Every founder setting up in Dubai hits the free zone versus mainland decision first. Most published guidance is wrong on the two points that matter: ownership and tax. Both changed. Dubai mainland companies have allowed 100% foreign ownership since June 1, 2021, per the UAE government’s full foreign ownership of commercial companies guidance. Federal corporate tax took effect for financial years starting on or after June 1, 2023, which ended the blanket free zone exemption.
The verdict: choose mainland for UAE-market sales and government work. Choose a free zone for international trade and income that can qualify for the 0% corporate tax rate. Ownership no longer separates the two.
What Is the Difference Between a Dubai Free Zone and Mainland Company?
A Dubai free zone company and a mainland company differ in regulator, market access, and tax treatment. Ownership no longer separates them. Free zones grant 100% foreign ownership and in-zone customs exemption but restrict onshore trade. Mainland companies, licensed by the Dubai Department of Economy and Tourism (DET, formerly the Department of Economic Development, DED), trade across all seven emirates and bid on government contracts.
| Factor | Free zone | Mainland | Source |
|---|---|---|---|
| Regulator | Individual Free Zone Authority (DMCC, DIFC, JAFZA, IFZA, Meydan) | Dubai Department of Economy and Tourism (DET) | DET; UAE government portal |
| Foreign ownership | 100% since inception | 100% for most activities since June 1, 2021 | Federal Decree-Law No. 26 of 2020 |
| UAE market access | Restricted; needs distributor, branch, or DET permit | Full, unrestricted across all seven emirates | UAE Commercial Companies Law |
| Government contracts | Generally no | Yes | UAE government portal |
| Corporate tax | 0% for a Qualifying Free Zone Person on qualifying income; else 9% | 0% up to AED 375,000 profit; 9% above | UAE Ministry of Finance |
| VAT | 5%; Designated Zone rules affect goods | 5% | UAE Federal Tax Authority |
| Customs duties | Exempt in-zone and on re-export | Standard 5% on imports | UAE government portal |
| Visa quota | Fixed by package and office type | Scales with office space under MOHRE rules | MOHRE |
| Office requirement | Flexi-desk or virtual common | Physical office with Ejari lease | DET |
| Typical setup cost | Lower, package-based | Higher upfront, buys unrestricted access | Commenda analysis |
For a deeper walkthrough, see Commenda’s UAE mainland vs free zone guide.
What Is a Free Zone Company?
A free zone company is an entity licensed by its own Free Zone Authority, such as DMCC (Dubai Multi Commodities Centre), DIFC (Dubai International Financial Centre), JAFZA (Jebel Ali Free Zone), IFZA (International Free Zone Authority), or Meydan. It grants 100% foreign ownership since inception, full profit repatriation, and in-zone customs exemption, but restricts direct onshore trade with the UAE mainland market.
The UAE offers more than 40 free zones, each allowing 100% foreign ownership, per the UAE Ministry of Economy and Tourism. They cluster by sector: commodities, finance, media, logistics, and technology. To pick one, see Commenda’s guide on which Dubai free zone fits your business.
What Is a Mainland Company?
A mainland company is licensed by the Dubai Department of Economy and Tourism (DET) and trades freely across all seven emirates. It is governed by the UAE Commercial Companies Law, Federal Decree-Law No. 32 of 2021, which entered into force on January 2, 2022. A mainland company can take on UAE government and semi-government contracts, which a free zone entity generally cannot.
Federal Decree-Law No. 32 of 2021 repealed the prior Federal Law No. 2 of 2015 and consolidated the 2020 ownership reform into a single statute.
Deadlines Don't Wait. Neither Should You.
Annual filings, tax reports, entity upkeep — our local experts handle it all with precision. Eliminate risk and regain your time.
Can Foreigners Own 100% of a Dubai Mainland Company?
