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Business Licensing Options – Free Zone vs Mainland vs Offshore

Friday December 16, 2022

When it comes to setting up a business in the UAE, choosing the right type of business entity is one of the biggest considerations. Based on your business requirements and intended ownership structure, you can choose the most suitable jurisdiction for your business –Free Zone, Mainland, or Offshore. Each jurisdiction has its own advantages and limitations and offers unique business opportunities to entrepreneurs with different priorities. In this article, we will compare the jurisdiction options so that you can make the best choice for your company.

Free Zone vs Mainland vs Offshore Business Licensing Options

  Free Zone Entity Mainland Entity Offshore Entity
Overview Free zones are economic areas where investors can trade goods and services with preferential tax and customs rates. You can enjoy benefits, such as 100% foreign ownership, 0% corporate tax, 100% repatriation of profits and capital funds. UAE has more than 40 free zones. Mainland companies (or onshore companies) benefit by having access to the local market as well as outside the UAE. For a Mainland LLC company registration, you need to obtain a licence from the Department of Economic Development (DED) of the respective emirate. Offshore companies cannot directly operate any business activity in the UAE. However, they can be a shareholder of any UAE mainland or free zone company, enabling them to enter the UAE market and conduct business activities through such subsidiary companies.
Ownership Structure Free zone companies enjoy 100% ownership of their businesses. There is no need for a local sponsor or service agent to start a business in a free zone. Prior to the new UAE laws, foreign business owners of mainland companies could own only 49% of company shares, while the remaining 51% were owned by a local sponsor. However, as of December 1st, 2020, the UAE passed a new law permitting 100% foreign ownership to mainland companies. This resolution is yet to be implemented. An offshore company can have 100% ownership of the company but cannot have a physical presence in the UAE.
Business Activity Free zone companies are not entitled to do business in the mainland. A mainland company is free to do business anywhere in the UAE, including inside any free zone in the emirates without any restrictions. An offshore company can do business in the mainland and any of the free zones across the UAE.
Cost of Setup Medium-High: The cost to set up and run your business in one of free zones varies significantly. Setup costs depend on which free zone you choose. The four main fees incurred for set up and operations are:

Company Registration Fee

Licence Fee

Office Fee

Share Capital

High: Some of the initial setup costs that mainland business owners can expect are:

1.     Licence fee

2.     Initial Approval from DED

3.     Dubai Chamber of Commerce

4.     Approval of trade name

5.     Office rent

6.     Attestation of Memorandum of Association (MoA)

7.     Drafting of contract and court agreement attestation

8.     Registration with Ministry of Economy

9.     Trade license fee

10.  UAE local Sponsorship fees

Low: Setting up an offshore company is the cheapest option because there are no minimum requirements for capital deposits before incorporation, no costs associated with office space or obtaining a visa.
Capital Requirements A free zone company formation has a minimum capital requirement depending on the emirate it is set up in. Minimum capital requirements for mainland company formation vary according to the legal form of business you choose Offshore companies in the UAE have no minimum capital requirements.
Office Requirements A wide range of office space choices are available within each free zone, ranging from virtual desks to offices and flexi-desks. Mainland companies have a mandatory office space requirement. As per DED, the minimum office space requirement is to lease a minimum 200 sq. ft. office. Virtual offices are not allowed for mainland companies. Offshore companies are not allowed to have any physical office in the UAE. Their office must only be located outside the UAE.
Visa Requirements The number of visas granted differ from free zone to free zone depending on the size of the office space you lease. Typically, free zones will allow 3-6 visas. There is no visa limitation for a mainland company. The number of residency visas permitted is based on the size of leased office space or a business facility. Generally, you can have one visa per 80 square feet. Offshore companies are not authorised for issuing a resident visa.
Audit Requirements Not all free zone companies require auditing. Only some forms of entities must deal with a mandatory audit of accounts. Mainland companies must prepare an audit at the end of every financial year Offshore companies do not have the mandate to prepare audits. They can do so if they want to be financially updated.

How Creative Zone Can Help

If you are looking to start your entrepreneurial journey in the UAE, our experienced business setup consultants at Creative Zone can help you with every step of the way. Whether you choose a freezone, mainland, or offshore business setup, we can take care of your company registration, licensing, and legal processes. Please call us at 800 LICENCE (5423673) to get guidance from one of our company formation consultants today!


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