One of the first decisions every entrepreneur in the UAE business setup journey faces is choosing the right licensing jurisdiction for their business setup. The UAE has multiple jurisdictions across the region for all different kinds of business activities and corporate structures.
As such, the licensing jurisdiction where you set up your business is a critical first step in your UAE company formation process.
Every new client who approaches us with this issue is asked two important questions:
- Where is your primary customer base?
- What is your main business activity?
These two questions are key to deciding where you should or can set up.
For example: if you plan to import and sell your goods to customers and companies in the UAE, the mainland company setup is your appropriate choice, and if you are looking to develop international trade, transport goods from abroad to your international clients via the UAE or elsewhere or e-commerce, we suggest a free zone.
Let’s look at some of the main advantages and disadvantages in both these licensing jurisdictions:
Mainland
| Advantages | Disadvantages |
|---|---|
| Full Market Access: You can trade directly anywhere in the UAE, deal with the government, and open offices across the country. | Higher Costs: Generally, involves higher setup and operational costs due to mandatory physical office space and higher licensing fees. |
| No Trading Restrictions: Freedom to conduct business locally, regionally, and internationally without using a local distributor. | Corporate Tax: Subject to the UAE’s 9% corporate tax on taxable profits exceeding AED 375,000 |
| Visa Flexibility: The number of employment visas is primarily determined by the size of your leased office space, which can be an advantage for larger companies. | More Complex Setup: The process can be longer and involve obtaining approvals from the Department of Economy & Tourism (DET) and potentially other government entities(when other regulatory permits are required). |
| Ownership: 100% foreign ownership is now allowed for most business activities, eliminating the need for a local partner in most sectors. | Mandatory Physical Office: A physical office space is a legal requirement, which adds to the initial and running expenses. |
Free Zone
| Advantages | Disadvantages |
|---|---|
| 100% Foreign Ownership & Easier Setup: Complete foreign ownership is guaranteed and has been the historical norm within free zones. The setting up process is typically quicker and less bureaucratic, as the Free Zone Authority acts as a one stop shop | Restricted Market Access: Cannot trade directly with the local UAE mainland market. The free zone company must appoint a distributor/agent in the mainland or trade through freight forwarders after paying the relevant customs duty applicable |
| Tax & Customs Benefits: Historically enjoyed 0% corporate tax (now often limited to “Qualifying Income”) and 100% exemption from import and export duties within the free zone. | Visa Limitations: The number of visas is generally restricted and depends on the office package (e.g., flexi-desk, small office). |
| Lower Setup Costs: Often a more affordable entry point, especially with the option for “flexi-desk” or co-working space instead of a full physical office. | Geographical Confinement: Your physical office and main operations must be within the borders of the chosen free zone. |
| No Recruitment Restrictions: There are no nationality restrictions applicable to free zone companies and as such companies can employ international and national employees of their choice. | Limited Business Activities: Each of the 50+ free zones in the UAE is sector-specific (e.g., media, logistics, finance), which can limit your approved business activities. |
Choosing the right jurisdiction is crucial to your business success. A consultation with our formation expert can help you identify the most cost-effective and compliant option based on your goals.
This is a general guide on the subject matter and should not be construed as specific legal advice.
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Senior Legal Consultant, Corporate & Commercial