Yes, for most activities. Dubai mainland companies have allowed 100% foreign ownership since June 1, 2021, under Federal Decree-Law No. 26 of 2020, which amended the Commercial Companies Law. Dubai Economy opened more than 1,000 commercial and industrial activities to full foreign ownership. The old 51% Emirati shareholder rule survives only for narrow strategic-impact activities.
Strategic-impact activities still carry ownership or approval conditions, per the UAE government portal: security and defence, banking and insurance, currency printing, telecommunications, Hajj and Umrah services, Quran memorization centers, and fisheries services. This applies to most commercial and industrial activities, not every activity.
When Do You Still Need a Local Service Agent (LSA)?
A Local Service Agent (LSA) is an Emirati who holds no equity and takes only a fixed annual fee. Some civil-company structures for regulated professions still appoint one. An LSA differs from the old shareholding sponsor, who once held 51% of equity. The 2021 reform cut how often an LSA is needed, per the UAE government portal.
How Does Corporate Tax Differ Between Free Zone and Mainland?
Both jurisdictions face UAE federal corporate tax, effective for financial years starting on or after June 1, 2023, under Federal Decree-Law No. 47 of 2022. The rate is 0% on taxable profit up to AED 375,000 and 9% above, per the UAE Ministry of Finance. Free zones reach 0% only as a Qualifying Free Zone Person on qualifying income.
Large multinational groups with consolidated revenue of EUR 750 million or more face the 15% Domestic Minimum Top-up Tax (DMTT) for financial years starting on or after January 1, 2025, under the OECD Pillar Two rules. This affects only very large groups, not the typical founder.
What Is a Qualifying Free Zone Person (QFZP)?
A Qualifying Free Zone Person (QFZP) is a free zone company that keeps the 0% corporate tax rate on qualifying income and pays 9% on the rest. Here is the trap, stated plainly: mainland-customer income is generally non-qualifying, and breaching the de minimis limit strips QFZP status from all income. A free zone company must meet every condition below.
| Condition | Requirement | Source |
|---|---|---|
| Adequate substance | Keep core income-generating activity and resources in the zone | Federal Tax Authority, Free Zone Persons guide |
| Qualifying income | Earn income from qualifying activities; mainland-customer income generally excluded | Ministerial Decision No. 265 of 2023 |
| De minimis limit | Non-qualifying revenue below the lower of AED 5,000,000 or 5% of total revenue | Cabinet Decision No. 100 of 2023 |
| No standard-rate election | Must not elect to be taxed at the standard 9% rate | Federal Decree-Law No. 47 of 2022 |
| Transfer pricing compliance | Comply with arm’s-length pricing and documentation | Federal Decree-Law No. 47 of 2022 |
| Audited financial statements | Prepare audited financial statements for the tax period | Federal Tax Authority, Free Zone Persons guide |
See the Federal Tax Authority’s Free Zone Persons corporate tax guide for the full conditions.
What Do Transfer Pricing Rules Mean for Free Zone Companies?
QFZP status requires arm’s-length pricing and transfer pricing documentation for related-party transactions, under Federal Decree-Law No. 47 of 2022. Miss it, and the 0% rate is lost. In practice, you price intercompany transactions at market rates, keep documentation, and disclose related-party dealings with the corporate tax return. Commenda’s transfer pricing product covers this documentation.
Does VAT Apply to Free Zone Companies?
Yes. Value Added Tax (VAT) at 5% has applied UAE-wide since January 1, 2018, to free zone and mainland companies alike, per the UAE Federal Tax Authority (FTA). Registration is mandatory at AED 375,000 in taxable supplies and voluntary at AED 187,500. Designated Zone rules may put goods outside VAT scope; services are generally standard-rated. Free zones are not VAT-free.
Can a Free Zone Company Do Business in Mainland Dubai?
Not directly. Three routes exist, and mainland revenue counts as non-qualifying income against the QFZP de minimis cap. First, appoint a mainland-licensed distributor or agent: a margin cost, no new entity. Second, register a DET-licensed mainland branch of the free zone company: a separate onshore registration with its own license and premises. Third, obtain an applicable DET licence or permit.
