for each type of company will depend on the nature of the business activity and the requirement of the licensor. -
16. Does free zones and the mainland have the same laws?
No, free zones and the mainland have different laws and regulations. Free zones have their own set of rules and requirements. At the same time, mainland companies are subject to UAE federal and emirate-level laws and regulations. -
17. Can Free Zone companies issue visas to employees who reside in the mainland?
Yes, Free Zone companies can issue visas to employees who reside in the mainland. Employees can move across different emirates with the visa they hold from any free zone. -
18. Can Free Zone companies issue visas to employees who stay in the mainland of other emirates?
Yes, Free Zone companies can issue visas to employees who stay in the mainland of other emirates. -
19. Are trade inside the free zone exempt from customs?
Yes, trade inside specified free zones is typically exempt from customs duties. Further, tax authorities have notified specific free zone designated free zones and are given special provisions for such free zones. -
20. Can companies move goods between branches in a free zone and the mainland?
Companies can move goods between branches in free zones and the mainland. However, one needs to check if the free zone is a customs-controlled free zone while moving goods to and from the mainland.