The third route is a dual-license permit DET offers that lets an eligible free zone company carry out specified onshore activities without forming a full branch. Route three attaches a permit to the existing free zone entity; route two is a new onshore registration. Eligibility and activity scope sit with DET, so confirm current criteria before you file.
Can a Free Zone Company Bid on UAE Government Contracts?
Generally no. UAE government and semi-government tenders require a mainland license, so a free zone company cannot bid directly. If public-sector work is in your plan, mainland is the jurisdiction. A free zone entity would need a DET-licensed mainland branch to qualify for these contracts.
How Do Customs Duties Differ Between Free Zones and the Mainland?
Goods imported into a free zone and re-exported are exempt from the UAE’s standard 5% customs duty, per the UAE government portal. The duty, set by the Gulf Cooperation Council (GCC) common external tariff, triggers when goods leave the zone and enter the mainland market. The customs advantage, like the tax advantage, favors re-export, not local distribution.
How Much Does Business Setup Cost: Free Zone vs Mainland?
Free zone packages start lower, bundling license, visa quota, and a flexi-desk. Mainland costs more upfront: a DET license, an Ejari-registered physical office, and activity approvals. The gap narrowed after 2021, because most mainland companies no longer pay a local sponsor. Mainland buys unrestricted market access in return.
| Cost component | Free zone | Mainland | Source |
|---|---|---|---|
| License | Bundled in the zone package | DET license fee | DET |
| Office | Flexi-desk or virtual option | Physical office with Ejari lease | DET |
| Local sponsor | None | None for most activities since 2021 | Federal Decree-Law No. 26 of 2020 |
| Corporate tax compliance | Applies to both | Applies to both | UAE Ministry of Finance |
Package prices change often and vary by zone, so confirm current figures before you budget.
What Are the Visa Requirements: Free Zone vs Mainland?
Free zone visa quotas are fixed by your package and office type. A flexi-desk allows only a few visas. Mainland visa capacity scales with physical office space under Ministry of Human Resources and Emiratisation (MOHRE) rules, with no zone-imposed cap. More office space means more visas. Larger mainland firms also face Emiratisation quotas under MOHRE.
How Do You Choose Between a Free Zone and Mainland Setup?
Customer location decides it for most companies, now that ownership no longer differs. Choose mainland if you sell to the UAE market or bid on government contracts. Choose a free zone if you trade internationally and your income can qualify for the 0% QFZP rate. Cost and visa needs break any remaining tie. The four questions below rank these in order.
- Where are your customers? UAE market and government buyers point to mainland.
- Do you need government contracts? Mainland only.
- Can your income qualify for 0% QFZP treatment? If yes, a free zone fits.
- What are your cost and visa needs? Free zone entry is cheaper; mainland scales visas with space.
The zone choice (DMCC, IFZA, Meydan) comes second. Decide the jurisdiction type first by customer location, then pick the zone by sector and package. Choosing free zone? See business setup in a Dubai free zone, or the Meydan free zone setup guide for a low-cost example. Choosing mainland? See mainland company formation in Dubai.
How We Help With Business Setup in the UAE
Mainland fits UAE-market and government work; a free zone fits international trade and income that can qualify for the 0% rate. Ownership no longer decides it, so customer location and tax treatment do. Commenda’s incorporation product handles jurisdiction selection, entity formation, and ongoing filings for both free zone and mainland companies. Its transfer pricing product covers the arm’s-length documentation that QFZP status requires.
Check your trade name early with the company name checker, and track filing deadlines with the compliance calendar. Book a demo to get a free jurisdiction assessment for your UAE setup.
About the author
Logan leads Commenda’s Services and Operations team, helping controllers, heads of tax, and finance leaders navigate international expansion. He built a global expert network across 70 countries and previously worked in management consulting across the Middle East and Southeast Asia.
Disclaimer: Commenda and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
